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By: Han Li, Volume 104 Staff Member

Over the past three years, major climate disasters have cost the U.S. over $450 billion.[1] The rate of extreme weather events have doubled over the past five years, meaning these costs will only increase.[2] The threat is anything but silent, however, as climate change is now among the most important issues to the American electorate, and the most important issue for self-identified liberal Democrats.[3] Concerns over climate change extend to the private sphere as well, where funds held in green investments have increased by over 34% in two years, to more than $30 trillion.[4]

Given public concern with climate change, companies realize that their response to the issue has an impact on their bottom line.[5] But where there’s profit to be made, there may be incentive to cheat or misrepresent, and such is the case with climate change. In late 2018, New York State filed a lawsuit against Exxon Mobil Corporation alleging misrepresentations related to climate change under New York’s Martin Act governing securities fraud.[6] While Exxon was ultimately cleared of wrongdoing,[7] the case underscores the need for a regulatory solution for climate change disclosures.

I.  New York’s Lawsuit

The thrust of New York’s claims alleged that Exxon misled investors by disclosing a different set of climate change costs than what the company used internally to make business decisions.[8] Each year, Exxon publishes a document called the “Outlook for Energy” that makes projections on energy requirements in the future.[9] The reports at issue were projections for 2030 and 2040.[10] To make these projections, Exxon utilized a “proxy cost of carbon” figure that “reflected anticipated technological projections that would suppress the need for oil and gas.”[11] Meanwhile, internally, Exxon relied on greenhouse gas [“GhG”] costs that focused on “only the subset of climate regulatory costs that might relate to future potential projects in specific jurisdictions.”[12] Because these internal GHG projections did not account for anticipated climate policies—regulations restricting oil usage for example—they forecast lower emission costs than the proxy costs of carbon.[13]

New York sued Exxon under New York’s Martin Act[14] alleging that Exxon’s disclosures constituted an illegal attempt to mislead investors as to the company’s handling of climate risks for purpose of inflating their stock price.[15] To succeed they needed to show that (1) the alleged disclosure or omission was actually “misrepresentative” and (2) that the disclosure was “material.”[16] Materiality under N.Y. law is the same as the federal standard: “a substantial likelihood that the [misrepresentation or the] disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”[17] Importantly, New York’s Martin Act is far more favorable to a plaintiff than federal or common law fraud in that a litigant need not demonstrate scienter on the part of the defendant or reliance on the misrepresentation by victims.[18]

On the misrepresentation element, Judge Barry Ostrager found after a bench trial that Exxon’s disclosures were not misleading.[19] Ostrager held that the proxy cost of carbon metric served a distinct purpose from the internal GHG metrics; Exxon only used GHG considerations for short-term business decisions while treating the proxy costs more as strategic goals.[20] Exxon’s publication of the 2030 and 2040 projections thus communicated “good-faith” objectives rather than fraudulent disclosures.[21] Further, all of the witness testimony weighed against intentional deception on Exxon’s part.[22] Finally, even if an investor might be misled by Exxon’s report, fraud is only actionable in light of the “total mix of information available”[23] and Exxon appropriately disclosed its assets to the SEC in its 10-K forms which are accessible by investors.[24]

Ostrager went on to find that none of the alleged disinformation was material. He held that no reasonable investor from 2013 to 2016 would rely on projections of costs in 2030 or 2040.[25] Exxon’s report did not make a categorical statement of projections they would rely on but instead relayed “conceptual information” about how they would approach the climate change problem going forward.[26] Additionally, New York could not show that publication of the Exxon report led to an increase in value of Exxon’s stock, either through witness testimony or expert reports.[27] Indeed, Exxon’s experts consistently testified that Exxon was aware of climate change risks and used good faith efforts to mitigate them.[28]

II.  Effects of the Opinion

Ostrager’s rather severe holding will probably deter similar suits of this nature. As the opinion alludes to, climate predictions deal not in years but in decades.[29] Since a statement is generally only treated as misleading if it is actually false,[30] a successful climate fraud suit would likely require a firm to unequivocally predict what will happen in twenty or thirty years, something no reasonable firm would do.[31] And even if a firm is so bold as to stake their reputation on a future projection, reasonable investors would be expected to treat such statements as mere “puffery” and not realistic.[32] At the very least, the unquantifiable nature of climate change makes security fraud suits difficult to prove.[33]

Moreover, the uncertain effects of climate change mean that a plaintiff would likely run into a causation problem in showing that a misrepresentation actually inflated stock prices. In this case, since Exxon was publishing annual reports, it was difficult for New York to prove that inflations in stock prices could be directly correlated to those projections.[34] This is a common theme in securities fraud cases.[35] Indeed, it seems that the only way New York could have met their burden on this point is if they produced a witness that testified that the report induced them to buy stock.[36]

III.  Regulatory Solutions

Regardless of whether the outlook changes on how a “reasonable investor” would react to climate change disclosures,[37] New York v. Exxon highlights a need for stronger, more transparent rules in regards to climate change disclosures. Currently, the SEC does not require companies to make any specific climate change related disclosures beyond “material” risks under federal securities law.[38] And as New York v. Exxon illustrates, many would consider climate change risk to not be material.

