New York City officials have announced they will divest from their fossil fuel holdings and file a climate change lawsuit against oil companies. The city’s conflict with players in the fossil fuel industry could be a harbinger of things to come from increasingly restive investors.
New York City Mayor Bill di Blasio and Comptroller Scott Stringer announced plans on January 10, 2018, to sell off all holdings in oil and gas companies from the city’s five pension funds. Plus, they filed a lawsuit against the five largest oil companies, blaming them for damages from global warming.
An Upward Trend
The Big Apple will not be the first to divest from fossil fuels. Data from 350.org’s Fossil Free campaign shows that 831 organizations managing $6 trillion in assets have already committed to divest. The world’s largest fund, the $1 trillion Norwegian sovereign wealth fund, said that it would start divesting its $35 billion in oil holdings. It had previously dropped coal stocks. And only a few weeks earlier, Governor Andrew Cuomo called for the State of New York to drop fossil fuels from its pension funds.
New York City is also not the first to sue oil companies for culpability in causing climate change: Eric Schneiderman, attorney general of the State of New York, is leading 11 states in suing ExxonMobil. Filed in June 2017, the suit accuses the oil and gas giant of hiding the impact of climate change regulations from shareholders, a form of securities fraud. ExxonMobil is countersuing, claiming that the investigation is politically motivated and abusive.
All Eyes on ExxonMobil
New York has also been pressuring ExxonMobil using its position as a shareholder. The state Pension Fund and New York City Retirement Systems led a shareholder resolution last year that garnered 62% support, passing over the objections of company management. It required the company to issue an annual report on the risks climate policies could pose to revenues.
The report, released in February, sees little risk to future profitability. “Even under a 2°C pathway, significant investment will be required in oil and natural gas capacity, as well as other energy sources,” it reads.
However, ExxonMobil has been taking steps to determine and mitigate any potential future impacts to its business. “The risk of climate change is clear and the risk warrants action,” the company says. The company has supported a carbon tax and the Paris Agreement. It urged President Trump not to withdraw from the accord, as did Rex Tillerson, former CEO of ExxonMobil and current Trump administration secretary of state. However, this appeal was ultimately rejected and carbon tax proposals have made no headway in Congress.
A Coming Wave?
On a larger scale, the lawsuits are of interest to investors as they may indicate a coming trend, and increasing risks. Similar lawsuits are popping up, including one from California cities and counties who blame ExxonMobil and 36 other fossil fuel companies for covering up their knowledge that fossil fuels cause climate change.
Some have drawn parallels with the litigation against tobacco companies in the 1990s. Those suits, settled in 1998 between the four largest tobacco companies and the attorneys general of 46 states, resulted in upfront payments of over $12 billion with multi-billion dollar payments to be made to states “in perpetuity.” While a climate change lawsuit may take years to succeed, it could signify increased risk for companies who aren’t sufficiently proactive. ExxonMobil may be the target of lawsuits today, but it is hardly the only company at risk.