Is climate litigation driving the energy transition?

Introduction

Throughout 2022, we continued to see legal action addressing issues of climate change – so-called “climate litigation” – used against governments and businesses as a tool to accelerate the energy transition. As the climate crisis remains firmly on the political and economic agenda, both real and threatened claims can influence, or even compel, entities to clarify, reform or repeal their sustainability policies.

What is climate litigation?

The most frequent type of claim remains against governments for their (in)action on climate change. For example, a local court ruled last summer that Czech government ministries had acted unlawfully because their emission mitigation measures were insufficient to achieve a 55 percent reduction in greenhouse gas emissions by 2030 compared to 1990 levels, as required by the Czech Republic’s Nationally Determined Contribution (NDC) under the Paris Agreement. More recently, in January 2023, the English Court of Appeal unanimously dismissed a claim brought by Friends of the Earth against the UK Government, which sought to challenge UK Export Finance's conclusion that its investment in a major LNG project in Mozambique was aligned with the UK's obligations under the Paris Agreement. And these are just two examples. Of the more than 2000 climate litigation cases recorded by the Grantham Institute, over 70 percent are brought against governments.¹ Together, these cases demonstrate how environmental NGOs are using strategic litigation, suing directly and also backing the claims of individuals, to drive governments to do more to combat climate change. 

More recently, corporates and financial institutions have become the target, first in the US but now globally. The claims are based in many different areas of law spanning environmental law, tort, contract law, business and human rights and competition law, and new, innovative causes of action are being brought all the time. For example:

• In the New Zealand case of Smith v Fonterra Co-Operative Group Limited, seven companies in the agricultural and energy sectors are being sued by a local resident for nuisance, negligence and a novel tort-based duty to “cease contributing to damage to the climate system, dangerous anthropogenic interference with the climate system, and the adverse effects of climate change through their emission of GHG into the atmosphere.” 
• In France, the Court of Cassation, the nation’s highest court, ruled in a claim against an energy company that a claimant seeking compensation for environmental damage may choose to invoke either the law of the country in which the damage occurred or the law of the country in which the event giving rise to the damage occurred. This development means that the claimant NGO can preserve evidence in France that pertains to its investigation into the company’s alleged responsibility for environmental damage in the Democratic Republic of the Congo.
• In the UK, ClientEarth notified Shell of its intention to bring a derivative action against its board in the English courts for alleged breaches of the directors’ statutory duties. The NGO is claiming that, by not reducing the company’s emissions following a 2021 order from a Dutch court to do so and by not setting interim targets for its net-zero goal, Shell is exposed to “the physical and transitional risks of climate change” and this amounts to a breach of the board’s s.172 and s.174 Companies Act 2006 duties. If brought, the courts will need to consider the extent to which directors must prepare their companies for long-term climate risks, potentially rubbing up against the longstanding position that a company’s best interests could be reduced to the financial interests of its members. In a recent speech on this issue, UK Supreme Court Justice Lord Sales recogniz that “environmental considerations may, and increasingly must, be taken into account by directors” and the operation of directors’ duties in practice requires one to consider the “general environment of expectation created by initiatives by regulators and in civil society.”

Are these claims succeeding?

Many climate-based claims fail. In 2022, only 54 percent of filed cases had an outcome that was at least ‘favorable’ to climate action.² There are significant procedural and substantive challenges for claimants to overcome, such as demonstrating a personal harm and being able to prove that climate change is the cause of that harm (as opposed to the natural volatility of the weather system). However, the time, cost and adverse PR associated with even unsuccessful claims can influence State and corporate behavior. For other claims, some settle before their merit is tested. For claimants, the objective is not necessarily always to succeed in court, it is to use the threat of legal action as another tool in their armoury to drive climate action forward. For example, in 2019, bp withdrew its ‘Possibilities Everywhere’ campaign, fearing public embarrassment, after ClientEarth complained to the UK’s National Contact Point, the body responsible for ensuring compliance with the OECD’s responsible business guidelines. This tactic has been met with some success and managing or avoiding the risk of climate litigation is now firmly on the c-suite agenda. 

However, losses which affirm the status quo or undermine existing sustainability policies may slow down the energy transition. In the US, the Supreme Court found in West Virginia v Environmental Protection Agency (EPA) that the defendant authority lacked the right under the Clean Air Act to regulate carbon dioxide emissions as proposed in its ‘generation shifting’ strategy. This initiative was intended to transition electricity generation away from coal and towards ‘cleaner’ natural gas and renewable sources. In reaching its finding, the court relied on the major-questions doctrine which holds that a government agency should not determine questions of vast economic and political significance without clear congressional authorisation to do so. 

There have also been some very notable wins, such as the Dutch decision in Milieudefensie et al v Royal Dutch Shell plc requiring Shell to reduce its CO2 emissions by at least 45 percent by 2030, and the English court decision in R (on the application of Friends of the Earth) v Secretary of State for Business Energy and Industrial Strategy, in which the government’s Net Zero Strategy was found to be lacking vital information which meant it had been unlawfully adopted. Whilst these wins typically only have precedent status in the local jurisdiction, they give rise to ‘copycat’ claims in other jurisdictions as climate litigation becomes a global phenomenon.

The rise of extreme event attribution

Looking to future trends, the next gear change in climate litigation will likely stem from the maturation of extreme event attribution science. This relatively new field seeks to establish, through in-depth modelling based on meteorology and climate science, that the emissions of a particular State or company caused, or increased the likelihood of, a climate-related event. Attribution science came to the fore in 2015 when Saúl Luciano Lliuya, a Peruvian farmer and mountain guide sued German energy firm RWE for 0.47 percent of the cost of local flood defences, necessitated by the retreat of the Palcaraju glacier. RWE is a target for the claim as one of the world’s largest historical emitters and being named Europe’s biggest CO2 emitter as recently as 2017. It was argued that, as this expense resulted from climate change, RWE was liable to pay an amount in proportion to its alleged share of global historical emissions. After being initially dismissed, the claim was appealed and a judgment is expected this year. Similarly, a claim brought in July 2022 against Swiss cement manufacturer Holcim partly relied on its alleged responsibility for 0.42 percent of global historical GHG emissions. Whilst these claims have so far only targeted the world’s top emitters – and the degree of alleged liability means Lliuya’s claim is for a mere €17,000 – if extreme event attribution is recognized as a trusted means of proving causation then these claims could trigger an avalanche of similar claims around the world.

Conclusion

It is undeniable that climate litigation is being used as one of many tools to drive the energy transition, as environmental organizations and private individuals target governments and corporations over their sustainability policies. As the new tort-based climate change duty in Smith v Fonterra Co-Operative Group Limited and the  potential derivative action against the board of Shell demonstrate, claimants are increasingly using novel legal arguments in the courtroom to advance their cause. This trend is only set to continue as extreme event attribution science develops and as regulation in the climate space (particularly in relation to corporate disclosures on climate risk) grows.

Please find our most recent climate litigation update here. 

This article is the second in a series examining factors driving the energy transition. To read the previous article click here.