Litigation related to climate change is growing rapidly around the world and poses risks for both the public and …
Climate change-related litigation is on the rise around the world and carries risks in both public and private spheres, a group of speakers discussed on the first day of London International Disputes Week.
According to data, over 1,700 cases of climate disputes have been filed worldwide Linklaters executive employee David Thomas, speaks at London International Week on Monday. “The national and international commitment to climate risk will continue to be strengthened and new legal obligations will be introduced and existing ones expanded in different jurisdictions,” he said, adding that “the trend is strongly upward”.
Managing Associate Rebecca James Agree: “In recent years there has been a greater increase in litigation related to climate change.” This is “usually pursued by activist investors or other parties for strategic reasons, which increases the likelihood that further claims will be pursued”.
Types of Climate Risk Claims
Three types of climate disputes have recently become popular, James explained, including those raised against governments that are now more successful than before. This includes claims against government decisions regarding the development of certain projects. “These types of challenges can be scrutinized and take some time, which can have a significant impact on developers and financiers,” he said.
Second, there are claims against private companies, James said, while others are claims made against carbon majors “in relation to their responsibility for the effects of climate change” and “investors made against to collect private companies on decision-making and disclosure related to climate change “”.
“There are also increasing complaints about soft law mechanisms regarding adverse human rights and environmental impacts that pose reputational and legal risks to businesses,” said James, who concluded: “Unlike other countries, the UK has not seen a lot of climate change. Litigation so far, but there are more and more environmental judicial review processes challenging UK climate policy. “
RISKS TO BUSINESS
The Bank of England has identified three types of risk to businesses, Thomas said: “First is the failure to mitigate risk, which is related to the physical effects of climate change and is likely to be illicit. The second problem is the failure to adapt to the failure of companies to address climate risk in acts and omissions as part of the duties of directors. Third is non-compliance or disclosure of matters related to climate risk, which are usually based on statutory reporting requirements. “
According to Thomas, private law claims have “been a feature of climate disputes in the US for some time” An Essex Court‘s Sa’ad Hossain QC Agreed: “We are seeing a wave of private law measures by states and municipalities in the USA. Many of these measures include “carbon majors being held liable for alleged climate change impacts,” said Hossain, although “some are not causal. A second wave of US cases is now addressing this causality problem. “
In the UK, “causation is just one of the difficulties applicants face. There is also the issue of due diligence, parent company responsibility for the actions of their subsidiaries, restriction issues and the way claims are funded, ”said Hossain.
There is a problem of “determining the man-made cause when climate change is so uncertain” and the difficulty of “distinguishing between innocent and guilty acts and omissions” and showing whether an event was caused by climate change or not . Further questions are to what extent manufacturers and issuers are legally responsible.
Concerning the Directors’ Responsibilities, Thomas emphasized, “The most important climate litigation risk arising from the UK Companies Act 2006 is the duty to act in good faith and to use reasonable care, skill and diligence . “
The point here is that the duties of the directors are owed to the company and only the company can take action. Additionally, “environmental impacts are secondary to driving business,” said Thomas, adding, “Taking environmental impact into account when making decisions is just that – directors can decide that another factor is more important.”
“Beyond the UK, the EU’s sustainable finance package and other sustainability legislation are just a snapshot of the growing climate risk regulations that may fall within the remit of directors,” said Thomas, “The directors’ duties to manage and report on climate The risk is gradually being increased. “
Reasons for action
One reason for action is that the directors have failed to perform their reasonable due diligence, skill and due diligence obligations under Section 174 of the Companies Act “by failing to take reasonable steps to enforce climate change policies,” said Hossain.
Other claims could arise from the fact that “the long-term environmental impact of corporate activities is not disclosed”. These types of disclosure violations could occur if the effects of climate change are not fully accounted for in a company’s financial statements or if inadequate disclosures are made. “Misleadingly reported climate risks are another reason for action, and we are seeing this type of litigation particularly in the US,” said Hossain.
There are a few ways in which investors and shareholders can bring claims, “but UK law remains restrictive when it comes to allowing shareholders to sue directors’ decisions,” Hossain continued, highlighting derivative claims as the main reason. However, a claim will not arise if a reasonable director, who is performing his duties, fails to make the claim. And even if so, the court will only allow the claim if it is important to the company. With climate change scenarios, it is more difficult to determine, ”he said.
James agreed, highlighting another difficulty: “Disclosure about climate change risk creates more uncertainty and is more difficult to verify than other information. It is therefore difficult for companies to judge in this area. ”She concluded by saying that“ there is no single approach to this problem ”.
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