Time for Plan(et) B? Why Securities Litigation Is a Misguided Attempt at Regulating Climate Change

• Author: Robert K. Cowan
• Position: University of Texas School of Law, J.D. 2020; Texas A&M University, B.B.A. 2014
• Pages: 333-397

ARTICLES

Time for Plan(et) B? Why Securities Litigation Is a

Misguided Attempt at Regulating Climate Change

ROBERT K. COWAN*

ABSTRACT

In response to inconsistent and ineffective direct regulation, climate change litiga-

tion has taken off. Litigation is no longer a last resort tactic for action on climate

change—instead, it is emerging as a key tool for deterring corporate behavior that is

harmful to the environment. Climate change litigation has been advanced under a

broad spectrum of theories including federal and state environmental statutes, com-

mon law nuisance claims, constitutional claims, the Administrative Procedure Act,

and the public trust doctrine. These theories have often been met with skepticism by

the courts. More recently, plaintiffs have turned to the securities laws as a means of

promoting their climate change agendas. However, these claims—brought under the

guise of investor protection—are pretextual. This Article argues that the securities

laws were not intended to be used in this manner, but may nonetheless be desirable

tools for affecting corporate behavior.

This Article then explains why securities antifraud litigation—under the current

laws—is an ineffective tool to combat climate change. It provides reasons why regulation

pursuant to state blue sky laws is unlikely to effect widespread policy change. It then

explains why regulation under the federal securities laws has been ineffective thus far.

While securities antifraud litigation is unlikely to promote policy change, secur-

ities regulation may still provide an avenue to effect change in U.S. climate policy.

Enhanced disclosures associated with climate change may facilitate a market-driven

transition away from fossil fuels. The Climate Risk Disclosure Act, the latest in a se-

ries of proposals mandating increased financial disclosures of the risks associated

with climate change, seeks to “guide capital allocation to mitigate, and adapt to, the

effects of climate change” by “encourag[ing] a smoother transition to a clean and

* University of Texas School of Law, J.D. 2020; Texas A&M University, B.B.A. 2014. © 2021,

Robert Cowan. Rob Cowan is a Corporate Associate in the Houston office of Baker Botts L.L.P. He

studied at the Georgetown University Law Center in the fall of 2019 while interning at the U.S.

Securities and Exchange Commission. In Washington, D.C., he spoke with Matt Levine, Bloomberg

columnist and author of Money Stuff, about the subject of this Article.

333

renewable energy, low-emissions economy.” In this way, the securities laws can still

be a useful tool in effecting change in U.S. climate policy.

