ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
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ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS Activist shareholders and NGOs targeting governments and businesses in relation to climate change are increasingly turning to litigation. In a recent landmark judgment, the risk proactively and appropriately might District Court of The Hague ordered Royal substantially harm shareholder value,” Dutch Shell (RDS) to reduce its CO2 he adds. emissions by 45% by 2030, as compared with 2019 levels. The ruling sets a Shareholder activism in this area has precedent for other companies that could taken many forms – from proposing or face similar lawsuits. The case was supporting emission reduction targets at brought by the Dutch branch of Friends a company's AGM to pursuing litigation, of the Earth (Milieudefensie), a number of often based on variants of established other NGOs, and over 17,000 individual legal theories. For instance, around the claimants (see our briefing). This is the world shareholders have brought cases first time that any court has ordered a arguing that companies are failing to company to reduce its CO2 emissions, analyse and disclose properly the risks and the judgment may have significant climate change poses to their business; consequences for other companies with or that directors are in breach of their a link to the Netherlands who have fiduciary duties by not taking sufficient significant CO2 emissions. account of climate change risks in their decision-making. This is in addition to Clifford Chance Counsel, Juliette Luycks, litigation brought by public bodies and/or who is based in Amsterdam says: "The NGOs seeking to establish corporate success of Milieudefensie will increase the liability for harm caused by emissions. likelihood of similar proceedings being brought against other large emitters of The role of NGOs and CO2, especially if they are headquartered National Contact Points in the Netherlands. We may also see attempts to bring similar cases against These actions are often led or supported non-Dutch headquartered companies, by NGOs, for whom litigation is arguing that the Dutch Courts have increasingly becoming an important jurisdiction based on other connections of weapon in their arsenal. NGOs are the company or case to the jurisdiction." supporting claims by alleged victims of climate change against businesses, and bringing complaints before the A growing risk for Organisation of Economic Co-operation businesses and Development (OECD) National The rise in climate change litigation and Contact Points (NCPs) for breach of the shareholder activism is a growing risk for OECD Guidelines for multinational businesses across all sectors; it is no enterprises. NCPs provide a mediation longer confined to the carbon majors. and conciliation platform for resolving "This is due, in part, to sophisticated practical issues that may arise with the litigation-focused NGOs using litigation as implementation of the Guidelines. “This a campaigning tool, and a growing process does not lead to binding recognition of the power of reputational judgments, but can generate a good deal risk to influence corporate behaviour,” of bad publicity. It's also attractive says Roger Leese, a London-based because it's cheap,” says Leese. Partner in Clifford Chance’s Litigation & Dispute Resolution Group, and co-head Following the devastating bushfires in of the firm’s business and human rights Australia (discussed below), in January group. “Tackling climate change is now 2020 victims (supported by Friends of the very much on the boardroom agenda, as Earth Australia) filed an NCP complaint is a recognition that failing to address this against Australia New Zealand Bank 2 CLIFFORD CHANCE ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
(ANZ) at the Australian NCP. The and once circumstances allow, the court complaint alleges that ANZ, Australia's will travel to Huaraz to gather evidence; largest financier of fossil fuel industries, the first time that a German civil court will has failed to adhere meaningfully to the conduct an on-site visit on another Paris Agreement reduction targets across continent to assess climate damage its lending portfolio, or to disclose the full allegedly caused by a major extent of its emissions, in breach of the European corporation. OECD Guidelines. This follows a similar complaint brought by Greenpeace and “Climate change disputes are being used other NGOs against ING in 2017-2019 as a policy-making tool. NGOs are concerning its involvement in fossil fuels. supporting and financing cases with the The ING complaint resulted in an explicit aim of influencing corporate undertaking by ING to bring its loan behaviour and strategies. So, the goal is portfolio in line with