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Minimizing D&O liability risks for companies powering the energy transition

Explore strategies to minimize D&O liability risks for companies in the energy transition, ensuring compliance and robust governance.

05/06/2025 · 10 minute read

This article is co-authored by Marsh and Norton Rose Fulbright.

Companies spearheading the worldwide shift towards renewable and lower-carbon energy sources have made significant advances. In 2024 alone, global investments in the energy transition surpassed $2 trillion, more than doubling since 2020. Improvements in technology, scalability, and cost control will likely continue to attract significant investment in this sector, despite market and political headwinds.

However, rapid advancements bring with them heightened liability risks, particularly from shareholder lawsuits that can arise when setbacks occur. This means that companies on the front lines of the energy transition must remain vigilant to reduce the directors and officers (D&O) liability risks posed by shareholder, class, and derivative lawsuits that often follow investor losses.

Understanding D&O liability risks

These risks to your directors and officers are not merely theoretical, and they apply to private and public companies alike. Companies in the solar, wind, nuclear, electric vehicle, biofuel, clean electrification, and alternative power generation industries have faced multiple shareholder suits in the past years.

These lawsuits provide valuable lessons for companies seeking to minimize their D&O liability exposure. Insurance underwriters are closely scrutinizing companies’ potential exposure to shareholder litigation when designing and pricing D&O insurance policies for businesses involved in the energy transition. Ultimately, robust disclosure and governance practices are essential to prevent material misstatements and ensure appropriate board-level oversight of key corporate risks.

Types of claims affecting companies in the energy transition

Shareholder plaintiffs have initiated various D&O claims against companies involved in the energy transition. Many of these claims fall under the “overpromise and underdeliver” category, where optimistic statements about new technologies, business relationships, or market potential collide with disappointing outcomes. For example, shareholders have filed suit after optimistic projections about customer demand, new contracts, or project development benchmarks failed to materialize. Other cases have focused on the alleged concealment of operational setbacks, delays, cost overruns, and other challenges that companies face when commercializing new technologies or completing large-scale energy projects.

Several shareholder suits emerged following negative “research reports” by short sellers questioning the commercial viability of a company’s technology or business model. Companies developing new technologies or pursuing emerging markets are particularly susceptible to “short attacks,” especially when they have not yet achieved tangible commercial success and are relying on subscriber growth or other nonmonetary benchmarks, which may be easier for a short seller to question. Shareholder plaintiffs often leverage short sellers’ allegations to file securities class action claims against the company for allegedly misleading the market. 

While innovative technologies being developed for the energy transition present tremendous opportunities, companies must anticipate potential short-seller actions and avoid making public statements that could be perceived as misleading.

Common types of statements alleged to be misleading

A number of types of statements or disclosures may be perceived as misleading and can significantly increase your exposure to D&O liability. These include:

Plaintiffs often target public statements about the progress of significant alternative energy projects, including the construction of new facilities and development of novel technologies. For example, shareholders have challenged statements that:

  • Stated project designs were “pretty much complete” 
  • Expressed confidence a project would “end as [it’s] supposed to” 
  • Called energy projects “shovel-ready” 
  • Said a project site “looked great” and “was on schedule” 
  • Labelled a particular technology challenge as having been “de-risked”

When a delay or setback occurs, plaintiffs often scour a company’s prior public disclosures for such statements in order to assert they were misleading.

Shareholder plaintiffs frequently criticize companies for providing overly optimistic budgets and schedules while omitting information about cost overruns and delays. For instance, plaintiffs argued that a nuclear power company’s published “guaranteed substantial completion dates” and “total gross construction cost” figures were misleading due to an internal report indicating the need for longer time and higher costs. Companies must ensure that published timeline and budget information are reasonably achievable.

Plaintiffs have attacked risk disclosures by alleging they misleadingly depict already-materialized risks as being hypothetical. For example, statements indicating that “delays or cost overruns may be incurred” by a nuclear project were challenged when plaintiffs alleged that these issues had already occurred. Future-tense risk disclosures are a frequent target of shareholder suits across numerous industries, underscoring the importance for companies to assess whether disclosures create a misleading impression that an already-materialized risk has not yet occurred.

Companies have faced scrutiny for making allegedly misleading statements about potential funding commitments. For example, plaintiffs challenged a solar company’s statements that “we have secured project funding from a number of major institutions” and had “entered into a mandate” to construct a significant project, which were disputed after funding shortfalls occurred. As the energy transition often involves capital-intensive projects, it is important that companies do not oversell potential funding arrangements in their public disclosures and do not omit information about funding setbacks that would make their funding-related statements misleading.

Energy transition companies must exercise caution when discussing commercial viability, as these statements attract scrutiny from both plaintiff lawyers and short sellers. In one case, an electric vehicle company was sued for stating that it had a substantial number of purchase orders that allegedly had not materialized. A nuclear services company was sued for suggesting it had the opportunity to obtain business from entities that were later said to allegedly have no interest in its services. In a third case, another nuclear power company was sued after a short seller publicly questioned its ability to meet subscription targets or generate power at commercially viable prices. Short sellers often target statements about nonmonetary metrics, like subscriber growth, underscoring the importance of not overpromising or making statements that can be attacked as misleading.

