Climate change litigation update

Introduction

The total number of climate change cases filed to date has now reached 1,302, with 148 new cases being filed since the previous update we published in August 2018 (link).¹ This legal update considers some key developments and cases since the August update.

Key business risks posed by climate change can be divided, broadly, into two categories

• Physical impacts, including increases in mean and maximum temperatures, increased minimum temperatures, changes in precipitation patterns, increased incidence of extreme weather events, and increases in mean sea level.
• Transitional impacts, including changes to international and domestic policy, law, markets, technology, and customer and community attitudes towards business activities.

Associated with these risks is an increasing climate change litigation risk. Key risks to business associated with climate change litigation include, among others, exposure to damages claims, financial and reputational cost of defending litigation, disruption to operations and enforcement of disclosure requirements.

To date, the majority of climate change litigation has occurred in the United States (US), followed by Australia, the United Kingdom (UK), the European Union, New Zealand, Canada and Spain.²

In this legal update, we set out summaries of some recent key cases, highlighting key trends, developments and lessons under the following categories:

• Legal action against energy companies for emissions contributing to climate change.
• Legal action against businesses for failure to disclose climate-related financial risks.
• Legal action against government, indirectly affecting business operations.

In view of the recent Rocky Hill decision, considered further below, we have added a related fourth category:

• Legal action aimed to prevent developments causing emissions contributing to climate change.

This legal update does not consider other kinds of emerging climate-related disputes, such as commercial, investor-state or state-state arbitration. Those disputes are considered in another recent update at the following link.

Legal action against companies for contributions to climate change

Legal action targeting businesses that are perceived as major contributors to climate change continues to dominate the climate change litigation space. The most common defendants of these claims are fossil fuel corporations and associated entities.

Although the majority of this litigation continues to originate in the US,³ similar complaints are increasingly being seen in other jurisdictions.⁴ Furthermore, while state and local governments remain the primary instigators,⁵ other parties impacted by climate change are starting to take action.

Case summary

Pacific Coast Federation of Fishermen’s Associations, Inc. v Chevron Corp & Ors (Chevron)

In this case, an industry representative body affected by climate change filed an action in tort against several energy companies for their contribution to climate change.

On November 14, 2018, the Pacific Coast Federation of Fishermen’s Associations, Inc. (Fishermen’s Association) filed a lawsuit in the California Superior Court against a number of large energy companies. The Fishermen’s Association alleged that it suffered losses arising from the defendants’ contributions to climate change. The claim centres around the impact that rising ocean temperatures have had on commercial crab fisheries, including increased toxicity of crabs and prolonged closures of fisheries.

The claim is primarily based in tort, alleging nuisance, failure to warn and negligence as a result of these corporations’ contribution to climate change. The plaintiff has supported the claims by emphasising the defendants’ knowledge of the risk of climate change and their significant contributions to global greenhouse gas emissions.

Chevron applied on December 13, 2018 for the case to be heard in the federal jurisdiction, which is generally considered to be less favourable to climate change litigants. A trial date has not yet been set for the lawsuit.

Takeaways

While similar actions have been largely unsuccessful in the past,⁶ this recent case demonstrates that non-government entities are increasingly willing to attempt to hold perceived emitters to legal account.

The tort of nuisance continues to be a primary basis for claims against fossil fuel corporations. Businesses should also be aware of the possibility of claims in negligence being brought for failure to mitigate or adapt.

Failure to disclose climate-related financial risks

Both physical and transitional risks associated with climate change may cause significant financial impacts for businesses going forward. As a result, companies are facing increased scrutiny from both internal and external stakeholders in relation to their climate change policy and risk reporting.

In particular, a pattern has emerged of activist shareholders filing resolutions against corporations, particularly major energy companies, demanding increased transparency surrounding climate change risks and company policy.⁷

A potential obligation on company directors to consider and disclose material climate change risks has been the subject of much commentary in recent years. In 2016, a legal opinion by Noel Hutley QC and Sebastian Hartford-Davis identified that climate change now presents a material financial risk to business, and as a result Australian company directors may be legally obliged to consider and report on the risks.

Since then, the following developments have taken place

• The G20’s Financial Stability Board Task Force on Climate-related Financial Disclosures (TCFD) has provided a voluntary framework on how companies can make climate related disclosures.
• The Senate Economics Reference Committee has issued recommendations that the Australian Securities and Investment Commission (ASIC) and the Australian Stock Exchange (ASX) review its guidance to directors to ensure that carbon risk is properly taken into account.
• The Australian Accounting Standards Board (AASB) and Auditing and Assurance Standards Board (AUASB) have stated that companies should consider climate-related risks in the context of their financial statements.

