Verdad Verde

In the past, climate change was a rallying cry for the environmental fringe, but recently Wall Street investors have been demanding information about climate change. Investors, including some heavy hitters such as JPMorgan Chase & Co., have started looking at climate change issues such as the carbon footprints of businesses. Some investors have even gone so far as to not invest in businesses with large carbon footprints, fearing future regulator restrictions and potential liability. Unlike environmentalists whom the businesses could easily ignore, investors are making businesses take notice of climate impacts. Other investors are demanding that businesses disclose climate risks as part of SEC filings. Currently businesses are fighting this request by investors, but as more investors demand such information eventually some sort of compromise will need to be worked out.

Recently the Attorney General of New York, Andrew Cuomo, initiated an “investigation of five large energy companies, questioning whether their plans to build coal-fired power plants pose undisclosed financial risks that their investors should know about.” Mr. Cuomo is using the same state securities laws that former Attorney General, Eliot Spitzer used to terrorize Wall Street with great success.

While it may be “rare, if not unique, for a securities law to be used for an environmental purpose” this is only because investors are just waking up to the potential liabilities facing businesses for failing to take environmental issues serious. According to Mr. Cuomo the purpose of using securities regulations to investigate environmental issues is to look at “the economic risks . . . being disclosed – the economic risks which are dovetailing with environmental concerns.”

It is just a matter of time before investors, based on SEC regulations, start filing class action lawsuits against businesses based on environmental issues. In fact, Mr. Cuomo may be laying the blueprint for future investor suits. While climate change lawsuits could become the next asbestos, they could also just as easily become the next class action securities nightmare for businesses. So it would be a prudent and wise move for a business to be ahead of the curve and start assessing its climate impact.