TABLE OF CONTENTS

I. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335

II. Climate Change Securities Litigation is Becoming More Prevalent . . . . . 341

A. Everything Has Become Securities Fraud . . . . . . . . . . . . . . . . . . . 341

B. People v. Exxon Mobil Corporation . . . . . . . . . . . . . . . . . . . . . . . 344

C. Ramirez v. Exxon mobil Corporation . . . . . . . . . . . . . . . . . . . . . . 347

III. Investor Protection is a Pretext . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349

A. Direct Regulation of Climate Change Has Been Ineffective . . . . . . 349

B. Litigation As a Tool to Facilitate Change in U.S. Climate Policy . . 351

C. Desirable Characteristics of the Securities Laws . . . . . . . . . . . . . . 355

1. Securities Fraud Can Be Easier to Prove Than the Underlying

Substantive Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356

2. Securities Laws Expand Access to More Litigants . . . . . . . . . 358

3. Communications with Investors Are Among the Least Protected

of All Speech. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 359

D. The Purpose of Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 362

E. Lawsuits Motivated By Political Agendas . . . . . . . . . . . . . . . . . . . 364

IV. Climate Litigation is Ineffective Under Blue Sky Laws . . . . . . . . . . . . . 367

V. Climate Litigation is Ineffective Under the Federal Securities Laws . . . . 372

A. Climate Change Disclosure is Limited . . . . . . . . . . . . . . . . . . . . . 372

1. The Disclosure Rules: Regulation S-K . . . . . . . . . . . . . . . . . . 373

2. The SEC’s 2010 Guidance: What Climate Risks Must Be

Disclosed? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376

3. Limitations of Disclosure Rules: Materiality . . . . . . . . . . . . . 379

4. Limitations of Disclosure Rules: Forward-Looking Information 381

B. Fossil Fuel Companies May Not Be Susceptible to Climate Change

Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384

1. Disclosure of Future Regulatory Risks Requires Actual

Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385

2. Climate Risks Associated With Changing Business Trends

Requires a Change in Consumer Preferences . . . . . . . . . . . . . 386

3. Fossil Fuel Companies Are Not Disproportionately Affected By

Physical Impacts of Climate Change . . . . . . . . . . . . . . . . . . . 387

C. Securities Litigation Fails to Regulate the Underlying Bad Act. . . . 388

1. Only Public Companies Are Subject to Disclosure

Requirements Under the Securities Laws . . . . . . . . . . . . . . . . 390

2. Litigating Pursuant to the Securities Laws Can Be More

Expensive Than Direct Regulation . . . . . . . . . . . . . . . . . . . . 391

3. Securities Class Action Lawsuits Are Inefficient Because They

Do Not Benefit Diversified Investors . . . . . . . . . . . . . . . . . . . 393

D. The Future of Climate Change Securities Litigation . . . . . . . . . . . . 393

334 THE GEORGETOWN ENVTL. LAW REVIEW [Vol. 33:333

VI. Plan B: Market Forces to Indirectly Effect Change in Climate Policy . . . 394

I. INTRODUCTION

The world is losing the war against climate change.

1

The burning of fossil fuels is

widely considered to be the cause of the severe floods, droughts, heat waves, and ris-

ing sea levels assaulting our planet.

2

Climate change is now seen by most of the

world as the greatest threat to international security.

3

The crisis was best described

by the Ninth Circuit in its Juliana decision earlier this year:

Copious expert evidence establishes that this unprecedented rise [in temperature]

stems from fossil fuel combustion and will wreak havoc on the Earth’s climate if

unchecked. . . . The problem is approaching “the point of no return.” Absent some

action, the destabilizing climate will bury cities, spawn life-threatening natural

disasters, and jeopardize critical food and water supplies.

4

To avoid such catastrophic effects, the United States needs a fundamental

change in energy policy

5

—specifically, reducing greenhouse gas emissions from

the burning of fossil fuels.

6

FIGURE 1: U.S. Billion-Dollar Disaster Events (1980-2019) (CPI-Adjusted)

7

1. The World Is Losing the War Against Climate Change, THE ECONOMIST (Aug. 2, 2018), https://

perma.cc/8KE4-3HR4.

2. Alexa Lardieri, Evidence Humans Are Causing Global Warming Reaches ‘Gold Standard,’ Study

Finds, U.S. NEWS & WORLD REP. (Feb. 25, 2019), https://perma.cc/44LS-VK6Z.

3. Sintia Radu, Climate Change is the Greatest Global Threat Right Now, Survey Says, U.S. NEWS &

WORLD REP. (Feb. 10, 2019, 6:00 PM), https://perma.cc/ZBG3-HE5Y.

4. Juliana v. United States, 947 F.3d 1159, 1166 (9th Cir. 2020).

5. Id. at 1171 (“Rather, these experts opine that such a result calls for no less than a fundamental

transformation of this country’s energy system, if not that of the industrialized world.”).

6. Hari M. Osofsky Jacqueline Peel, Brett H. McDonnell & Anita Foerster, Energy Re-Investment, 94

IND. L.J. 595, 597 (2019), https://perma.cc/UN3M-U6BR (acknowledging the reality that “fossil fuels

continue to dominate energy markets” because for the past century they have “provided more than 80%

of the energy consumed in the United States, and energy investments reflect that.”).

2021] TIME FOR PLAN(ET) B? 335