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Last year climate advocates seized on a new litigation weapon:
rights-related claims. The tactic of pursuing rights-related claims
against emitters meant a reckoning for countries like France and
Germany, as well as energy company Shell.
Last May, Dutch Friends of the Earth won a case against the company
by claiming its failure to raise emissions targets violated human
rights in the Netherlands (Milieudefensie et al. v. Royal Dutch
Shell plc).
The trend has persisted up to the present. NGO ClientEarth in
March sent a letter threatening legal action to Shell in the UK,
where Shell had moved its headquarters, for failing to secure the
company's future value for shareholders.
Law firm White & Case partner Mark Clarke, who leads its
London commercial disputes practice and co-heads the firm's global
energy industry group, told Net-Zero Business Daily by
S&P Global Commodity Insights about litigation trends being
felt by energy companies.
Net-Zero Business Daily: How has climate litigation
evolved since Urgenda Foundation v. The State of the
Netherlands?
Clarke: Historically, climate change litigation
principally involved claims for damages against large oil and gas
companies, and other substantial emitters of greenhouse gases.
However, owing to the difficulties in establishing a chain of
causation, these claims generally had little success. This resulted
in a pivot towards rights-based claims.
The Urgenda decision was the first by any court in the
world to order a nation to limit its GHG emissions for reasons
other than statutory mandates, as it found the Dutch government had
violated the duty of care to its citizens under Articles 2 and 8 of
the European Convention on Human Rights. This decision has been
followed by several more rights-based claims, generally commenced
by environmental groups against European governments, including
France, Belgium, and Germany.
More recently, rights-based claims have been brought against
corporations, as demonstrated by Milieudefensie's success in the
Netherlands (extending the scope of the principles established in
Urgenda) against Royal Dutch Shell. Rights-based claims
are likely to remain a dominant feature of climate change
litigation in the years to come.
Another prominent category of rights-based claims has emerged,
based on the principle of intergenerational iniquity. These claims
are brought by young claimants, deploying the argument that
children and young adults will suffer from the impacts of climate
change to a much greater extent than older adults. Young claimants
have successfully used this argument in many countries around the
world and the youth are becoming a powerful force in climate
litigation.
Net-Zero Business Daily: Where in the world is climate
ligation growing, and to which parts of the world do you see it
spreading?
Clarke: While, in numerical terms, there are
many more climate change-related claims within the US than outside
it, many of these claims have either failed (for example, on the
basis of injusticiability) or are still pending. That being so, a
lot of the most significant decisions in climate litigation have
occurred outside of the US, in particular, in Europe.
This is particularly so given the increasing success of
rights-based claims, and as these continue to gain traction, the
number of climate cases in Europe will increase.
Looking to the future, climate litigation is likely to spread to
nations that are particularly vulnerable to the impacts of climate
change, but in which there has been little or no climate litigation
to date. For example, of the thousands of climate change-related
cases that have been commenced throughout the world, only a handful
have been brought in any of the 54 countries in Africa. As the
impacts of climate change become more extreme, this is likely to
change, and the recent decisions that have been rendered by
European courts will provide a legal template for claimants.
Developments in the law concerning parent company liability may
also facilitate claims against parent companies registered in
European countries in relation to the climate impact of the
activities of their subsidiaries in countries in other continents,
such as Africa.
Net-Zero Business Daily: ClientEarth recently sent a
letter to Shell UK threatening action over duties of care owed to
shareholders. Have there been similar cases in the UK, or would
this be the first?
Clarke: This is unprecedented. If ClientEarth
obtains the court's permission to pursue the derivative claim
against Shell UK's directors, it will be the first claim of its
kind in the UK.
However, ClientEarth's letter is part of a wider trend of
shareholder activism, in which shareholders are seeking to use
traditional business mechanisms to take action against companies in
relation to climate change.
For instance, it has become increasingly common for activist investors
to use their votes to influence the setting of company climate
targets in line with the Paris Agreement, and some activists have
gone so far as to use their votes to remove and replace directors
to ensure the company's climate policy is in line with their
expectations.
Net-Zero Business Daily: How are oil and gas companies
preparing for more duty-of-care-related climate
litigation?
Clarke: Even before the Milieudefensie
judgment was released, energy companies had responded to the drive
towards net-zero in various ways, including: 1. by taking steps to
reduce the emissions from their operations (both in terms of the
actual production and refining of oil and gas, and also from the
energy used to run their operations); 2. by developing integrated
power businesses, incorporating low-carbon and renewable
electricity; and 3. by investing in carbon capture and storage,
whether through direct air capture or other technologies.
The key takeaway from the Milieudefensie judgment is
that the steps taken by an energy company must demonstrably
mitigate the climate impact of their operations, as the Dutch court
expressly criticized Shell's climate commitments as "intangible,
undefined and non-binding."
Net-Zero Business Daily: Do you see any trends in recent
court decisions involving companies?
Clarke: There has been a pivot away from
damages claims to rights-based claims which seek to hold companies
to account for the climate impacts of their operations, and
claimants in several jurisdictions have threatened or brought
claims adopting the Milieudefensie model.
However, at this stage, it is difficult to identify any
discernible trends with respect to court decisions in relation to
companies.
It is certainly true that an increasing number of courts are
finding in favor of claimants, but most of the key decisions have
concerned governments [as defendants].
As regards claims against companies, while the Dutch courts have
allowed rights-based arguments relating to the overall impact of
hydrocarbons to prevail against private companies, not all European
courts consider the effects of fossil fuels to be a legal
issue.
For example, a decision by the Scottish Court of Session in
October 2021 determined the environmental impact of fossil fuel
consumption to be a political matter, which should be dealt with by
the executive and not the judiciary, showing that the issue of the
justiciability of climate change-related claims is far from
settled.
Net-Zero Business Daily: France, Germany, and even the
EU became targets of climate litigation by activist groups last
year. What is the long-term outlook for climate litigation against
countries as Paris Agreement deadlines draw nearer?
Clarke: The success of rights-based claims to
date have set clear precedents and proved to be a successful
mechanism for holding countries accountable for their climate
commitments. Countries can expect to have their [nationally
determined contributions] and, indeed, their adherence to the
timetable for delivery of the same, carefully scrutinized as the
Paris Agreement deadlines draw nearer.
Countries can also expect to be held accountable for their
commitments, and climate litigation will no doubt continue to be
deployed by climate activists for this purpose.
Net-Zero Business Daily: Countries aiming for net-zero
face lawsuits alleging that states have violated international
treaties protecting energy investors, Investor-State Disputes. What
are some of the potential outcomes of this?
Clarke: As climate policies and regulations
change, this will inevitably affect investments in the entire
hydrocarbon value chain. The risk of [a] suit will correlate with
the extent of the impact, and investors will use whatever means of
recourse are available to chase their losses, including
treaty-based claims against host states.
It is unlikely, however, that the risk of investor state
arbitration will ultimately slow progress towards net-zero, but it
does highlight the importance of stable climate-related regulatory
regimes in host states.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.