Planet on Trial: the surging trend of corporate climate litigation
Last month, a ground-breaking legal action was taken against Shell’s Board of Directors for neglecting to address the risks climate change poses to the oil company. The lawsuit, which is supported by institutional investors, is the first in the world seeking to hold directors personally liable for failing to prepare an adequate transition to net zero. The same month, several French non-governmental organisations (NGOs) filed a lawsuit against BNP Paribas, in the world’s first climate lawsuit against a commercial bank.
Climate litigation cases are increasingly being used to hold public and private entities accountable for failing to take appropriate climate action, whether through their actions or their inactions. In light of extensive financial, reputational and regulatory risks involved, it is imperative companies understand the origins of climate litigation and ensure their response is sufficiently serious to mitigate the risk of lawsuits.
Mounting climate litigation risks for the private sector
Prior to 2017, there were a total of 884 climate litigation cases, most of which were filed in the United States. By 2020, the number of cases had nearly doubled to 1550 cases across 38 countries. At time of writing, LSE’s Climate Change Laws of the World database identifies over 2230 climate cases.
Past climate cases predominantly addressed concerns about government inaction on climate change. For example, cases were filed against national governments in Canada, South Africa, Australia and Switzerland in the past few years alone. While the number of governments being taken to court is likely to increase following a pending advisory opinion from the International Court of Justice (ICJ) on the legal responsibilities of states in addressing climate change, there are now increasing cases filed against the private sector. The fossil fuel industry has been a primary target, however cases against corporates in other high-emitting industries such as food and agriculture, transport, plastics, and the finance sector are also rising.
The repercussions of climate cases on the accused can be substantial, as the financial implications of successful litigation extend beyond the mere legal fees and compensatory pay-outs. Rather, the scrutiny that accompanies such cases can cast an unfavourable light on the company, potentially reducing its market value, influencing investor behaviour and hindering its ability to secure financing. Additionally, the damage to the company’s reputation may discourage customers and make it difficult to attract new talent, with potential spill-over effects for other companies in the same sector.
Potential legal missteps: what might land you in court?
Climate litigation covers a broad range of climate-related issues and new types of cases are being filed every year. The United Nations Environment Programme classifies climate cases into six major categories:
- Climate rights: these cases highlight that inadequate efforts to address climate change can violate both international and constitutional rights, including but not limited to the rights to life, health, food and water.
- Climate disclosures and greenwashing: these cases aim to address misleading corporate statements regarding overstated advertised environmental performance.
- Corporate liability and responsibility: these aim to hold specific corporates accountable for a share of climate change impacts.
- Domestic enforcement of climate-related laws and policies: cases are filed against both government entities and corporates for not implementing their climate-related commitments.
- Keeping fossil fuels in the ground: cases are filed against extractive projects that neglect to consider the potential impact of climate change in their mandated environmental assessments.
- Failure to adapt and the impacts of adaptation: cases are being filed to seek compensation for the harm or damage done by adaptation efforts (also known as climate ‘maladaptation’) or for failing to adapt in the first place.
What can companies do to address the risk of climate litigation?
Targeted companies, notably those in high-emitting industries, are either not doing enough, not doing what they said, or doing harm. So what are some steps you can take to reduce the risk of legal action?
- Set ambitious emissions reduction targets and develop comprehensive plans to achieve them.
Client Earth’s recent lawsuit aims to force Shell to set more stringent emission reduction targets and align its strategy with the Paris Agreement of limiting global warming to well below 2°C above pre-industrial levels. As such, setting science-based emission reduction targets is key to mitigate the risk of climate litigation. These must be developed through engagement of key internal stakeholders to ensure they align with wider corporate objectives and are feasible to attain.
Targets must also be developed with clear and credible plans to achieve them. Companies have been sued for relying on technologies whose effectiveness have not yet been tested – such as carbon capture and storage processes – to achieve their targets. This is notably important given the rise of ‘climate-washing litigation’ and recent and evolving changes in regulatory frameworks aiming to curb greenwashing claims both in the UK and the EU.
- Increase transparency around emissions and climate-related risks.
Climate litigation is increasingly being used as a tool for climate accountability and transparency. As such, disclosing greenhouse gas emissions and climate-related risks in line with best practice frameworks such as the Greenhouse Gas Protocol and Task Force on Climate-Related Financial Disclosures will enable companies to reduce the risk of legal action. Being transparent also builds trusts and enables stakeholders to make more informed decisions about the potential financial impacts of climate change on a company’s operations.
- Integrate human rights in climate-related action.
In July 2022, the UN General Assembly passed a historic resolution stating the right to a healthy and sustainable environment to be a universal human right. This has led to a growing trend of applying human rights laws and remedies to address climate-related issues.
While the UN Guiding Principles on Business and Human Rights (UNGPs) – which set out the responsibilities of companies to protect, respect and remedy adverse human rights impact they cause or contribute to, either through their direct operations or their supply chain – are non-binding soft law, there exists a significant body of domestic legislation mandating human rights due diligence from corporations. Integrating human rights in climate-change related action will thus be key to mitigate climate litigation risk.
If you want to find out more about the importance of implementing a proactive approach to climate change and human rights, read Rachel and Kwame’s insight here.
The urgency of having to drastically reduce greenhouse gas emissions coupled with a perceived lack of sufficient climate action has resulted in a drastic increase of successful climate litigation cases in the past years. New tools are emerging to help plaintiffs improve their efforts to hold companies accountable, which will only increase the effectiveness of climate litigation in engendering change. Climate litigation must be acknowledged as an evolving and natural consequence of the increasing maturity of climate action. The greater the impact on our collective future, the greater the expectation that companies will act with speed, seriousness and transparency to secure that future.
To find out more about how Sancroft can help your business mitigate climate litigation risk, contact noelle.smits@sancroft.com or judy.kuszewski@sancroft.com.