Climate change is at the forefront of global news and politics, but it is not just an issue for politicians, policy makers and those working in the energy or environmental fields.
Climate change is one of the most significant challenges for business that has ever existed. It is one of the few issues that can be described as truly pervasive, affecting all sectors, all jurisdictions and all parts of the supply chain. While some companies and industries have been dealing with climate litigation risk for many years, others have only started to confront these issues more recently. Even those companies and industries who have been highly attuned to climate opportunities and risks for some time continue to confront an ever-changing landscape. Issues include accounting for the carbon intensity of their suppliers and the downstream effects of their products and services, embedding energy transition plans and climate targets, and grappling with what to tell shareholders, consumers, staff and other corporate stakeholders about companies’ plans to tackle these issues. All this takes place against a rapidly evolving and complex regulatory and litigation backdrop; but one in which there remains a lack of consensus around key methodologies involved in measuring such factors.
It is apparent that the risks of greenwashing allegations are higher than ever and represent a potential reputational minefield, in addition to exposing companies to regulatory scrutiny and litigation risk. Further, companies are facing increasing demands from lenders, investors, shareholders and customers to commit to ambitious targets to reduce emissions intensity and to have full transparency in explaining the details around how such targets will be met.
This combination of factors makes doing business and managing risk a serious challenge. Many of our clients are re-evaluating their long-term contracts and their dealings with existing counterparties and partners to adapt to this fast-moving landscape.
Undoubtedly, the potential for disputes in this context is significant. Indeed, the growth in climate change-related disputes worldwide has been much publicised, with the UN Environment Programme and the Sabin Center for Climate Change Law at Columbia University reporting that the total number of climate change-related cases has more than doubled since 2017 and is growing worldwide – and, of course, this only reflects those cases in the public domain and not those happening behind closed doors in arbitration and other private forums. Other reports such as from the Grantham Institute on Climate Change and the Environment highlight the expanding diversity in recent cases, with more cases being filed against corporate actors and a more complex range of legal arguments. The Grantham Institute also notes an increasing trend in litigation concerning investment decisions.
While it is apparent that such disputes are increasingly common, perhaps a more difficult realisation for businesses to grasp is that a climate-related dispute can come from a variety of angles and be pursued by various claimants – from regulators, contractual counterparties, suppliers and JV partners, consumers and class actions, lenders, investors and shareholders. Meanwhile, climate change disputes can arise in the context of finance, insurance, supply chains, shareholder relations, antitrust, employment and many more.
This variety in climate change-related disputes is already evident in some of the most high-profile examples arising to date, including Urgenda Foundation v The Netherlands, in which the Dutch Supreme Court held that the Netherlands had a duty to reduce greenhouse gas emissions. Other examples include Friends of the Earth Netherlands v. Royal Dutch Shell plc, in which a private company was ordered to cut its emissions; ClientEarth v Shell plc, in which a minority shareholder unsuccessfully sought to bring a derivative action alleging that the directors were in breach of their duties in relation to climate change issues; and several lawsuits brought by US states, cities and municipalities seeking billion dollar abatement funds from energy majors for the effects of climate change under public nuisance and other novel theories of tort liability. Claims have been brought under international investment treaties, before human rights bodies and constitutional courts, before advertising standards regulators and in competition and antitrust contexts, to name but a few. Companies are both defending and pursuing claims arising from their business as usual operations, such as with their suppliers about changing risk allocation or their joint venture partners about the increased costs of regulatory compliance, and in the context of M&A transactions where the green credentials of an acquisition may have been misrepresented. Businesses are both initiating and responding to claims arising as they undergo their energy transition transformations, with conflicts arising with regulators, government bodies, shareholders and investors.
We recognise these disputes can arise from all angles, and that many of them will manifest in novel forms which are unfamiliar to our clients, often arising as a different type of challenge to that which clients have been used to facing. Traditional business strategies may no longer be appropriate or comprehensive, particularly as claims increasingly arise from unfamiliar quarters. We can therefore expect to see, for example, energy companies caught up in intellectual property disputes, fashion brands in regulatory investigations, infrastructure companies in major insurance disputes, car companies facing class actions, financial regulators facing climate change-based judicial reviews and consumer brands grappling with challenges to their carbon offsetting strategies. In parallel, governments can expect continued and sustained challenges to an increasingly broad range of legislation, policies and decision-making in which private organisations are likely to be directly affected, such as Feedback Global’s judicial review of the UK-Australia Free Trade Agreement on environmental impact grounds.
We also understand that as a truly global issue, the growth in climate disputes shows the contagion effect between jurisdictions and sectors. Regulators and litigants are watching closely what is being done in other jurisdictions and adopting practices and standards they see elsewhere. Meanwhile, groups seeking to bring claims against corporates are learning from tactics pursued against companies and governments in different parts of the world and replicating them.
This series will walk through many of the key areas in which climate change disputes may arise, and which companies should bear in mind when assessing their own legal, business and reputational risks. Our global team of disputes experts will examine aspects such as shareholder disputes, regulatory investigations, greenwashing, arbitration, insurance, international law, public and administrative law, human rights and supply chain liability, among others.
We encourage you to subscribe to this series via our ESG blog to read about the full breadth of the disputes risks in this challenging space.
If you would like to discuss what climate change means for your business and the disputes risks which may arise for you, please do not hesitate to contact the core climate change disputes team below.