Warning for big business from California

Big changes sometimes come without big headlines. One of these happened last month in California, the largest and the most productive States in the US which comprises around 15% of the US GDP and by itself would form the world’s fifth largest economy.

Big changes sometimes come without big headlines. One of these happened last month in California, the largest and the most productive States in the US which comprises around 15% of the US GDP and by itself would form the world’s fifth largest economy. The State took the unusual step of suing the oil & gas industry giants and their trade association and mouthpiece, the American Petroleum Institute (API), for worsening climate change, for deception, for lying to the people and a host of other charges. The case will test new waters as it pushes to expand the damages that can be imposed on American corporates in the standards they follow, the integrity of their operations and messaging to the public, and the nature and character of the business in the age of climate change.

The State took the unusual step of suing the oil & gas industry giants and their trade association and mouthpiece, the American Petroleum Institute (API), for worsening climate change, for deception, for lying to the people and a host of other charges

The five companies sued are Exxon Mobil, Shell, BP, ConocoPhillips, and Chevron, global giants of the oil and gas industry that have reported unprecedented profits in a post-pandemic comeback. In 2022, ExxonMobil, BP, Chevron, Shell, and ConocoPhillips reported combined net profits totaling around US $180 billion, riding on increased demand in the aftermath of Covid-19, aided by price gouging amid the disruption and uncertainties caused by events like the conflict in Ukraine. Some would see this as the expansion that comes ahead of a star moving towards certain death, a sunset sector which proclaims to transform but is rooted in the business of drilling and flaring that it can’t get away from. Yet, the numbers show that Big Oil has ample profits to take in even if it is a slide from hereon. The game is to stay relevant in a rapidly changing landscape.

Big Oil has ample profits to take in even if it is a slide from hereon

Thus, the API on its website quotes the International Energy Agency (IEA) to say that “under the IEA’s Sustainable Development Scenario, natural gas and oil will furnish nearly half the world’s energy in 2040, even if every nation meets the goals of the Paris Climate Agreement.” This reinforces the story that there is no easy escape from the oil & gas sector, and the world will have to just live with the carbon footprint it brings if the economy is to grow and nations are to thrive. What, after all, can run without energy in the modern economy, and who can provide this energy but the oil giants? In the words of API: “Our industry is essential to supplying energy that makes life modern, healthier and better – while doing so in ways that tackle the climate challenge: lowering emissions, increasing efficiency, advancing technological innovation, building modern infrastructure and more.”

What, after all, can run without energy in the modern economy, and who can provide this energy but the oil giants?

Environmentalists would disagree. They are now joined by the State of California that has come out in the strongest possible language to hold Big Oil to account for its actions. Just consider the language of the statement issued by California Governor Gavin Newsom: “For more than 50 years, Big Oil has been lying to us — covering up the fact that they’ve long known how dangerous the fossil fuels they produce are for our planet. It has been decades of damage and deception. Wild fires wiping out entire communities, toxic smoke clogging our air, deadly heat waves, record-breaking droughts parching our wells. California taxpayer shouldn’t have to foot the bill. California is taking action to hold big polluters accountable and deliver the justice our people deserve.”

Rob Banta, the California attorney general, put it this way: “Oil and gas companies have privately known the truth for decades — that the burning of fossil fuels leads to climate change — but have fed us lies and mistruths to further their record-breaking profits at the expense of our environment. Enough is enough. With our lawsuit, California becomes the largest geographic area and the largest economy to take these giant oil companies to court …” 

"Wild fires wiping out entire communities, toxic smoke clogging our air, deadly heat waves, record-breaking droughts parching our wells. California taxpayer shouldn’t have to foot the bill"

While it is possible to see this as a politicised lawsuit replete with sweeping statements, the colour and flavour of the case also showcases it as a gamechanger. It pushes the boundaries and carries the capacity to change forever the way corporates are held to account for their actions. California is not the only one to have filed for damages from the oil giants. Similar lawsuits have been filed by local area municipalities and at least seven other States, according to the New York Times.  California’s is the most significant of these, and it suggests that the game has changed from working with oil companies to going all out against them to make them pay for climate change and all the associated damages that are directly being attributed to the sector.

This is setting a new bar on holding companies to account for greenwashing, for naming and shaming them publicly and making them pay overwhelming costs and damages as a means of forcing change

One of the areas highlighted in the case is evidence that the oil giants knew of the damages but painted a different picture before the people. It argues, for example, that Shell claims online it aims to become a net-zero emissions energy business by 2050, and that it is “tackling climate change.” However, Shell’s CEO told the BBC on July 6, 2023 that cutting oil and gas production would be “dangerous and irresponsible.”  How do the two go together? This is setting a new bar on holding companies to account for greenwashing, for naming and shaming them publicly and making them pay overwhelming costs and damages as a means of forcing change.

California provides a test case for the road ahead and the response likely from regulators

No business leader in any sector can ignore the message embedded in the lawsuit. It must send warning bells across the globe and make many businesses think again of some of the actions, statements and products or service they offer. At a time when trust in big business is low and is declining further, when sustainability has almost become a game to be played and indeed manipulated by showcasing small achievements made on the aside while the main business continues to drain resources and have negative impacts on the environment and on society, California provides a test case for the road ahead and the response likely from regulators.

There are no immediate impacts in India but think just how many companies can come under the radar for advertisements that misguide, mislead or are outright wrong in the claims being made and the benefits being sold. It is possible to see the California case as a “watershed moment to hold polluters accountable”, to quote Jane Fonda, the actress, author and activist, and it carries implications businesses can ignore only at their peril.

(The writer is a journalist and faculty member at SPJIMR. Views are personal)