Rachel Lidgate, partner, Herbert Smith Freehills LLP Energy networks, Energy retail, Generation, Policy & regulation, Opinion

Fossil fuel companies, energy-intensive users and even governments can find themselves in court accused of misleading the public over climate change.

The past few years have seen a new wave of global litigation arising from allegations relating to climate change. The most high-profile claims have been brought against governments and “fossil fuel majors”, although utilities and other heavy emitters in a number of sectors are potentially in the firing line. Increasingly, climate change-related lawsuits appear to be political tools focused on changing government or corporate policy and boosting public support for action against climate change.

Tortuous claims

Since 2017 a number of nuisance lawsuits have been filed by US states against fossil fuel majors (including Chevron, Conoco­Phillips, ExxonMobil, BP and Shell), alleging that they have funded scientific studies and PR to create uncertainty about the existence, causes and risks of climate change, despite knowing about its effects.

While none have yet been successful, 2020 is likely to see a number of decisions in federal appellate courts and claims may proceed thereafter. A common view is that plaintiffs in these cases are likely to face serious difficulties overcoming the legal hurdle of proving causation.

However, it is conceivable that this may change depending on further scientific developments. If plaintiffs succeed in forcing defendants through costly, financially and reputationally damaging litigation, other high emitting corporates and sectors can expect to find themselves the target of further claims.

Claims have also been brought against companies in Europe. A claim brought against RWE in Germany by a Peruvian farmer, in which he alleges that his farm was negatively affected by flooding and mud slides, is now progressing through its evidentiary phase; this is the first case in which a court has held that in principle a private company could be held responsible for a share of environmental harm.

In the Netherlands in April 2019, Friends of the Earth filed a lawsuit against Shell for failing to update its business model to reach net zero emissions by 2050. Their goal is not to win damages but to force a corporate policy change and demonstrates claimants’ increasing reliance on alleged human rights violations. Such an approach is likely to continue given the anticipated contents of the long-awaited report of the Philippines Commission on Human Rights. In December 2019 it was announced that the commission had found that companies could be found legally and morally liable for human rights violations arising from climate change; that cases can and should be brought in domestic courts under national laws; and that governments are obligated to adopt legal reforms ensuring access to justice for affected communities.

Claims by shareholders

Shareholders are becoming increasingly active on this subject. In the US, ExxonMobil has faced several securities lawsuits seeking damages on behalf of shareholders relating to its disclosures (or lack thereof) regarding the risks and costs associated with climate change.

This type of claim does not face the same causation difficulties as nuisance-type claims. While plaintiffs have so far been unable to sustain allegations that Exxon fraudulently misled investors or the general public, there are lawsuits outstanding against Exxon, including individual directors and senior executives.

Other securities class actions have been brought in California against utilities relating to wildfires; in October 2019 a lawsuit was brought against executives of bankrupt utility PG&E, alleging that misrepresentations had been made about its wildfire prevention procedures. The complaint quotes from public statements made by the company regarding climate change risk, which illustrates the care which companies need to take in ensuring that their public pronouncements accurately reflect their internal assessments and actions.

More generally, boards and individual directors need to ensure compliance with their disclosure and other duties in the jurisdictions in which they operate, and consider whether corporate policies should be updated (for example, to reflect the recommendations of the Task Force on Climate-related Financial Disclosure).

Effect on regulation

Climate change litigation can directly or indirectly affect regulation. In December 2019, the Dutch Supreme Court upheld the order of a lower court that the Dutch state should limit greenhouse gas emissions to 25 per cent below 1990 levels by 2020, on the basis that the government’s existing pledge to reduce emissions by 17 per cent was an insufficient contribution toward the UN’s goal of keeping global temperature increases below two degrees Celsius. The finding in favour of the Urgenda Foundation is the first time a court has ordered a state to limit greenhouse gas emissions where there was no mandate under statute.

Going forward, states may be forced to introduce tougher regulation by these types of claims (or feel indirect pressure to do so, as with the UK government’s decision to legislate to reduce emissions to net zero by 2050).

While risks relating to climate change are growing for all businesses, those in high-emission sectors face the additional risk of being targeted by claims in an increasingly litigious environment.

 

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