As the global transition to a low-carbon economy continued to accelerate, the impacts and responses to climate change dominated the news in 2018. The billions of dollars in property damages, lost businesses, and declines in state and local tax revenue in the US continues to reinforce concerns about the urgency of the climate crisis and foreseeability of financial losses associated with the increased intensity and severity of extreme weather events.
Throughout 2019 we will watch to see if the warnings issued in 2018 will be heeded — from courts holding corporate actors accountable for climate change, to institutional investors divesting from fossil fuels, to countries following through on commitments to reduce greenhouse gas emissions.
New reports highlighted the severity of climate impacts
In the final months of 2018, new reports highlighted the projected severity of climate impacts and the need for urgent action to transform our economy.
The Intergovernmental Panel on Climate Change (IPCC) released its long-awaited special report on climate change of 1.5ºC, the product of scientific review of over 1,500 articles backed by 195 countries. The world has already warmed by more than 1ºC, and the report offers dire predictions about the difference between keeping global temperatures to 2ºC versus the more ambitious goal of 1.5ºC. The report concludes that 1.5ºC remains achievable, but the global economy must act quickly to make the substantial changes necessary to avoid catastrophic harms.
On the Friday after Thanksgiving, the US Global Change Research Program released the Fourth National Climate Assessment (NCA4), a climate report that is both an assessment of the science of climate change and a forecast for the sources and causes of climate-related financial risk exposure to the US economy. According to the findings, without drastic changes, climate-related impacts will cost the US economy hundreds of billions of dollars a year, a cumulative trillion dollars or 10 % of US GDP, by 2100. The report’s findings provide a basis for reasonable estimates of the financial impacts of climate change and timelines that are particularly relevant to institutional investors with long time horizons.
In the year ahead, we’ll be watching for new emission reduction regulations based on the dire findings in these reports, as cities and states across the US continue to lead on adopting regulations that will increase adaptation and mitigation efforts to take ambitious action even in the absence of national leadership.
Completion of the Paris Rulebook signals a new stage of implementing climate solutions
At the end of COP24 in December 2018, the Katowice climate summit closed with the completion of the Paris Rulebook, among several key outcomes. The rulebook offers guidelines for states to measure and report carbon emissions in the implementation of their nationally determined contributions (NDCs). Now, action on climate change shifts to the states, who must implement their commitments made in the Paris Agreement. We will be watching for states to resolve some of the more contentious provisions that were left out of the rulebook, including the rules for voluntary carbon markets, at COP25 in Chile this year. We will also be watching whether states will adopt more ambitious emission reduction regulations that have already moved markets, technologies, and consumer preferences for products and services relevant for a low-carbon economy.
Philippines Human Rights Commission to release recommendations in climate change investigation
Throughout 2018, the Philippines Human Rights Commission heard testimony from impacted Filipinos and experts in a landmark national inquiry into the conduct of the Carbon Majors and the resulting impact on the human rights of the Filipino people. In 2019, we eagerly await the Commission’s recommendations intended for local and international agencies, both recommendations specific to the Philippines and general recommendations, including a model law to address climate change.
Climate liability cases test several legal theories and questions of shareholder fraud
In 2019, we anticipate key developments for a number of climate liability cases. We will be watching the great coverage in Climate Liability News of the global cases that go to the heart of emission reduction efforts. Among the over 800 climate litigation cases filed to date, we will watch for key rulings testing different legal theories.
First, there are currently 13 cases filed by cities, counties, and states across the US seeking climate damages from the largest contributors to greenhouse gas emissions. The number of cases is expected to rise over the course of 2019 both in the US and globally, with potential and pending requests for billions in damages from oil and gas companies — including Total, Exxon, BP, Shell, and Chevron, among others — who continue to invest to sustain business as usual despite the dire warnings about the urgency of climate change.
Second, having survived repeated attempts by the US Government to dismiss the case, plaintiffs in Juliana v. US will have their arguments heard before the US District Court in Eugene, Oregon. Through the Juliana v. US case, 21 youth plaintiffs have filed a constitutional case against the US government alleging that the US has violated their rights to life, liberty, and property by failing to take adequate action on climate change.
Third, we look to the next steps in the Urgenda case and whether the Dutch courts will affirm the lower court’s decision to hold the Dutch government accountable for its commitments to reduce greenhouse gas emissions.
Lastly, we will be keeping an eye on the lawsuits and investigations by the Attorneys General (AGs) of New York and Massachusetts. The New York AG is moving forward with its shareholder deception suit, alleging that Exxon misled investors about the risk of climate change to its business model. Now, the Supreme Court has also cleared the way for the Massachusetts AG to obtain records from Exxon in its consumer protection case. These court decisions could have implications for consumers far beyond Massachusetts.
The growing number of lawsuits raise real questions about the risk of mounting liabilities to Exxon and its shareholders. The New York AG’s shareholder suit explicitly raises questions about whether the company has willfully misled investors in quantifying the impact of climate risk, and the extent to which the litigation risks and, in turn, material financial risks associated with the impacts of and responses to climate change are reflected in the company’s valuation.
Investors are positioned to drive the low-carbon transition through divestment and investment
We will look for more ambitious climate action by investors who are well positioned to lead the charge in financing the transition to a low-carbon economy. At COP24, a global group of 415 investors managing $32 trillion in assets issued the 2018 Global Investor Statement to Governments on Climate Change (GISGCC), urging governments to increase the rate of investment in renewable technologies and improve financial reporting on climate risks to avoid and mitigate material climate-related economic impacts. In the US, the Securities and Exchange Commission (SEC) rejected a shareholder proposal from Trillium Asset Management seeking more explicit targets for greenhouse gas emissions. Some have argued that the financial regulator’s decision is a clear signal why divestment from fossil fuel companies may be a more productive strategy for climate-conscious investors than shareholder engagement. Since 2010, over 1,000 institutional investors with over $6.4 trillion in investments have committed to divest from fossil fuel assets. We expect this trend to continue.
Throughout 2019, we will continue to watch and advocate for accelerated and ambitious action to avoid the greenhouse gas emissions at the root of these impacts and advocate for the most ambitious opportunities to invest in the technologies and infrastructure needed to accelerate the transition to a low-carbon economy.
By Lisa Anne Hamilton, Director of Climate & Energy Program
Originally posted January 11, 2019