the Paris Agreement, not to obtain a favourable decision and to including an agreement to exit from be paid: it is rather about driving the thermal coal by 2025. Discussions public debate forward and raising public continue with ANZ. awareness for this cause. Mr Lluiya’s case, for example, is largely driven by Growing numbers NGOs – the actual compensation claimed is only a few thousand Euros. The of claims against litigation costs, however, are assumed to companies globally be in the millions,” says Keller. There are currently hundreds of cases worldwide, and some are expected to Challenges to shape the development of the law and governments the debate on climate change more broadly. A recent report produced by Governments are also increasingly finding Columbia Law School and the United themselves in the cross-hairs where Nations Environment Programme found climate change issues are concerned. that as of June 2021 there were over Cases have been brought across the 2,000 climate change related cases in globe from the US to Australia, with 41 countries. Belgium and Poland most recently joining the ranks along with countries such as Amongst these is the case of Saúl France, Germany, Ireland, Italy and Luciano Lluiya, a Peruvian farmer who Norway. These claims, if successful, are brought a claim against the German paving the way for more sweeping and energy company RWE AG in Germany. stringent obligations on businesses, both Mr Lluiya owns some land in a valley in through the consequential passing of the Peruvian Andes, located just below a national laws and regulations, and the melting glacier. He argues that RWE resultant development of judicial should contribute to the cost of protective precedent and case theory. measures necessary to safeguard his property against flooding, commensurate Germany with RWE’s proportionate share of global Recently a group of German citizens, greenhouse gas emissions. “The activists from the global movement interesting question at stake is one of "Fridays for Future" and islanders in fear causation,” says Moritz Keller, a Frankfurt- of the direct effects of climate change based partner in Clifford Chance's through rising sea levels, as well as Litigation & Dispute Resolution Group. “Is Bangladeshi and Nepalese citizens, it possible to prove that RWE’s emissions challenged the German Federal Climate in Germany have caused the glacier in Change Act (Bundes-Klimaschutzgesetz - Peru – that is some 10,000 kilometres Climate Change Act). Backed by NGOs away – to melt?” including Greenpeace and Germanwatch, the plaintiffs invoked the "Right to a In November 2017, the Higher Regional Future", arguing that Germany's climate Court of Hamm determined that Mr Lluiya change targets to reduce CO2 emissions has a prima facie case against RWE, by 55% by 2030, are too low. ordering that the claim progress to the evidentiary stage. As part of this process, CLIFFORD CHANCE 3 ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
In another landmark ruling (published on approvals relating to coal mining projects 29 April 2021), the Federal Constitutional which could make a reasonably Court held that provisions of the Climate foreseeable contribution to climate Change Act governing national climate change under the Environment Protection change targets and annual emission and Biodiversity Conservation Act 1999 budgets until 2030 are incompatible with (Cth). In this case, the Vickery Coal fundamental constitutional rights, since Project (owned by Whitehaven Coal) was they lack sufficient specifications for expected to extract 33 MT of coal, with further emission reductions from 2031 consequent emissions of 100 Mt of CO2. onwards. The Court found that reduction Detailed expert evidence relating to the targets provided for in the Climate cause and impacts of climate change Change Act are imbalanced, as they shift was considered by the Court, with major reduction burdens to the future, Bromberg J noting that "[i]t is not which could result in a considerable disputed that these [climate change limitation on the freedom of coming induced] events will have impacts on the generations. In response, the German Australian economy, Australia’s natural cabinet has approved a reform of the and managed terrestrial and marine Climate Change Act, setting a new target ecosystems, and on the health and of a 65% cut to CO2 emissions and wellbeing of individuals, communities and describing it as a “fair offer to the society". His Honour was satisfied that younger generation.” injury-inducing events such as heatwaves, bushfires and other flow-on effects Thomas Voland, a Clifford Chance Partner "expose each of the Children to a real risk based in Düsseldorf says: "The ruling of harm from extreme weather events might necessitate that business sectors brought about by