By Dana Drugmand
Fossil fuel companies facing climate-related litigation are starting to acknowledge in their financial disclosure forms that these legal challenges could harm their business.
Dozens of companies have been named in more than a dozen climate liability lawsuits filed by communities across the country. Those lawsuits seek to recover climate-related damages and attempt to hold the companies accountable for those costs. Not all are acknowledging those risks in their annual financial disclosure (10-K) forms filed with the Securities and Exchange Commission, but some have suggested they pose a threat to future profitability. Several coal companies are even indicating that the legal claims in these cases could be viable under state common law, undercutting a key defense that fossil fuel company lawyers are making in trying to move the cases to federal court, where they believe they will be more successful in fending them off.
Arch Coal, for example, makes the following statement in its most recent 10-K form under the “Risk Factors” section: Increasing attention to global climate change has resulted in an increased possibility of governmental investigations and, potentially, private litigation against us and our customers. For example, claims have been made against certain energy companies alleging that greenhouse gas emissions constitute a public nuisance. While the United States Supreme Court held that federal common law provides no basis for public nuisance claims against energy companies, state law tort claims remain a possibility and a source of concern, and we could be named in actions making similar allegations. Moreover, the proliferation of successful climate change litigation could adversely impact demand for coal and ultimately have a material adverse effect on our business, financial condition and results of operations.
All of the current climate liability cases include claims such as nuisance and failure to warn under state tort law. The companies, however, argue that the claims must arise under federal common law, and that the Supreme Court ruling in AEP v. Connecticut, which Arch Coal references, bars federal common law claims relating to climate change.
That Arch acknowledges that this Supreme Court ruling leaves open the possibility for state common law claims contradicts what lawyers for the fossil fuel companies have argued: that the ruling forecloses any nuisance claim, federal or state, relating to global warming emissions.
Alliance Resource Partners, the second-largest coal producer in the eastern U.S., made a similar disclosure in its most recent 10-K form, referring to AEP v. Connecticut. “The United States Supreme Court did not, however, decide whether similar claims can be brought under state common law,” Alliance wrote. “As a result, despite this favorable ruling, tort-type liabilities remain a concern.” Alliance also warns of “proliferation of successful climate change litigation.”
Consol Energy, another coal producer, includes a lengthy paragraph in its 2018 10-K form (in the Risk Factors section) titled, “We may be subject to litigation seeking to hold energy companies accountable for the effects of climate change.” Consol, which is a defendant in Baltimore’s climate liability suit, raises the same concerns about potential liability under state law.
Other companies made various references to climate litigation in the Risk Factors section of their most recent 10-K forms, though they were more limited and did not mention state tort law claims. Some companies did, however, disclose the potential for the litigation to harm their reputation or impact their business. Here are the statements, listed by company, that Climate Liability News discovered in reviewing the 10-K forms or equivalent filings:
ConocoPhillips, the third-largest American oil and gas company and a current defendant in lawsuits brought by Baltimore, two sets of California communities, King County, Wash., New York City, the Pacific Coast Federation of Fishermen’s Associations (PCFFA) and Rhode Island:
“Furthermore, increasing attention to global climate change has resulted in an increased likelihood of governmental investigations and private litigation, which could increase our costs or otherwise adversely affect our business. In 2017 and 2018, cities, counties, a state government, and a trade association in California, New York, Washington, Rhode Island and Maryland have filed lawsuits against several oil and gas companies, including ConocoPhillips, seeking compensatory damages and equitable relief to abate alleged climate change impacts. ConocoPhillips is vigorously defending against these lawsuits. The ultimate outcome and impact to us cannot be predicted with certainty, and we could incur substantial legal costs associated with defending these and similar lawsuits in the future.”
Devon Energy, the second-largest oil producer among North American onshore independent producers and a current defendant in lawsuits brought by a set of California communities and the PCFFA:
“Finally, governmental entities and other plaintiffs have brought, and may continue to bring, claims against us and other oil and gas companies for purported damages caused by the alleged effects of climate change. These and the other regulatory, social and market risks relating to climate change described above could result in unexpected costs, increase our operating expense and reduce the demand for our products, which in turn could lower the value of our reserves and have a material adverse effect on our profitability, financial condition and liquidity.”
