What does the risk landscape look like today?
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LOSS RECOVERY CLAIMS
Shareholder actions against companies and their directors and officers, alleging a failure to anticipate, act on or disclose the risks, for continuing to invest in projects or assets that contribute to global warming or for alleged greenwashing have yet to gain significant momentum. However, with climate risks firmly in the spotlight, this is an area we expect will develop in the future.
This novel approach has now spawned similar claims in other jurisdictions, with human rights arguments being used against several governments including those of Brazil, Mexico, Canada, Germany, Pakistan, and Ireland 44 . It’s not just governments that are facing such strategic actions. A group of activists has launched legal action against Royal Dutch Shell (Milieudefensie et al. v. Royal Dutch Shell plc) seeking an order that the company takes more ambitious action to cut CO 2 emissions – which would likely require an overhaul of the company’s business model 45 . Nor is it just oil majors who are affected. Last year Australian pension fund REST settled a test case brought by one of its fund members, who alleged it had breached corporate law and its trustee obligations by failing to disclose climate risk in its investment portfolio adequately 46 . No financial loss was alleged: the suit was aimed at enforcing duties of care and improving conduct in the future. Claimants are turning to novel mechanisms to fund legal action. While the rise of third- party litigation funding could have an impact on how some loss-recovery claims are funded going forward, some activists are turning to crowdfunding to meet the costs of litigation.
For example, a group of Portuguese children and young people have used crowdfunding to launch a claim directly in the European Court of Human Rights demanding that 33 countries cut emissionsmore ambitiously 47 – a case that the court has accepted and fast- tracked. New regulations around climate change and a sense that the pandemic has created a window of opportunity for change is galvanising activists, pressure groups and politicians alike.
To date, claims against companies and/ or their directors and officers have largely been focussed on recovering projected costs for preventative works which claimants allege will be required to mitigate the effects of climate change in the future, as well as those concerned with recouping losses already incurred. For example, in the United States, the highest-profile and largest cases take the form of cities and states suing oil majors to recover the costs of infrastructure projects and urban development plans required to enable them to withstand the impact of more extreme weather events or rising sea levels. These claims, which typically cite petroleum as a “defective product”, represent a trend which has developed significantly since the first cases emerged in 2017. Plaintiffs in the US have become smarter about how they structure their claims in an effort to ensure that they are heard in state courts, which they see as a more favourable arena than federal courts. The US Supreme Court will rule on this key jurisdictional issue in BP P.L.C. v. Mayor and City Council of Baltimore 42 . Plaintiffs and defendants are watching closely.
STRATEGIC ACTIONS TO FORCE BEHAVIOURAL CHANGE
Recently we have also begun to see the emergence of strategic actions designed to force a change in behaviour, be that in business strategy and operations or in government policy. Claimants are increasingly using domestic legislation and treaties that are not climate-related to achieve climate goals. Human rights arguments are a case in point: these are increasingly being deployed as the basis for seeking to force changes in behaviour. The 2019 decision by the Dutch Supreme Court in State of the Netherlands v Urgenda was a landmark in this respect, upholding lower court rulings that the government had to reduce emissions more rapidly than planned in order to comply with Dutch citizens’ human rights, including the right to life 43 .
- James Cooper, Partner, Clyde & Co, London
44 US Climate Change Litigation database http://climatecasechart.com/non-us-case-category/human-rights/ page/2/?cn-reloaded=1 45 Forbes https://www.forbes.com/sites/davidrvetter/2020/12/02/shell-oil-accused-of-climate-wrecking-in- historic-lawsuit/?sh=31b297b214be 46 Reuters https://www.reuters.com/article/us-australia-climatechange-pensions-laws/australian-pension- fund-settles-landmark-climate-lawsuit-idUKKBN27I0DT 47 The Guardian https://www.theguardian.com/law/2020/sep/03/portuguese-children-sue-33-countries- over-climate-change-at-european-court#:~:text=The%20crowdfunded%20legal%20action%20 breaks,fossil%2Dfuel%20extraction%20and%20outsourcing
42 Climate Case Chart http://climatecasechart.com/case/mayor-city-council-of-baltimore-v-bp-plc/ 43 Cambridge University Press https://www.cambridge.org/core/journals/american-journal-of-international- law/article/state-of-the-netherlands-v-urgenda-foundation/567B9E3AD5B1712EC8F138195EC53995
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