In February 2019, the ASX Corporate Governance Council published the 4th edition of its Corporate Governance Principles and Recommendations, which include, at Recommendation 7.4, the recommendation that listed entities should disclose whether they have any material exposure to environmental risks, including climate change risks, and how they manage or intend to manage those risks. The publication further encourages entities to consider the recommendations of the TCFD.

A series of public speeches and statements by financial institutions in Australia have also increasingly noted the importance of taking into account climate change risks in the financial and corporate sectors. For example, Geoff Summerhayes of the Australian Prudential Regulation Authority delivered two speeches in 2017, and a recent speech in 2019, emphasising the growing link between climate change and financial risk, as well as the need for increased climate risk disclosure. In 2018, John Price, the Commissioner of ASIC, gave an address in which he also encouraged Australian companies to consider the recommendations of the TCFD.

Most recently, Guy Debelle, Deputy Governor of the Reserve Bank of Australia, has noted climate change impacts are being felt at a macroeconomic scale in Australia, and endorsed the statements of John Price and Geoff Summerhayes. In our view, all of these developments tend to increase the litigation risk arising from failure to disclose climate-related financial risks.

Case summaries

Below we consider two recent climate change disputes seeking relief for improper disclosure of climate change-related information by businesses.

The People of the State of New York v Exxon Mobil Corporation (Exxon)

On October 24, 2018, the New York Attorney General filed an action alleging that Exxon Mobil Corporation (Exxon) perpetrated a longstanding fraudulent scheme concerning the management of business risks relating to climate change, in order to deceive investors and the investment community.

It is alleged that over a number of years, Exxon made misleading and fraudulent representations to investors by applying more conservative risk calculations internally than was represented publicly. Additionally, it is alleged that Exxon was inconsistent in its application of "proxy costs" for carbon emissions,⁸ and failed to apply appropriate costs to risk assessments of carbon-intensive assets such as oil sands.

As a result, it is alleged climate-related risks to Exxon’s business and assets were significantly under reported. This was especially significant in long-term assessments of asset value, demand and price projections, and business risks posed by a two degree scenario. The plaintiff’s claims are based in common law and statutory fraud. On 13 March 2019, a Federal Court decision rejected an application by the corporation to have the case dismissed.

Mark McVeigh v Retail Employees Superannuation Pty Ltd (REST)

On July 25, 2018, 23 year old Mark McVeigh filed legal action against Retail Employees Superannuation Pty Ltd (REST), seeking information regarding what the trustees know about the impact climate change will have on its investments and what they are doing in response to this knowledge.⁹

McVeigh alleged that the climate change information initially provided to him by REST was insufficient to discharge REST’s disclosure requirements under the Corporations Act 2011 (Cth).¹⁰

McVeigh further alleged that the physical and transitional climate-related risks to REST were foreseeable, material and actionable by Australian investors. He also alleged that these risks have posed, and will increasingly continue to pose, material or major risks to the financial position of many of REST’s investments, and that therefore REST has not discharged its due diligence risk duties under the Superannuation Industry (Supervision) Act 1993 (Cth).

McVeigh is seeking relief in the form of declarations that REST has breached its duties, and injunctions restraining REST from continuing the breach. On February 21, 2019, Ron Merkel QC, instructed by lawyers from Environmental Justice Australia, appeared in the Federal Court of Australia on behalf of Mark McVeigh. The Court made orders that allow McVeigh to make another application to limit any costs he might have to pay in the proceeding. Recently, REST has published a Climate Change Position Statement.¹¹ The litigation is expected to proceed regardless.

This is the first time a super fund member has taken a fund to court over a lack of information about climate change risk. The outcome of this case will be significant in informing businesses, particularly superannuation funds, of the extent to which they must consider and disclose climate change-related risk.

Takeaways

It is now widely considered industry best practice that financial institutions (and other businesses) should consider climate change in the context of their strategic and operational risk management. These recent cases demonstrate that companies are under increasing scrutiny from stakeholders to consider and disclose the impact of climate related risks on company investments and operations. As Exxon and McVeigh show, mere disclosure of risks relating to climate change, without further analysis or development, may not be sufficient to avoid litigation.

To fulfil existing obligations and reduce risk of litigation, businesses need to carefully consider how best to assess climate risk and make disclosure in order to avoid climate change litigation. Adopting the TFCD’s recommendations may assist companies in properly identifying and disclosing climate-related financial risks, thereby minimising the risk of litigation and penalties for breach of disclosure obligations.

