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All businesses face the growing threat of climate change litigation

July 2021
Michael Salau and Zita Mansi

This month’s extreme floods in Germany, Belgium and now China have once more brought sharply into focus the issue of climate change and the growing global acknowledgment that there is a climate crisis. We are sure we would all acknowledge that previously scientists have been hesitant in linking extreme weather events with climate change but advances in attribution science (more on this later) mean that researchers have far more data illustrating how much climate change affects the likelihood and frequency of catastrophic events such as heatwaves/fires, droughts, storms, flooding etc. The events in Germany and much of Western Europe caused extensive damage with homes being wiped away, services collapsing, and businesses being lost. As the issues concerning climate change have come under greater scrutiny, we have seen a continued increase in climate change litigation. By way of example, whilst traditionally the focus of cases has been against governments, it is fair to say that these cases have been assisted by litigation against major fossil fuel companies and that this in turn is likely to drive a greater focus of action on other types of companies and commercial entities as society seeks to recognise the important of urgent effective action.

The recent Milieudefensie (Friends of the Earth Netherlands) case against Shell illustrates that the Courts now have commercial entities firmly in their sight. In April 2019, environmental groups including Milieudefensie (Friends of the Earth Netherlands) brought proceedings against Shell in the Hague District Court alleging Shell’s contributions to climate change violated its duty of care under Dutch law and human rights obligations.  The claimants sought a ruling that Shell must reduce its CO2 emissions by 45% by 2030 compared to 2010 levels, and to zero by 2050, in line with the Paris Climate Agreement.

The case built upon the landmark Urgenda decision (Urgenda Foundation v State of Netherlands) which found that the Dutch government’s inadequate action on climate change violated its duty of care to its citizens and forced the government into scaling back coal-fired power plants and other greenhouse gas emitting industries.  In this latest case against Shell (Milieudefensie et al. v. Royal DutchShell plc), the claimants extended this argument to private companies based on the Dutch Civil Code and on Articles 2 and 8 of the European Convention on Human Rights (ECHR) which guarantee rights to life, and rights to a private life, family life, home and correspondence.  The claimants argue that Shell’s long knowledge of, misleading statements on and inadequate action to reduce climate change amounted to unlawful endangerment of Dutch citizens.  Shell argued in its defence that, unlike the Dutch government, it was not a signatory to the 2015 Paris Agreement and that it was already taking ‘serious steps’ to limit its use of fossil fuels.

After a four-day hearing in December 2020, the Hague District Court, on 26 May 2021, held in favour of the claimants and ordered Shell to reduce emissions by a net 45% by 2030, relative to 2019, across all activities including not only its own emissions but also emissions from products used by its customers.

The court rejected arguments by Shell that the EU Emissions Trading System (ETS) pre-empted further emissions cuts ordered by the court, and arguments that the reduction obligation would have no effect as such emissions would be substituted by other companies.  Whilst acknowledging that Shell could not solve the global problem of climate change on its own, the court held that Shell had individual responsibility to do its part regarding the emissions of the Shell group, which it could control and influence.

The court found that Shell had a duty of care toward Dutch citizens under the Dutch Civil Code, that Shell’s sustainability policy amounted to “rather intangible, undefined and non-binding plans for the long-term” and that the level of emissions from Shell, its suppliers and buyers should be brought into line with the Paris Climate Agreement.  This potentially far-reaching judgment is the first time that the Paris Agreement has been found to impose obligations on private companies.

In contrast, climate change litigation brought in the UK courts to date has mostly served to illustrate how UK law is far less effective in enabling the goals of the Paris Agreement to be realised.  The case brought by Plan B Earth in objection to the Heathrow expansion famously failed on appeal to the Supreme Court on the basis that (in broad terms) as at the relevant date, the domestic implementation of the Paris Agreement was not government policy under the Planning Act.

Similarly, although major energy infrastructure projects are likely to have a significant emissions impact, there is no requirement in the (currently under review) Energy National Policy Statements (ENPS) governing the grant of development consent under the Planning Act 2008 for such projects, either to assess the need for a particular project or its likely impact on carbon budgets. The absence of this requirement is made explicit in the ENPSs, as confirmed by the Court of Appeal in R (ClientEarth) v SSBEIS [2021] EWCA Civ 43.

