Climate change risk
Understanding litigation risk
The number and variety of climate change cases has grown significantly in recent years. While typically defendants have been governments, claims are increasingly being directed at corporates whose activities are linked to climate change impacts.
As the science regarding the sources and impacts of anthropogenic climate change has developed, so has the scope of cases being brought by claimants seeking compensation from companies for their contribution to climate change-related damage. However, climate litigation trends are expanding far beyond these types of cases.
Increased use of litigation as a tool to effect strategic or operational change
We are increasingly seeing climate change litigation being used in an attempt to influence corporate behaviour and to hold organisations to account, rather than being financially motivated.
Although there are different ways in, what these claims have in common is a focus by claimants on the public statements, commitments and disclosures made by organisations about their own strategies and their own assessments of climate-related risks. These claims can be thought of as falling into three broad categories.
Claims for failing to adopt appropriate policies and to mitigate climate change-related risks
A case that is at the front edge of the new wave of strategic climate change litigation is Milieudefensie/Friends of the Earth Netherlands and others v Royal Dutch Shell. In May 2021, the Hague District Court in the Netherlands ruled that Royal Dutch Shell has an obligation to reduce the CO2 emissions of the Shell group’s activities by net 45 per cent by the end of 2030 compared to 2019 levels. This is a groundbreaking decision – for the first time, a court has imposed a legal obligation on a private company to reduce its CO2 emissions.
Claims for failing to disclose climate change-related risks
TThese claims are often brought either by activist shareholders, seeking to protect long-term shareholder value or to recover alleged short-term shareholder losses, or by public bodies, aiming to ensure compliance with reporting obligations and to modify companies’ conduct. For example, in the US there has been a raft of investigations and claims (many of which have, in fact, been unsuccessful) against ExxonMobil, brought by shareholders, the US Securities and Exchange Commission, the New York Attorney General and dozens of other US State Attorneys General, for alleged fraudulent misstatement of financial forecasts – for example in respect of whether ExxonMobil’s representations regarding the impact of climate change on its business performance prospects were misleading or deceptive. In some sectors, claims may also be brought under consumer protection legislation.
We are also starting to see, at the other end of the scale, so-called ‘greenwashing’ claims (that is, where it is alleged that a corporate has conveyed a false impression or provided misleading information that its activities, plans, products or services are more sustainable than in reality). For example, in August 2021 a claim was commenced against Santos Ltd, Australia’s second-largest gas producer, arguing among other things that Santos’s representation that it has a clear and credible plan, based on reasonable assumptions, to achieve net-zero Scopes 1 and 2 GHG emissions by 2040 amounts to greenwashing.
Impact of climate-related considerations on project approval processes
Routine planning and regulatory processes are increasingly being used to raise climate change arguments, relying on climate ‘science’. NGOs, environmental law charities and other activist claimants are looking for ever more creative and novel ways to attract publicity to their cause, spanning from protestor action to high-profile ‘quasi-litigation’ before regulators and oversight authorities.
Many of these challenges rely on traditional administrative law procedures, though some cases have sought to challenge planning processes on novel grounds. See, for example, Sharma v Minister for the Environment, in which the claimant argued, and the court ultimately held, that the relevant minister had a duty to take reasonable care to avoid causing personal injury to Australian children when deciding whether or not to approve the project in question (a mine expansion).