Environmental Disclosure Issues Loom Large as Investors Pressure Companies to Address Climate Risks

Bilzin Sumberg Publication
February 11, 2021

As the real-life consequences of climate change accelerate and become more pronounced, so does the need for businesses and government entities to consider various practical effects. Corporations are facing significant pressure from investors, who are increasingly wary of potential reductions in company value attributable to lack of preparedness for sea level rise, wildfires, and other events exacerbated by climate change. Shareholders want companies to augment the information they publicly disclose by including additional details relating to the companies’ efforts on Environmental, Social, & Governance (“ESG”) issues. Likewise, government and other civic entities are finding it necessary to think about how extreme weather events and climate change generally may affect their operations.

While ESG disclosures cover a broader range of issues than those relating to climate issues, the environmental piece is particularly interesting and timely. Though the Securities and Exchange Commission (“SEC”) has yet to formally require these disclosures, and the question of whether these issues are within the scope of existing federal securities laws remains a dubious proposition, early signs point to this area of law becoming an increasingly litigious one in the coming years. This should prove especially true in coastal regions already experiencing changes with the potential to harm businesses’ operational capacity.

How is Climate Change Affecting Business?

Discussions surrounding climate change, and the need for imminent action to combat its effects, often focus on the longest-term, most dire potential consequences our environment could suffer. But, long before we have to grapple with concerns about the overall habitability of our planet, we will have to reconcile our current way of life with an evolving climate that may significantly alter that lifestyle. For all the benefits technology and innovation provide, our connectivity renders the global supply chain relatively sensitive. The fragility of our consumer economy is straightforward: an earthquake in California causes harm to a tech factory in Silicon Valley, which causes delays in the shipment of critical parts to a company in Europe, which is left unable to operate as planned. Though the challenges posed by climate change are truly global in nature, more local impacts exist as well. Already, some regions are facing rising, untenable financial burdens caused by the fallout from natural disasters and extreme weather events (and the associated interruption to businesses unable to operate during these events). Just in the past few years, we’ve seen wildfires, hurricanes, tornadoes, tsunamis, and other natural disasters cause unprecedented destruction. Estimates place the sum of the damage caused by extreme weather events in 2018 at more than $150 billion1.2

As these disasters continue to increase in frequency and devastation, climate change’s effects are expected to become more regressive; in other words, the greatest impacts will likely be felt by the poorest populations. A recent study from the University of Miami that evaluates rising sea levels projects that over the next handful of decades, several thousand federally and/or locally subsidized housing units will be at risk of being flooded and uninhabitable.3  Since the communities most likely to be harmed will also likely be those with the least means to protect themselves, it is incumbent on business and civic leaders to be transparent as to why and how they are incorporating strategies to handle environmental issues into their practices.

What Legal Avenues are Available to Stakeholders to Inform and Protect Themselves?

Early signs point to a need for additional legislative and policy efforts before the courts can be considered a reliable avenue for stakeholder-litigants to recover. A recent decision from the United States Court of Appeals for the Ninth Circuit in Juliana v. United States underscored a threshold issue plaintiffs will face. The plaintiffs in Juliana were youths seeking to bring an action rooted in constitutional law against the United States, arguing that the government had violated their fundamental rights to due process, liberty, and property by failing to provide a “climate system capable of sustaining human life.” Specifically, the plaintiffs alleged that by allowing and promoting the use of fossil fuels, the United States government had caused them injury entitling them to redress under the Fifth and Ninth Amendments. After initially surviving the government’s motion to dismiss, the Ninth Circuit reversed the District Court of Oregon’s decision, finding that the plaintiffs lacked a concrete injury giving rise to standing to bring the claims. The court noted it considered such a suit to be beyond the powers of Article III courts to decide given the complex web of policy and legislative decisions it would require it to second guess.

Sometimes left, as in Juliana, without a direct path to redress through the courts, interested parties have taken to placing pressure on the businesses that they believe have largely contributed to the global climate crisis. Recently, several large institutional investors made public comments suggesting they would be shifting their focus to investing in companies that took efforts to implement environmental-friendly practices into their businesses and disclosed those efforts.Evidently concerned by such comments and various related lobbying efforts, Jay Clayton, the Chairman of the Securities and Exchange Commission, spoke out against a push for uniform corporate ESG disclosures in May.6 Clayton warned that mandating these disclosures could place unnecessary strain on businesses while failing to provide information that would actually be useful to investors and the public.

Notwithstanding the range of opinions on mandated corporate ESG (and other environmental) disclosures, it seems inevitable that companies will face increased calls (and perhaps legislative mandates) to provide the public with greater access to this type of information. If, as the Juliana Court suggested, these issues will ultimately need to be worked out through legislation and policy, and not judicial decisions, it may be deemed all the more critical that citizen-stakeholders feel fully informed when making investing decisions, for example.


1 Nearly $60 billion of that damage occurred in the Asia Pacific region, an area considered critical in many industries’ supply chains. See https://www.weforum.org/agenda/2019/11/climate-change-risk-business-regional-doing-report/
2 See https://www.cnn.com/2019/01/16/business/climate-change-global-risk-wef-davos/index.html
3 See https://www.miamiherald.com/news/local/environment/article247681520.html?ac_cid=DM339580&ac_bid=-1212172687
4 947 F.3d 1159 (9th Cir. Jan. 17, 2020).
5 https://corpgov.law.harvard.edu/2020/08/03/legal-liability-for-esg-disclosures/.
6 https://www.forbes.com/sites/bhaktimirchandani/2020/05/29/what-to-make-of-the-secs-warnings-on-esg-ratings-and-recommendations-for-esg-disclosures/?sh=fbadb8d31841

Philip R. Stein
Practice Group Leader, Trial & Litigation
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