climate change." adapt their processes to these stricter requirements and accelerate the transition This ground-breaking decision follows a process. In addition to the financial number of recent climate change-related consequences, the ruling will have far- cases in Australia, including the class reaching legal implications. It confirms action filed by Melbourne law student that climate protection and mitigation of Kathleen O'Donnell in O’Donnell v the long-term effects of climate change Commonwealth in July 2020. In a are of high constitutional importance. This Statement of Claim filed on 23 December finding is expected to further increase the 2020, the applicant alleges that the risk of climate change-related lawsuits Commonwealth Government failed in its against companies." duty to disclose climate change impacts on the value of government bonds. The Australia case promises to further clarify how climate risk should be managed and The Australian Government and Federal disclosed by government entities looking Minister for the Environment are facing to raise funds in public markets. increased pressure to take further action on climate change following the Amanda Murphy, a Counsel in Clifford devastating bushfire emergency during Chance's Perth office, who specialises in the summer of 2019-2020, in which 33 international law, including climate change people were killed, 3,094 homes law, says: "The decision in the Sharma destroyed, a total of 17 million hectares of Case has established a novel duty of care land was burned and over a billion in Australian law, while also affirming the animals were lost. Most recently, on 27 causes and probable generational harm May 2021, the Federal Court of Australia which will be caused by climate change. issued a landmark judgment in Sharma With the scars of the devastating bushfire (by her litigation representative) v Minister season still raw in the Australian psyche, for the Environment [2021] FCA 560. This this decision will no doubt open the door Judgment recognises, for the first time, for similar claims based on breach of this that the Minister for the Environment novel duty of care against both owes a duty of care to protect Australian Government and private entities." children from the harmful impacts of climate change when considering 4 CLIFFORD CHANCE ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
France On 1 April 2021, another administrative court partially admitted a request from six Both governments and corporates have environmental NGOs seeking to revoke been targeted in several landmark cases Total Refining France's operating permit this year before the administrative and to continue to operate a refinery in South- civil courts in France. Eastern France. Total intended to On 1 July this year, the Conseil d'Etat (the transform the refinery in question from highest French administrative court) crude oil to biofuels. Whilst the NGOs did ordered the French government to take not succeed in invalidating the permit, the additional measures by 31 March 2022 to court did order Total to review its impact reduce greenhouse gas emissions by study on the use of palm oil imported 40% by 2030. This case was originally from Asia. This decision demonstrates the commenced by the city of Grande-Synthe French court's sensitivity to environmental in northern France, and environmental issues and its increasing tendency to groups including Greenpeace, Oxfam, require corporates to undertake more Notre Affaire A Tous and the Nicolas impact or risk studies. Hulot Foundation. This direct action In this respect, NGOs tend to rely resulted in an historical decision last increasingly on the Loi de vigilance, November, by which the administrative enacted in 2017, to file claims against courts gave the French government three corporates regarding an insufficient months to prove that current greenhouse awareness and lack of effective measures gas emissions targets for 2030 could be to mitigate social and environmental risks. met without additional measures. Having An unsolved debate on jurisdiction is disclosed this additional information, the currently ongoing as NGOs tend to seize court rejected the Government's claims civil courts while corporates claim that no further measures were required, commercial courts should have resulting in the injunction ordered on jurisdiction. In this respect, on 11 1 July. February 2021, the Nanterre Civil Court Meanwhile, in February 2021, a Paris ruled that it did have jurisdiction to hear administrative court found the French the complaint filed by NGOs and local state guilty of failing to address climate authorities in climate litigation cases. This change, and for not adhering to its decision came as a surprise, as it promises to tackle CO2 emissions. contradicts the decision of the