California oil giant lawsuit shows the battle facing many companies

Lawmakers and activities are eager to target these companies because of their contributions to the climate crisis, and whether they like it or not, those companies have to respond. 

Here are the details:

The State of California is suing five oil giants – ExxonMobil, Shell, BP, ConocoPhillips and Chevron – for billions of dollars in alleged damages. 

The state says that these companies were aware of the potential harm their activities could do as far back as the 1950s when commissioned reports warned of significant warming. The giants played down those risks over decades, the lawsuit claims. 

“Oil and gas company executives have known for decades that reliance on fossil fuels would cause these catastrophic results, but they suppressed that information from the public and policymakers by actively pushing out disinformation on the topic,” a 135-page complaint read. 

It went on to suggest that the downplaying of risk contributed to a “tremendous” delay in tackling climate change, producing great costs to people and property.

California is a colossal economic power. If it were a country, it would have the 5th-strongest economy in the world – ahead of the UK and India. 

California is not the first jurisdiction to sue a company suspected of contributing to the climate crisis, but it is undoubtedly the most powerful.

And when an economy of this size puts a target on corporations because of their environmental record, it should command attention.

It’s early days, so we don’t know. 

We know that this case has already been swept into the same hotly contested environment that surrounds other ESG-related topics, meaning it will likely enjoy sustained public attention – often through bitter debate – and fierce backing from politicians sympathetic to the state and the oil giants. 

We know this because that’s the tack that the oil giants have chosen. They have dismissed the lawsuit as “politicised” and said that lawmakers, not judges, should settle the discussion.

In other words, get ready for another charged battle fuelled by the vast pool of funds and emotion that is polarised US politics.

This kind of public, legal pressure is becoming the new norm for any company perceived to be against ESG, sustainability, or efforts to tackle the climate crisis. 

We should note here that the five companies in this lawsuit had all previously committed to being net-zero or a similar goal by some future deadline. 

But recently, like in the case of Shell, these commitments have been watered down as activist investor pressure mounts from both sides of the debate. 

Realistically, these boards are caught in a dilemma: their historic activities go more and more against new corporate norms, but they still enjoy healthy business, and their stakeholders are eager to profit from that. 

What it means, therefore, is another layer to corporate strategy, and this layer involves handling that legal pressure. Fees, PR, and financial penalties if they come – all need to be considered when crafting strategy.

It’s very likely.

As long as we see severe weather records broken, we will see attention fall on the companies perceived as weak links in the drive against climate change. It might not always be lawsuits, but it will force companies to respond. 

It’s no surprise that the California lawsuit comes in the same year as a conveyor belt of cruel weather events. First flooding, then forest fires – the state even experienced a tropical storm – its first since 1997. 

If states – or indeed countries – keep experiencing these climate milestones, you can expect boards of relevant companies to be in the line of fire and need to ensure a robust strategy as a result. 

You can read more about the story here.