Are Securities Laws Effective Against Climate Change? A Proposal for Targeted Climate Related Disclosure and GHG Regulation

Chumley Note


The New York Attorney General filed a lawsuit against Exxon Mobil on October 24, 2018, claiming the company committed securities fraud in order to prop up the value of the company by publicly disclosing a higher proxy cost—or projected future cost—of climate change regulation than the internal cost used. Following this lawsuit, a federal class action was filed utilizing the same legal theory on the same facts. These lawsuits should be viewed as part of the larger history of lawsuits against large fossil fuel companies for climate change-related harms. Public nuisance theory largely captured a set of lawsuits against these companies, before being nullified as an actionable federal claim by AEP and Kivalina on displacement grounds.

There are several issues with using securities fraud to address climate change. First, securities laws suffer from circularity, as harmed investors are recouped by other stakeholders and the corporation, thereby also harming the shareholder group, and leaving no net gain. Second, quantifying proxy costs poses a challenge, as future regulations are not yet in existence. Third, climate change disclosure is not mandated by the SEC, which leads to a range of disclosure, often inadequate, from the use of varied accounting frameworks or the lack of disclosure entirely. Finally, securities law fails to address the societal cost of climate change, instead focusing on reimbursing the internal harmed shareholder group while excluding externally harmed groups. This Note proposes a legislative solution through comparison to the Dodd-Frank Wall Street Reform Act of 2010 as a societal-focused law. Through the proposed legislation, this Note seeks to help refine securities fraud as a tool to combat climate change-related financial fraud to capture negative externalities.

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Fordham Journal of Corporate & Financial Law