Nigel Brook explains why climate litigation risk needs to be on every corporate risk manager’s radar
No corporate risk manager is going to get to the end of 2021 without a very clear understanding of their organisation’s responsibilities with regard to climate change.
From the risks and opportunities arising from the need to transition to a zero carbon economy, to preparing for the more physical impacts of extreme weather impacting the organisation directly or via the supply chain.
But some businesses may be less aware of the looming wave of climate litigation coming their way.
StrategicRISK spoke to Clyde & Co partner Nigel Brook to find out more about current climate litigation trend and why it is gaining momentum.
“To put this into some sort of perspective, as of the end of May this year there were 1,841 climate cases to date,” he says. “But over one thousand of those have been filed since 2015, so it is very much accelerating.”
Taking on the oil majors
The first category of climate litigation involves emissions since 1965. “In terms of the focus on companies, some of these will be against heavy emitters saying, ‘you’re driving climate change and I’m going to suffer loss as a consequence, and you’re going to compensate me’,” says Brook.
“There’s some big cases being in the US being brought against the oil majors in that category. They are years away from trial but there are a lot of them.”
Then there is a new category of litigation coming through, which is focused more around shaping policy.
“Most of the litigation is still against governments and most of that is trying to force them to take more rapid action on emissions. In some cases it is about adaptation as well, for instance it might be to adopt more, ambitious policies, or to block particular projects.”
Brook points to the Urgenda case in the Netherlands in which a Dutch environmental group and 900 of the country’s citizens successfully sued the Dutch government, requiring it to do more about climate change.
As part of its ruling in the Supreme Court, the state is required to reduce its emissions by at least 25% (instead of 21%) by the end of 2020. It has prompted similar cases against other governments.
“Essentially, it involves citizens of the countries concerned saying, you the government owe me a duty of care based on my human rights.”
“That kind of case has been taken successfully now in Germany (with similar cases in Belgium and Ireland) and there are more in the pipeline.”
Success breeds copycat lawsuits
Inspired by rights-based litigation brought against governments, activists have turned their gaze to the corporate world.
The most high-profile to date is the case brought against Royal Dutch Shell by NGOs including Dutch Friends of the Earth and 17,000 Dutch citizens. The case, explains Brook, was “straight out of the Urgenda rulebook”.
In its landmark ruling in May, the District Court of The Hague ordered the energy giant to cut its CO2 emissions by 45% compared to 2019 levels by the end of 2030. The order relates not just to its own emissions but also those of its customers who use its products.
“For this particular course of action, it is very much the heavy emitters who are in the firing line,” says Brook. “They are the most exposed, in objective terms. But we’re seeing a trend of some success triggering other cases.”
“A few weeks ago we saw German NGOs file a case against Volkswagen, BMW and Daimler’s Mercedes-Benz, calling on them to stop producing internal combustion engine cars by the end of the decade and to restrict sales of these cars in the interim.”
The cases will be modelled on Royal Dutch Shell, with action also brought against energy firm Wintershall Dea, calling on it to refrain new oil and gas explorations from 2026. Greenpeace and environmental NGO DUH say the deadlines are needed to meet the goals of the Paris climate accords.
In terms of how risk managers should be thinking about the potential for climate litigation, Brook thinks it is fundamentally a board issue. “If it is not there already, it has to be. Boards have to understand the range of ways in which this could expose the company, depending on which sector it’s in.”
“With climate change, we have already seen how physical and transition risk can interact with other risks and amplify them as well.”
”So for risk managers it is about trying to get a handle on how climate risk could magnify or interact with the risks they already have on their register, and then ensuring awareness infuses down to those making day-to-day decisions.”