Court of Dubbed the "case of the century", this Appeal of 10 December 2020, which case was brought by environmental confirmed the lack of jurisdiction of civil groups, including Greenpeace and courts in favour of commercial courts to Oxfam, following a petition signed by 2.3 rule on the compliance of vigilance plans. million people. Whilst the case only The judge ruled that even if a dispute resulted in an award of one euro to each "relates to commercial companies" once NGO (for non-material harm and prejudice the vigilance plan and the internal moral), resolving the question of management of the company are directly pecuniary compensation in such linked, it does not prevent civil courts instances, the court did recognise the from having jurisdiction in cases brought concept of "ecological damage" and by non-business claimants. The oil established a duty on the State to its company involved in the Nanterre case citizens to comply with the Paris announced that it will appeal the decision, Agreement. The court has not yet ruled so a new decision from the Court of on the measures needed to stop the Appeal of Versailles is expected. future aggravation of damage and ensure that the State complies with its The Netherlands international engagements, but did order Perhaps the case that started it all took the State to undertake further place in the Netherlands. Urgenda, a investigative measures over a two-month foundation that wants to achieve, in its period. Another hearing should be own words, “a sustainable Netherlands,” scheduled in the near future to rule on took the Dutch state to court in 2013 such measures. over its alleged failure to take effective CLIFFORD CHANCE 5 ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
action on climate change. The case made amend their complaint and, in May 2021, headlines globally in 2015 when the court the district court judge ordered a found in favour of Urgenda, ruling that the settlement conference between the government must cut greenhouse gas parties. Thus the case continues. emissions by at least 25% by the end of 2020 (in comparison with 1990 levels). Over twenty state and local governments The case came to an end with a final have pursued claims against energy judgment of the Supreme Court in late companies in state courts under public 2019 – again finding in favour of Urgenda. nuisance laws for their contributions to Urgenda is now seeking a court order climate change, but face roadblocks over that the Dutch State pay penalties for questions of jurisdiction, in particular each day that it fails to take steps whether the defendants can successfully towards the reduction in greenhouse remove those cases to federal court and gas emissions. arguments that the claims are pre- empted by federal law. The Supreme Arguably, a line can be drawn between Court recently sided with the energy this 2019 decision and the recent companies in one such case, sending the judgment against RDS by the District case back to the lower court to consider Court of The Hague in May 2021. In the the jurisdictional question further, but the Urgenda decision the court applied ruling was one of technical procedure and articles 2 and 8 of the European did not address the substance of any Convention on Human Rights (ECHR) claims. As this history shows, these directly, in the RDS-case these cases often take years to resolve and fundamental rights were part of a wider involve multiple levels of appeal in both mix of relevant rules and norms which the the federal and state courts. court applied in determining the standard of care owed by a company towards the Outside of the courts, the US regulatory inhabitants of The Netherlands in respect landscape is only becoming more of greenhouse gas emissions. complex. At the federal level, President Biden has indicated that the federal “The outcome in Urgenda was surprising government will increase its regulatory to many at the time – courts rarely dare activity following a "whole of government" to oblige States to take action. In many approach, most recently with his 20 May ways, this was the beginning of the 2021 executive order directing the global wave of climate change cases," executive branch to develop a strategy says Luycks. regarding the risks that climate change poses to the US financial system. The US Additionally, the Chairman of the Securities and Exchange Commission has In the US, although plaintiffs have repeatedly stated that public companies imposed pressure on companies through could soon be expected to disclose litigation, claims for climate-related harms climate-related risks in their business. have to-date met with limited success in Where companies have already made the US federal courts. In one case, such disclosures, the accuracy of the Juliana v. United States, twenty-one disclosures