Legal action against governments

Parties continue to bring legal action against governments, challenging environmental policy and alleging insufficient action to tackle climate change. Since the initial outcome of Urgenda Foundation v Kingdom of the Netherlands (Urgenda) established a positive obligation for the Dutch government to take action to adequately reduce greenhouse gas emissions, a spate of similar actions against governments have been filed.¹²

Case summary

Below we consider the outcome of the Urgenda appeal.

Urgenda Foundation v Kingdom of the Netherlands (Urgenda)

A Dutch environmental group, the Urgenda Foundation, filed a summons on behalf of 886 Dutch citizens (Urgenda Plaintiffs), alleging that the Dutch government was exposing its own citizens to danger by failing to take sufficient action to prevent climate change. The Urgenda Plaintiffs sought injunctive relief to compel the Dutch government to reduce greenhouse gas emissions.

On June 24, 2015, the district court of the Hague concluded that the state has a duty to take climate change mitigation measures, ordering a reduction in carbon dioxide emissions of at least 25 per cent by the end of 2020 (relative to 1990 levels). The Court found a sufficient causal link existed between Dutch emissions, global climate change, and related effects. It provided suggested reduction methods, including emissions trading schemes and/or tax measures.

The Hague Court of Appeal upheld the decision in its October 9, 2018 judgment. This case reaffirms that litigants can be successful in establishing a positive obligation for governments to adopt environmental policies aimed at reducing greenhouse gas emissions to mitigate the effects of climate change.

Takeaways

The Hague Court of Appeal’s decision to uphold Urgenda affirms the importance of considering transitional risks associated with state action on climate change. In the wake of this decision, we may expect to see similar cases continuing to be filed by citizens, activists and non-governmental organisations against governments. We can expect that plaintiffs will seek to compel action in relation to either prevention of, or adaptation to, climate change or seek payment of damages for failure to prevent harm.

Additional lawsuits attempting to force governments to take more urgent climate action are underway in France, Germany, Ireland, the UK, Norway, and the United States.

On March 14, 2019, a group of non-government organisations (peace France, Oxfam France, Fondation pour la Nature et l’Homme and Notre Affaire à Tous) filed a suit in the Administrative Court of Paris, alleging that France has violated its duty by failing to take action to limit global temperature rise to below 2 degrees Celsius. Greenpeace Germany have filed a lawsuit on behalf of three German families. That complaint alleges that the government’s failure to meet its 2020 target violates the families’ rights to life and health.

While the Paris Agreement continues to provide a reference for the obligations of governments to take action against climate change, there is an increasing push for governments to commit to the more ambitious 1.5 degree global warming pathway.¹³ While the projected impacts of climate change are significantly decreased under a 1.5 degree global warming pathway compared to a 2 degree scenario, the transition risks to businesses under this scenario are potentially significant.

Legal action against mining or other developments for emissions contributing to climate change

There an increasing trend in proceedings opposing development on the basis of climate change. This represents an additional approval risk of which companies need to be aware and which they need to adequately address in the application and assessment process.

Case summary

Gloucester Resources Limited v Minister for Planning [2019] NSWLEC 7

In an Australian first, development consent for a new coal mine was refused by the Land and Environment Court of NSW (the Court) for reasons that included its material greenhouse gas (GHG) emissions and contribution to climate change. The extent to which the Court addressed the issue of climate change on a global scale marks this as a landmark decision which significantly enhances the role of GHG emissions in the assessment of mining, as well as other major developments, in NSW.

Takeaways

The consent authority in this case undertook a balance of the public costs and the public benefits of the project, including potential global climate change impacts. It was significant that in this case global (or downstream) carbon emissions were considered as part of the cost/benefit analysis of the project, The environmental assessments of future developments may benefit from taking into account downstream carbon emissions in line with the approach taken by the Court.

The decision has been considered in further detail in our recent update, available here.

Conclusion

Climate change litigation is progressing rapidly, reflecting changing attitudes and an increasing sense of urgency with respect to avoiding climate change impacts. Recent landmark decisions such as Urgenda set the scene for a continued increase in the type and number of claims being filed.

Increasingly frequent statements by key financial institutions and regulators indicating that climate risk disclosure by company directors should be a focus for directors increases the litigation risk for companies that fail to consider climate change impacts on their business. The widely endorsed recommendations of the TCFD are considered to provide useful guidance to company directors in how they might proceed in developing their approach to disclosure.

However, while the risks associated with climate change and climate change litigation are significant and not to be taken lightly, it is a fact that risks also provide opportunities. Those who monitor and keep abreast of climate change-related risks may also identify significant opportunities in the form of improved reputation, increased competitiveness and new investment avenues.¹⁴

The authors would like to acknowledge the contribution of Samantha Marsh to this update.