Increasing climate litigation and shareholder action expected

Ensuring your responses to stakeholder inquiries about climate change are robust

There is a growing volume of climate-related legal actions globally, particularly against energy companies, financial firms and governments.

Climate litigation is taking a number of forms, across multiple jurisdictions. In Australia, a wave of climate activism and interest has given rise to increased litigation and regulatory action. Of the extensive actions in Australia and across the globe, pertinent cases include:

• Shareholder and investor litigation: shareholder and investor action has been prolific in the United States. In Australia, litigation is on foot between superannuation fund REST and one of REST's members in relation to the disclosure and management of climate-related risks. If the case proceeds to trial, it may provide guidance on judicial interpretations of the scope of superannuation trustees' duties with respect to the assessment, management and disclosure of climate-related risks. This follows proceedings issued against the Commonwealth Bank of Australia in 2017 alleging inadequate disclosure of climate change risks. Similar cases have been filed in the US against ExxonMobil.
• Tort claims: tort claims are emerging as a key means of recourse against corporates. These claims are often novel, relying on untested application of laws on nuisance and negligence to allegations of harm arising from localised emissions. In Germany, a Peruvian farmer has filed a claim against RWE in general nuisance under the German Civil Code. The plaintiff is suing for damage caused by environmental change that he alleges arises (in part) from RWE’s percentage of global emissions since industrialisation. A number of claims have been filed in the US in public nuisance against large emitters. In Australia, plaintiff advocates are working to formulate claims against Australian-based companies, and so we believe such actions are imminent.
• Human rights complaints: many judicial and non-judicial complaints are formulated as human rights harms arising from climate change impacts. A particularly interesting one is the Philippines Human Rights Commission, which has been hearing allegations that 51 major emitters, including a number of companies with a significant Australian presence, have collectively contributed to climate change, and as a result violated Filipinos’ basic rights.
• Regulatory investigations: Regulators are also taking more interest, and a number of investigations and actions are on foot. In 2019 ExxonMobil successfully defended proceedings in the New York courts concerning whether it had misled investors on the climate change-related costs associated with its business operations.

Claims against governments and regulatory agencies are another growing trend. In New South Wales, a group of bushfire survivors has recently issued proceedings against the Environmental Protection Agency to try to prompt the Agency to use its statutory powers in relation to climate change, including setting limits on greenhouse emissions and enforcing them.

Asset-specific litigation and public law challenges are also becoming more common (see Climate Change and Project Approvals for more information), as are complaints under soft law mechanisms (see Voluntary Schemes and Soft Law for more information).

Key Risks

The key drivers in Australia for climate change litigation against companies are:

• Dissatisfaction amongst the public interest sector in the Federal Government's strategy to mitigate climate change, making climate litigation an attractive avenue to attempt to drive change;
• Increasing cost to cities and states of climate adaptation and mitigation measures;
• Developments in event attribution and a better understanding of the causal links between emissions sources and climate-related loss and damage;
• Appetite among private plaintiffs (such as investors and NGOs) for litigation focused on corporate accountability for climate change;
• Better resourcing of public interest litigants, some of which are now able to, for example, provide security for costs; and
• extreme weather events, such as bushfires, causing property damage.

In this environment, we consider there to be a significant risk of organisations discounting the possibility of climate-related litigation affecting their businesses, or (noting the broad range of causes of actions and forums available to litigants to prosecute climate-related cases) to misapprehend their greatest sources of climate litigation risk.

Key questions

An assessment of climate litigation risk should involve considering the following questions:

• Has your organisation identified its legal duties, both common law and statutory, in relation to the full spectrum of climate-related risks? Where are the vulnerabilities, and what is the potential quantum of exposure (to the extent this is known)?
• Has your organisation identified potential litigation pathways against it in relation to climate risk, and (noting the creativity displayed by public interest litigants) is it thinking broadly when doing so?
• Are your corporate governance and compliance management frameworks for climate-related risks in line with recent guidance?
• How is the business talking to stakeholders about climate risk mitigation? When compared with industry peers, is there a risk of standing out as a 'laggard' (and therefore possibly a target for public interest litigation)?
• Is your organisation comfortable that its responses to stakeholder inquiries about climate change are robust and, where appropriate, subject to legal review?
• Do you have continuous improvement processes in place to ensure you periodically assess your response to climate-related risks against regulatory requirements and community expectations, and against available data and modelling frameworks? The targets of litigation are more likely to be those considered out of step or lagging.