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Climate change liability – New litigation risks

International Disputes Digest - July 2019

Aug 2019

Climate change has become one of the most prominent issues of our time. The Global Risks Report 2019 of the World Economic Forum considers Climate Change and extreme weather events as the gravest threat to humankind at present.

Even though climate fluctuation is a phenomenon that has been around the earth’s history since its existence, it is scientifically undisputed today that human activity is contributing to it. The emissions of anthropogenic greenhouse gases have so far caused approximately 1°C of global warming above pre-industrial levels. Another 1°C will most likely lead to irreversible damages to the world as we know it today.

However, climate change does not only affect nature. It also changes politics and law. And it leads to new types of lawsuits. Governments, companies and board directors all over the world are faced with lawsuits trying to hold them accountable for their contribution to climate change.

How is this possible?

The Paris Agreement and zero-emission by 2050

In 1992 the international community agreed upon the United Nations Framework Convention on Climate Change (UNFCCC), providing a forum to discuss and elaborate a global strategy to counteract global warming. Over decades, the work of the UN was perceived as something to concern state actors, but without any real impact on the economy. This has changed.

In the Paris Agreement of 2015 all UN member-states agreed to limit “the global average temperature to well below 2°C above pre-industrial levels” and to bring greenhouse gas emissions to zero by mid-century. 

Bringing CO2 emissions to zero by 2050 is a major task. States will have to adopt unprecedented national climate protection policies and will have to convert complete industries into environmentally-friendly businesses. The Paris Agreement therefore will not only lead to new climate policies but will also trigger lawsuits. 

Climate lawsuits targeting states

Today, states across the globe are already faced by lawsuits challenging insufficient climate protection policies and the non-implementation of international climate treaties. These claims are mainly based on human rights and public international law. The claimants argue that their governments’ climate policies are insufficient and so violate their human rights, including the rights to life, health and property.

The first claims have been successful. In the case of Urgenda Foundation v The Netherlands, Dutch courts ordered the government of The Netherlands to reduce greenhouse gas emissions by 25%. Urgenda Foundation, an environmental NGO, had sued the government on the basis that its climate reduction target of 17% was insufficient. The claim was based on the European Convention on Human Rights, the Dutch constitution and an unwritten duty of care deriving from the Dutch Civil Code, obliging the Dutch government to protect its citizens from the dangers of climate change.

In a similar case in the United States (Juliana v the United States), 21 minors are suing the US government alleging that the lack of regulation of greenhouse gas emissions violates their fundamental rights and the public trust doctrine. That doctrine establishes a state trusteeship of common property and a duty of maintaining the integrity of the natural resources of the country for future generations.

The objective of these and many other similar claims against governments worldwide is to drive change by pressuring state actors to develop and implement effective climate protection and adaptative measures.

Climate lawsuits targeting companies

Another wave of climate lawsuits is targeting oil, gas and energy companies over their emissions of carbon dioxide. These lawsuits are brought by individuals as well as by state entities. The claimants demand compensation for climate related harms and reimbursement of expenses from climate adaptation. The legal basis of these cases is tort and product liability law.

In the US, these tort claims are mainly based on the laws of private and public nuisance. The claimants argue that the companies’ CO2 emissions contribute to global warming, leading to extreme weather events and resulting in damage to public infrastructure and state-owned real estate (private nuisance). That in turn has a detrimental effect on public health, public security and public peace (public nuisance).

Most of these cases also include an action in negligence. By placing fossil fuels on the market, the energy companies take on a duty of care. This duty of care consists of preventing harmful effects caused by the product. According to the claimants, the energy companies did not take enough measures to reduce emissions, and are therefore liable for their contribution to climate change.

A similar argument is pursued to seek to establish strict product liability. The claimants argue that the sold product (fossil fuels) is defective due to CO2 emissions when used as intended and was, despite this knowledge, introduced into the market. That defect, it is argued, led to increased global warming and to alleged damages, not only for the ultimate users, but also for innocent bystanders. The plaintiffs allege defective design of the product and failure to warn despite their knowledge of it.

In Germany, a climate lawsuit was filed by a Peruvian farmer against the largest German energy company (LLuyia v RWE). The farmer claims that RWE’s emissions have contributed so far to 0.47% of the worldwide anthropogenic greenhouse gases, leading to increased global warming and the melting of the glaciers in the Peruvian Andes. The farmer is seeking a percentage based reimbursement of the expenses for the necessary measures he must take to protect his home against the overflow of the glacial lake.

In another more recent court case filed in the Netherlands in April 2019, an environmental NGO demands the reduction of greenhouse gases from Royal Dutch Shell and an alignment of the companies’ policies with the Paris Agreement (Friends of the Earth Netherlands and Milieudefensie v Royal Dutch Shell). As with the Urgenda case, the claim is based on the European Convention of Human Rights and the Dutch constitution and raises the highly disputed question of whether human rights have a binding effect on private parties.

So far, most of these lawsuits are still pending and their success remains to be seen. Claimants are facing many legal challenges when trying to establish climate liability, above all proving causation between the alleged climate change-related damage and the emissions produced by the companies. Establishing causation is very difficult to achieve, since it is not the individual emission contribution itself that leads to harmful climatic changes, but the accumulation of many inseparably mixed greenhouse gas emissions over a long period of time by a large number of actors.

Even if the causation cannot be established by the plaintiffs and the cases are not won, however, these lawsuits present a reputational risk for companies that needs to be considered by corporates in their risk assessment.

Other litigation strategies

Meanwhile, new litigation strategies by individuals and NGOs against companies are on the rise. In Poland, an environmental association bought shares in an energy company and sued the company as a shareholder from within (Client Earth v Enea). They claim that the Management Board and Supervisory Board’s decision to build a new coal power plant was a violation of fiduciary duties of care and a breach of the duty to act in the best interests of the companies and their shareholders, due to the climate-related financial risks of that power plant.

Internal lawsuits like these seem to be a new tool aimed at driving intra-corporate change. Brought by activist shareholders and employees, such claims are directed either against companies themselves or their senior management because of climate-damaging management decisions and non-disclosure of climate-related business risks.

This intra-corporate litigation pattern is also observable in climate lawsuits targeting other actors. Besides companies, investors in these companies and their projects – such as banks, insurers and pension funds – are also being sued
because of their alleged climate-damaging investment decisions, and from within by members due to nondisclosure of climate related risks.

Further, in April 2019 the Bank of England issued a policy statement requesting all UK banks and insurers to address their financial risks from climate change and to evidence how they will mitigate these financial risks. This new policy will lead to new liability risks for banks and insurers who do not comply with these new rules. It can also be expected that banks and insurers will be less inclined to finance or insure businesses who actively contribute to or are affected by climate change.

Outlook

The current wave of climate litigation seems only to be the beginning. 

Well-funded NGOs are hiring lawyers and finance specialists to find legal arguments to fight climate change in court.

Many upcoming lawsuits have already been announced in the media. Paris, London, the City of Victoria and the Pacific Island state of Vanuatu are currently reviewing their legal options to sue fossil fuel companies to shift the costs of climate protection. The government of the Philippines is investigating the impact of climate change on the human rights of the Philippine population and the role fossil fuel companies play in this. 

All things considered, the spectrum of lawsuits brought as part of climate litigation will see more actors and industries fall within its scope. Wide-ranging developments are anticipated in climate change litigation.

In this changing climate, every company ought to consider where it stands and should look for strategies either to change or to adopt appropriate risk strategies.

Publication
International Disputes Digest - July 2019
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Authors

Thomas Lennarz
Dr. Thomas Lennarz
Partner
Stuttgart