has also exposed them to young people sued the US government, regulatory enforcement action and alleging that its failure to act on climate shareholder litigation, as has been the change violated their rights under the US case with lawsuits brought against Exxon Constitution and asking the courts to by the New York State Attorney General's require the government to develop a Office, which Exxon defended climate action plan. In January 2020, the successfully, and by shareholders in US Court of Appeals for the Ninth Circuit federal district court in Texas, which dismissed the case for lack of standing. Exxon continues to defend. The court reasoned that no court order could redress the plaintiffs' injuries At the state level, the direction is mixed, because it is beyond the courts' power to following the political leanings of the supervise the political branches in individual states. For example, developing a climate plan. The Ninth Washington State enacted its Climate Circuit refused to rehear the case en Commitment Act, on 17 May 2021, which banc. However, plaintiffs filed a motion to 6 CLIFFORD CHANCE ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
will create the country's most aggressive agreements (namely, the 1992 United cap-and-trade system and will require Nations Framework Convention on decreasing emissions over the coming Climate Change and the 2015 Paris years. In contrast, Texas's Senate Bill Agreement), European conventions and 13 would require state entities to divest regulations (such as Article 2 and 8 of the from companies that boycott high- ECHR, Article 191 of the Treaty on the emissions companies. Functioning of the European Union and Regulation No. 2018/1999) and Italian Clifford Chance Partner Steve provisions (Articles 2 and 32 of the Italian Nickelsburg, who is based in Washington, Constitution – solidarity principle and right D.C., says: "across the board, companies to health). The claimants argue that the doing business in the United States face Italian Government is in violation of the a changing landscape for legal risk general duty of neminem laedere (or do related to climate change. Especially as harm to no one, Article 2043 of the Italian federal agencies begin to implement the Civil Code) and of the duty to take care of Biden Administration's executive orders, goods (Article 2050 of the Italian Civil companies should consider their Code) to which the Government is the strategies to address anticipated sole custodian (i.e. the environment). regulatory expectations around climate change risks. In addition, businesses with It is expected that the case will cross-border operations in particular will progress to an initial procedural hearing in face increasingly complex requirements, approximately three months, but it is depending on the level of coordination unlikely that the matter will come to trial between the United States and, for before the end of 2021. The first instance example, the European Union. decision may be expected in Companies should prepare themselves approximately two years' time, depending with a comprehensive strategy on how long the evidentiary phase for adapting." will take. Italy A ruling in favour of the claimants would likely lead to the Italian Government The Italian courts are about to hear Italy's introducing new legislation setting first climate-related case. concrete steps to meet its 2015 Paris Agreement obligations. Furthermore, as On 5 June 2021, more than 200 has happened in other jurisdictions such claimants, including 162 adults, 17 as the Netherlands, a successful outcome minors (represented in court by their on the part of the claimants may also parents) and 24 NGOs, filed a lawsuit encourage environmental activists to against the Italian State, called "The Last widen their attention from the Judgement", along the same lines as the Government to include corporations Dutch Urgenda case and French Affaire whose business involves heavy emissions du Siècle. The aim of the lawsuit, brought of greenhouse gasses. before the Court of Rome, is to sue the Italian State for "climate inaction" – an insufficient commitment to promote Mounting commercial adequate greenhouse gas emission pressure reduction policies; seeking a ruling In addition to litigious and regulatory ordering the Italian State to achieve a pressure, companies are also facing reduction of 92% in greenhouse gas mounting commercial pressure to emissions by 2030, in order to meet the address their exposure to climate change long-term temperature goal of the Paris risks. On the same day as the RDS Agreement (aiming at limiting global decision (26 May 2021), significant warming to 1.5°C). climate change-related votes took place at the AGMs of ExxonMobil and Chevron. The claimants allege that the action taken At ExxonMobil, a small group of investors by the Italian Government so far in this representing only 0.002% of shares won area is undoubtedly insufficient and seats on the twelve-member board, after results in the violation of numerous arguing that the company's focus on fundamental rights recognised by the fossil fuels created an "existential risk" – Italian State, deriving from international the first time in the company's history that CLIFFORD CHANCE 7 ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