Encana Corporation, a Canadian oil company that recently announced it is relocating to the U.S. and rebranding under the name Ovintiv and a current defendant in lawsuits brought by a set of California communities and the PCFFA:
“Further, certain local governments, stakeholders and other groups have made claims against companies in the oil and gas industry, including the Company, relating to the purported causes and impact of climate change. These claims have, among other things, resulted in litigation, shareholder proposals and local ballot initiatives targeted against certain companies and the oil and gas industry generally. As these claims are in their early stages, the Company is unable to assess the impact of such claims on its business, but the defense of such matters may be costly and time consuming and could have a material adverse effect on the Company’s reputation.”
Hess, an independent, globally-operating oil and gas company based in the U.S., and a current defendant in lawsuits brought by Baltimore, a set of California communities, the PCFFA and Rhode Island:
“The imposition and enforcement of stringent greenhouse gas emissions reduction targets could severely and adversely impact the oil and gas industry and significantly reduce the value of our business. Furthermore, increasing attention to climate change risks has resulted in governmental investigations, and public and private litigation, which could increase our costs or otherwise adversely affect our business. For example, in 2017 certain municipalities and private associations in California, Rhode Island, and Maryland separately filed lawsuits against over 30 fossil fuel producers, including us, for alleged damages purportedly caused by climate change.”
Marathon Petroleum, the eighth-largest American oil and gas company, and a current defendant in lawsuits brought by Baltimore, a set of California communities, the PCFFA and Rhode Island
“We could also face increased climate- related litigation with respect to our operations or products. Governmental and other entities in California, New York, Maryland and Rhode Island have filed lawsuits against coal, gas, oil and petroleum companies, including the Company. The lawsuits allege damages as a result of climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories. Similar lawsuits may be filed in other jurisdictions. There remains a high degree of uncertainty regarding the ultimate outcome of these lawsuits, as well as their potential effect on the Company’s business, financial condition, results of operation and cash flows.”
Occidental Petroleum, the sixth-largest American oil and gas company, and a current defendant in lawsuits brought by a set of California communities and the PCFFA:
“Finally, increasing attention to climate change risks has resulted in an increased possibility of governmental investigations and additional private litigation against Occidental without regard to causation or our contribution to the asserted damage, which could increase our costs or otherwise adversely affect our business. We have been named in certain private litigation relating to these matters.”
Suncor Energy, a Canadian oil and gas company that also operates in the U.S. with a 100,000-barrel-per-day refinery in Commerce City, Colo., and a current defendant in a lawsuit brought by Boulder and San Miguel counties and the city of Boulder:
“There is also a risk that Suncor could face litigation initiated by third parties relating to climate change, including litigation pertaining to GHG emissions, the production, sale, or promotion of fossil fuels and petroleum products, and/or disclosure. For example, the Board of County Commissioners of Boulder County, the Board of County Commissioners of San Miguel County and the City of Boulder, all of Colorado, have brought an action against Suncor and certain of its subsidiaries seeking, among other things, compensation for impacts they allege with respect to climate change.
“These developments and future developments could adversely impact the demand for Suncor’s products, the ability of Suncor to maintain and grow its production and reserves, and Suncor’s reputation, and could have a material adverse effect on Suncor’s business, financial condition, reserves and results of operations.
“Suncor may also be subject to adverse publicity and reputational impacts associated with such matters, regardless of whether Suncor is ultimately found liable. There is a risk that the outcome of such litigation may be materially adverse to the company and/or the company may be required to incur significant expenses or devote significant resources in defence against such litigation, the success of which cannot be guaranteed.”
Shell, one of the largest oil and gas companies in the world, ranked third on the Fortune 500 list for 2019, and a current defendant in lawsuits brought by Baltimore, two sets of California communities, King County, Wash., New York City, the PCFFA and Rhode Island
“Further, in some countries, governments, regulators, organisations and individuals have filed lawsuits seeking to hold fossil fuel companies liable for costs associated with climate change. While we believe these lawsuits to be without merit, losing any of these lawsuits could have a material adverse effect on our earnings, cash flows and financial condition.”