ESG Update: Three Climate Change Decisions to Watch as the Temperature Rises

Below, we break down three recent decisions and explain why the regulated community should pay attention to them: the first from the Southern District of New York in City of New York v. Exxon Mobil Corporation; the second from a New York state intermediate appellate court; and the third from an international tribunal charged with interpreting state obligations imposed by the United Nations Convention on the Law of the Sea (UNCLOS).

Takeaways from these decisions:

• Regulators at all levels remain concerned with climate change. As a result, entities engaged in carbon-intensive industries like petroleum refining are likely to find themselves under siege in state courts unfamiliar with their operations or the pre-existing regulatory environment. Further, industry members have not succeeded in removing climate-related cases to federal court.
• Competing climate-related regulations issued by different jurisdictions can lead to regulatory confusion. New York presents two examples: New York City seeks to use state courts to address harms caused by alleged climate-related “greenwashing,” which involved defendants unsuccessfully argued posed federal questions. But in another case, New York City ordinances seeking to address climate harms may be preempted by New York state laws targeting the same issues.
• Climate issues are increasingly scrutinized at a worldwide level. This spring has seen two major international tribunals focus on state obligations to address climate change issues.

NY Federal Court Remands Exxon Climate Case

City of New York vs. Exxon Mobil Corporation nearly closes the door on certain climate-related cases being heard in federal, rather than, state courts. New York City filed a “greenwashing” deceptive trade practices case against three oil companies and a related trade association alleging that these companies use “greenwashing advertisements.” Specifically, the city alleges that these companies falsely represent that they are “environmentally responsible companies developing innovative green technologies and products,” when, in fact, their investment in clean energy sources is allegedly “miniscule,” and their business models encourage the consumption of fossil fuels. The defendants removed the case to federal court, which then remanded the case back to state court.

While a coastal city pursuing climate change claims against oil companies is not novel, City of New York is worth noting for two reasons:

• The case essentially shuts the door on federal jurisdiction over many climate-related tort cases. Defendants in tort cases often prefer being in federal courts. While removing tort focused climate-change cases to federal court has long been part of the defense playbook, the US Supreme Court denied review of similar state climate-tort focused cases last term. Even though the case involved alleged harm to the public as consumers rather than more typical harms to the environment, the federal court, stating that it was bound by precedent, remanded the case to state court because garden-variety false advertising claims are not clearly preempted by federal air-related environmental regulation or other provisions of federal law. Supporting its motion to remand, New York City pointed to similar consumer-protection cases filed by cities in other circuits and noted that none of them had been removed to federal court. This jurisdictional decision is particularly notable because the Second Circuit — the relevant court of appeals — had previously appeared more willing to consider federal jurisdiction in this space.
• City of New York illustrates how governmental entities may use deceptive “greenwashing” marketing claims to fill the gap posed by what they perceive as being incomplete regulation of private actors. We’ve discussed the use of environmental, social, and governance- (ESG) related theories as gap filler repeatedly, most recently here, here, and here (also involving Exxon). As discussed in greater detail below, regulators and municipalities at all levels of government that are inclined to regulate in this space may continue to pursue claims like this one.

NY Appellate Court Decision on Climate Law 

A second significant decision is a New York intermediate appellate court’s decision in Glen Oaks Village Owners, Inc. v. City of New York.

Glen Oaks involves a challenge to New York City’s Local Law 97, which includes building emission limits intended to combat climate change. The plaintiffs, including homeowners, argued that Local Law 97 was preempted by New York State’s Climate Leadership and Community Protection Act (CLCPA) (ECL art 75, L. 2019, ch. 106). The Appellate Division agreed and determined that Local Law 97 was potentially preempted by CLCPA provisions that arguably limited local abilities to enact greenhouse gas regulations. After enacting the CLCPA, New York state regulators have promulgated expansive plans to advance decarbonization. (See, e.g., Executive Order 22 entitled “Directing State Agencies to Adopt a Sustainability and Decarbonization Program.”)

Other cities as well are seeking to enact building-related restrictions to address climate change. Last month, we outlined various regulatory tools municipalities have used in this space in light of a Ninth Circuit decision striking down Berkeley, California’s ban on new natural gas hookups in new residential and commercial construction.

The Glen Oaks decision is important both because New York City regulations will likely serve as a model for other cities and because the decision emphasizes that state laws focused on climate change may pose a hurdle to local efforts to regulate in the same space.

International Tribunal for the Law of the Sea Climate Change Decision

A third important recent decision is the International Tribunal for Law of the Sea’s (ITLOS) advisory opinion submitted by the Commission of Small Island States on Climate Change and International Law. (The opinion is long; a press release summarizing it is here.) ITLOS found that international law compels most states to take unspecified yet concrete actions to address harms posed by climate change.

This is the second major climate-focused decision by an international tribunal this year. (See here for our discussion of the European Court of Human Rights’ (ECHR) ruling in Verein KlimaSeniorinnen Schweiz and Others v. Switzerland, a case brought by a group of Swiss women contending that the Swiss government violated their human rights by failing to meaningfully address climate change.)

Regulated entities should be aware of these decisions because even though public international bodies like ITLOS may have limited direct authority over them, these tribunals may influence governments to target particular issues or serve as bellwethers for issues outside the jurisdiction of federal or state courts.

Some background on the ITLOS opinion. In 2022, a group of small island countries requested that ITLOS outline the specific climate-change related obligations of state parties to the UNCLOS, which includes provisions prohibiting “pollution of the marine environment” and “to protect and preserve the marine environment.”

The opinion opens by reviewing climate change science and referring to publications from the United Nations Intergovernmental Panel on Climate Change (IPCC). A 2023 IPCC report notes as follows:

• “Widespread and rapid changes in the atmosphere, ocean, cryosphere and biosphere have occurred.”
• “Human-caused climate change is already affecting many weather and climate extremes in every region across the globe.”
• “It is unequivocal that human influence has warmed the atmosphere, ocean and land” and that “[t]he scale of recent changes across the climate system as a whole and the present state of many aspects of the climate system are unprecedented over many centuries to many thousands of years.” Buildup of anthropogenic GHGs [greenhouse gases] in the atmosphere “has had numerous effects in the ocean … . [C]limate change has caused “substantial damages and increasingly irreversible losses … .”

ITLOS further addresses what regulatory changes are required from states that are UNCLOS signatories:

• Anthropogenic greenhouse gases (GHGs) are “pollution” of the marine as the term is used in UNCLOS. UNCLOS signatory states are required to take “all measures … that are necessary” to prevent and control such pollution so long as they are consistent with UNCLOS.
• UNCLOS signatory states should evaluate relevant science and use their best efforts, within their means, to address harms posed by anthropogenic GHGs.
• State parties have obligations to establish national and global rules to curb harms posed by anthropogenic GHGs.

The ITLOS decision, as well as those from similar international tribunals, may signal an international push for stricter climate regulation.

Members of the firm’s Environmental and Energy & Cleantech groups regularly monitor regulatory and court decisions affecting the energy space.