The SEC addressed this exact issue with a guidance document in 2010, but declined to implement explicit GhG disclosure requirements then.[39] Just this January, SEC Commissioner Allison Lee again addressed the need for GhG disclosures in a public statement, but again did not advance a rulemaking proposal. [40] Although she did not say why not, the most salient counterarguments are that such disclosures would increase costs on publicly-traded companies without quantifiable benefits, would be difficult to verify, and might be better accomplished through legislation.[41]

Nevertheless, in a time of crisis, inaction, even reasoned inaction, will simply not do. Climate change is already among the biggest threats to the world economy and will only aggravate if left unchecked.[42] Whatever the arguments are for opposing mandatory GhG disclosures, they should be drawn out into the open through the notice and comment rulemaking process. That way, the public, the SEC, and all publicly-traded companies will have an opportunity to synthesize a better rule for a better planet.

[1] See Billion-Dollar Weather and Climate Disasters: Time Series, Nat. Centers. for Environment Info. (2020), The chart only includes weather events that cost the economy over $1 billion. Id.

[2] Guillermo Ortiz & Cathleen Kelly, The High Price of Inaction, Cent. for Am. Progress (Feb. 20, 2019 9:04 AM),

[3] Robinson Meyer, Voters Really Care About Climate Change, TheAtlantic (Feb. 21, 2020),

[4] Michela Coppola et al., Feeling the Heat?, Deloitte (Dec. 12, 2019),

[5] See id.

[6] Complaint, People of the State of New York v. Exxon Mobil Corp., NYSCEF Doc No. 452044 (Oct. 24, 2018),

[7] See People of the State of New York v. Exxon Mobil Corp., NYSCEF Doc No. 567 (Dec. 10, 2019), exxonmobil/eb27e49cb4cdbb4add80/optimized/full.pdf.

[8] Id. at 2–3. New York also referred to documents such as Exxon’s 10-K but the case was primarily focused on Exxon’s “Climate Outlook” document.

[9] Id. at 10.

[10] Id.

[11] Id. at 20.

[12] Id. at 22–23.

[13] Id.

[14] N.Y. Gen. Bus. L. 23-A, §§ 352–353.

[15] People v. Exxon, NYSCEF Doc No. 567, at 6.

[16] Id.

[17] TSC Industries Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).

[18] See generally Harold K. Gordon, Enforcement Proceedings Under New York’s Martin Act, Prac. L. J. 21 (2015). Scienter requires a litigant demonstrate that the defendant acted with a “a mental state embracing intent to deceive, manipulate, or defraud.” 551 U.S. 308, 319 (2007).

[19] People v. Exxon, NYSCEF Doc No. 567, at 28.

[20] Id. at 29–30.

[21] Id. at 30.

[22] See id. at 32–33.

[23] See Gordon, supra note 18.

[24] People v. Exxon, NYSCEF Doc No. 567, at 33.

[25] Id. at 34. See Singh v. Cigna Corp. 918 F.3d 57, 65 (2d. Cir. 2019) (holding that reasonable investors would not rely on “tentative and generic” disclosures that “emphasize [a) complex, evolving regulatory environment”).

[26] Id. at 36.

[27] See id. at 37–41.

[28] Id. at 38.

[29] See, e.g., id. at 29–30 (explaining how climate predictions are on a “macro” scale while business decisions are “local”).

[30] See Erie Group LLC v. Guayaba Capital, LLC, 110 F. Supp. 3d 501, 508 (S.D.N.Y. 2015).

[31] In this case, Exxon stated in its Outlook Reports that they were only making projections. People v. Exxon, NYSCEF Doc No. 567, at 31.

[32] See Cigna Corp., 918 F.3d at 63.

[33] One scenario where a securities fraud claim might work is if a company is under or overstating their actual climate effects. Exxon was not underreporting their emissions but rather underpredicting future emissions.

[34] People v. Exxon, NYSCEF Doc No. 567, at 37–41.

[35] Sally J.T. Necheles, 74 Causes of Action 567 (2nd ed. 2016).

[36] See People v. Exxon, NYSCEF Doc No. 567, at 38 (“The Office of the Attorney General offered no testimony from any investor who claims to have been misled.”).

[37] See Hana Vizcarra, Understanding the New York v. Exxon Decision, Env’t & Energy L. Program (Dec. 12, 2019), (arguing that reasonable investors in the future will view climate disclosures as material to stock investment).

[38] See Climate-Related Risk Disclosures Under U.S. Securities Laws, Cong. Research Serv. (Sept. 10, 2019),

[39] Sec. & Exchange Commission, Commission Guidance Regarding Disclosure Related to Climate Change (2010),

[40] See Alison Herren Lee, Sec. & Exchange Commission, Public Statement, “Modernizing” Regulation S-K: Ignoring the Elephant in the Room (Jan. 30, 2020),

[41] See Cong. Research Serv., supra note 38; Paul J. Saunders, Opinion, Warren’s Climate -Change Disclosure Bill is Politics As Usual, MarketWatch (Aug. 7, 2019 12:58 PM),

[42] See supra notes 1–4.