Energy transition-related businesses have been accused of touting major contracts without disclosing key terms or contingencies. For example, plaintiffs alleged that a biofuel company’s statements about a sale agreement were misleading because they failed to disclose a refund provision that allowed the buyer to rescind the transaction if certain benchmarks were not achieved. Companies must make sure that contracts, sales, and other business achievements are disclosed accurately and do not omit contingencies that could significantly impact a reasonable investor’s view of the transaction.

Plaintiffs frequently challenge “policy compliance” statements. For example, multiple suits have challenged statements about compliance with environmental regulations, campaign finance laws, or internal policies. Companies should be careful when definitively stating that they “comply with” all applicable regulations and should consider whether a statement of “substantial” rather than absolute compliance would be more prudent. Statements that companies conduct regular inspections or take other specified precautionary actions can also be targeted if the actual steps are not as robust as described.

Strategies for reducing D&O liability risks

Companies at the forefront of the energy transition should adopt vigilant disclosure and governance practices to protect their directors and officers and maximize the prospects for early suit dismissal. The following actions can help reduce risks.

  • Be candid. Executives should avoid spinning the facts surrounding project delays, funding holdups, customer cancellations, and other adverse events during earnings calls. Both scripted and unscripted remarks should accurately reflect the situation.  
  • Avoid half-truths. A statement that is literally true can still be misleading if it omits material information. Public disclosures should be scrutinized to determine whether a reasonable investor would view the statement differently if the omitted facts were revealed.
  • Disclose irregular features. When discussing important contracts or business achievements, disclose any irregular features or significant contingencies that could change how a reasonable investor would view the event. 
  • Support general statements of optimism. Ensure that generalized statements of optimism are supportable; consider whether it’s worth making disclosures that would have to be defended in court as meaningless “puffery.” Even a generic statement that the company is making “good progress” on an alternative energy project could be attacked as misleading if the company has actually made little progress or faces obstacles it is unlikely to overcome. 
  • Evaluate risk and compliance disclosures. Ensure that already-materialized risks are not presented as hypothetical, and that statements about compliance with laws and policies are supportable. Consider whether it is more appropriate to disclose that a particular adverse event “has occurred” or “occurs from time to time” instead of simply stating it “may occur” in the future. Management should also consider whether it is more appropriate to state that the company “substantially” complies with applicable regulations, or whether a compliance-related representation should be qualified in other ways, rather than assuring that the company is in full compliance. 
  • Use specific disclosures. Avoid generalized boilerplate disclosures and instead tailor your risk disclosures to your company and industry. Courts will carefully scrutinize risk disclosure language to ensure they are meaningful.  
  • Regularly update public disclosures. Make sure SEC filings, website disclosures, earnings scripts, and other public disclosure documents are regularly reviewed and updated to remove outdated information.
  • Consider all public communications. All public disclosures can be targets for D&O lawsuits, including information on your website, interviews or statements provided to media outlets, investor presentations, public testimony, and other public statements. Ensure that all investor-facing communications are accurate and do not omit material facts that could render them misleading to a reasonable investor.  
  • Consider forming a disclosure committee. Centralize management oversight of public disclosures to ensure they are accurate, consistent, and up to date. Consider having disclosure counsel involved in reviewing all public disclosures.
  • Ensure projections are achievable. Financial or other projections should be realistic, and potential headwinds should be disclosed.
  • Implement strong policies. Establish robust policies regarding insider stock sales, related-party transactions, and confirmation. Courts tend to scrutinize executive stock sales and related-party transactions when assessing whether a securities fraud claim is strong enough to proceed beyond the motion to dismiss stage. Failure to keep significant information confidential — especially regarding mergers and other major events likely to impact the stock price — can lead to costly government insider trading investigations, even in the absence of wrongdoing by the company.
  • Form a response team. Have a team — including legal counsel — ready to address short attacks or other adverse publicity. Be cautious not to compound the damage from these events by making ill-advised, inaccurate, or unprofessional sounding statements in the immediate aftermath without proper diligence or advice.
  • Discuss key risks regularly. Ensure that key risks are discussed at board meetings and that the directors have ample opportunity to question risk management strategies.  
  • Engage insurance advisors. Work with an experienced insurance advisor or broker to help identify key D&O liability risks and mitigation strategies before meeting with D&O insurance underwriters. A robust D&O insurance program can help protect your directors and officers from the liability risks affecting companies driving the energy transition.

As the energy transition continues, companies can proactively minimize D&O liability risks by implementing strong disclosure practices, maintaining transparency, and ensuring regulatory compliance. This structured approach not only mitigates potential legal challenges, but may also position companies for sustainable growth in a rapidly evolving market.

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Sarah Baldys

Senior Vice President, FINPRO Power & Renewables Leader

  • United States

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