it has faced a contested shareholder vote What's next? of this nature. Meanwhile, over at Climate change litigation is here to stay. Chevron, shareholders voted for a Growing climate awareness, increased resolution calling on the company to pressure on Governments to adopt reduce substantially its Scope progressive legislative and regulatory 3 emissions. action to try to limit global warming to "well below" two degrees (if not 1.5 Such resolutions have become a degrees), and to take actual concrete common feature in the energy sector. steps now to implement these targets in Banks are also being targeted by the short to medium term, combined with activists, with resolutions being put a judicial willingness to grapple with these forward designed to phase out financing thorny issues as case theories start to for carbon-intensive industries. Pushing crystallise and a line of (global) precedent for these resolutions has become a key is formed, make this an efficient tool for tactic of activists such as ShareAction activists to apply pressure on businesses. and has proven successful. As the Say on Climate campaign continues to gather "We see increasing shareholder activism momentum, similar actions are imminently and more and more litigation activity expected at hundreds of other relating to ESG. And ESG requirements companies, assuming they fail voluntarily are triggering a fundamental change of to agree to develop comprehensive business case across many sectors – not climate plans, and to put them to a just energy" says Leese. “We are advising shareholder vote themselves. our clients to monitor this changing landscape and to work on "future proofing" their business to take account of what's coming down the track. ESG is a boardroom topic and rightly so." 8 CLIFFORD CHANCE ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
CONTACTS Roger Leese Carla Lewis Juliette Luycks Partner Senior Associate Counsel London London Amsterdam T: +44 207006 8710 T: +44 207006 4323 T: +31 20 711 9118 E: roger.leese@ E: carla.lewis@ E: juliette.luycks@ cliffordchance.com cliffordchance.com cliffordchance.com Thomas Voland Amanda Murphy Steve Nickelsburg Partner Counsel Partner Düsseldorf Perth Washington T: +49 211 4355 5642 T: +61 8 9262 5567 T: +1 202 912 5108 E: thomas.voland@ E: amanda.murphy@ E: steve.nickelsburg@ cliffordchance.com cliffordchance.com cliffordchance.com Daan Lunsingh Scheurleer Moritz Keller Alice Dunoyer de Segonzac Partner Partner Avocat Amsterdam Frankfurt Paris T: +31 20 711 9047 T: +49 69 7199 1460 T: +33 1 4405 5262 E: daan.lunsinghscheurleer@ E: mortiz.keller@ E: alice.dunoyerdesegonzac@ cliffordchance.com cliffordchance.com cliffordchance.com Charles-Henri Boeringer Carolina Piovano Partner Senior Associate Paris Milan T: +33 1 4405 2464 T: +39 02 8063 4277 E: charles-henri.boeringer@ E: carolina.piovano@ cliffordchance.com cliffordchance.com CLIFFORD CHANCE 9 ESG TRENDS: THE RISE OF CLIMATE LITIGATION AND THE CHALLENGES FOR BUSINESS
This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. www.cliffordchance.com Clifford Chance, 10 Upper Bank Street, London, E14 5JJ © Clifford Chance 2021 Clifford Chance LLP is a limited liability partnership registered in England and Wales under number OC323571 Registered office: 10 Upper Bank Street, London, E14 5JJ We use the word ‘partner’ to refer to a member of Clifford Chance LLP, or an employee or consultant with equivalent standing and qualifications If you do not wish to receive further information from Clifford Chance about events or legal developments which we believe may be of interest to you, please either send an email to nomorecontact@cliffordchance.com or by post at Clifford Chance LLP, 10 Upper Bank Street, Canary Wharf, London E14 5JJ Abu Dhabi • Amsterdam • Barcelona • Beijing • Brussels • Bucharest • Casablanca • Delhi • Dubai • Düsseldorf • Frankfurt • Hong Kong • Istanbul • London • Luxembourg • Madrid • Milan • Moscow • Munich • Newcastle • New York • Paris • Perth • Prague • Rome • São Paulo • Shanghai • Singapore • Sydney • Tokyo • Warsaw • Washington, D.C. Clifford Chance has a co-operation agreement with Abuhimed Alsheikh Alhagbani Law Firm in Riyadh. Clifford Chance has a best friends relationship with Redcliffe Partners in Ukraine. 2106-001758
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