In May 2021, however, Plan B Earth and three young people filed a petition for judicial review, alleging that the UK government is violating human rights by failing to implement effective measures to uphold its Paris Agreement commitments, thereby breaching Articles 2, 8 and 14 of the ECHR, as implemented into UK law by the Human Rights Act 1998. The allegation is that while the UK government has pledged itself to net zero emissions by 2050, it has undercut this commitment by supporting coal and aviation, granting oil and gas leases, investing more than 25 billion pounds in roads, and financing fossil fuel projects overseas.

The claimants seek a court order that the UK government must urgently implement a legislative and administrative framework sufficient to uphold its Paris Agreement commitments.  Their case will surely be bolstered by the Climate Change Committee’s (CCC’s) latest annual report to Parliament on emissions reductions which describes the government’s problem thus: “the willingness to set emissions targets of genuine ambition contrasts with a reluctance to implement the realistic policies necessary to achieve them. … Important statements of ambition …  have been undermined by delays to essential legislation and much-needed plans to decarbonise buildings and improve their climate resilience.”

The CCC recently emphasised that climate change “must be a key consideration in the government’s planning reforms” and that “the current Planning Bill does not ensure that developments and infrastructure are compliant with Net Zero […] it would be serious were this opportunity to be missed.” The CCC advises that economy-wide reductions are necessary and “any new source of emissions could put the Net Zero path at risk”.

The UK government is also facing a challenge via the European Court of Human Rights in Strasbourg.  In November 2020, the court fast-tracked a lawsuit lodged by six youth campaigners from Portugal, requiring 33 countries (the 27 EU member-states, plus Norway, Russia, Switzerland, the UK, Turkey and Ukraine) to respond to the allegation that their governments are moving too slowly to reduce greenhouse gas emissions. The crowdfunded case, supported by the NGO Global Legal Action Network, was brought in 2020 following extreme temperatures and forest fires in Portugal.  It is argued that States must take responsibility for emissions relating to: 1) fossil fuels which they export, 2) the production of goods which they import from abroad and 3) the overseas activities of multinationals headquartered within their jurisdictions.  If the defendant countries fail to convince the judges, they would be legally bound to take more ambitious steps and to address the contribution they – and multinational companies headquartered in the jurisdictions – make to emissions through trade, deforestation and industry.  If the claimants succeed, the 33 countries would be legally bound, not only to ramp up their emissions cuts, but also to tackle their overseas contributions to climate change.

Targets unsupported by policies failed to satisfy the Dutch courts in the Shell case and are unlikely to do so in this case.  The UK government’s defence will not be assisted by its many failures to follow the CCC’s recommendations, most recently by failing to include an explicit responsibility for sustainability in the remit of the new building safety regulator in the Building Safety Bill.  The new Bill talks about the safety of people in or about buildings in relation to risks arising from buildings, and about improving the technical standard of buildings, but remains silent about climate change mitigation and adaptation.

Advances in the ‘attribution science’ which demonstrates the links between extreme weather events and climate change, which are in turn connected to human activities such as energy production and transport, are becoming more and more robust.  For example, a recent paper on Hurricane Sandy – the deadly storm that wreaked havoc from the Caribbean to New York in 2012 – showed that climate change was responsible for approximately 13% of the $62bn in losses caused by the event.  Peer-reviewed evidence such as this is likely to make it easier to prove a causal link and compensation claims are more likely to succeed.

The recent successful claim against Shell, combined with advances in science, not only indicate that climate change litigation is here to stay but are also likely to pave the way for more climate-related litigation brough directly against companies.  In future, it will not only be governments and the carbon majors who will be facing such claims, the net will be cast much wider and it is going to be increasingly difficult for commercial companies to defend litigation on the basis that they were not aware of climate change risk. The Paris Climate Agreement has relevance for all businesses and as a result there will be increasing focus on companies and their suppliers operating in a more sustainable way in order to show commitment to cutting emissions. This is particularly important for the construction industry given it has been said that its CO2 contribution globally accounted for 38% of all emissions in 2019 according to a report published by the United Nations Environment Programme. As eyes focus on the UK Government in the lead up to the COP26 Climate Change Conference scheduled for the end of this year, it is unlikely that the issues will fall from the top of the agenda, and it is clear that businesses will need to adjust their practices in light of the increasing threat of litigation.

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