By Nadine Coudel and Dr Richard Bater
As climate change and its impacts become increasingly apparent, the legal landscape surrounding our collective response is also evolving at pace. New International law governing the transition to a low-carbon society and responses to climate risk is driving a rapid rise in climate-specific national legislation and policies, and an increasing amount of litigation. For companies, governments and other organisations these developments provide clear impetus to understand, disclose and manage climate risk. Failure to do so will increase exposure to legal liability. So, what is the state of play today with regards to the legal aspects of climate change? And what should the response be?
International climate change law
In response to the global challenge of climate change, states have established an international climate regime whose treaties (the 1992 United Nations Framework Convention on Climate Change, the 1997 Kyoto Protocol and the 2015 Paris Agreement) created a system of climate governance. With the adoption of the latest global legal framework in Paris in December 2015, a post-2020 international climate regime was agreed on by the Contracting Parties to the UNFCCC. The Paris Agreement builds upon the Convention and – for the first time – brings all nations into a common cause to undertake efforts to combat climate change and adapt to its adverse impacts. Countries committed to holding the global average temperature rise to well below 2 degrees C, pursue efforts to limit the increase to 1.5 degrees C, and achieve net-zero emissions in the second half of this century.
Nationally determined contributions (NDCs) are at the heart of the Paris Agreement and embody efforts by each country to reduce national emissions and adapt to the impacts of climate change in order to achieve these long-term goals. Implementing the Paris Agreement also relies on translating countries’ commitments set out in their NDCs – that is, their post-2020 climate actions – into national laws and policies. Analysis undertaken by the Grantham Research Institute in 2018 demonstrates a lack of consistency between NDC commitments and targets in national climate laws and policies. Any delay in translating NDC commitments in nationally legislated targets potentially limits the effective planning and implementation of policies, reduces the ability to address climate challenges, adapt to climate impacts and avoid costly action at a later stage, and overall reduces the ability to track progress and hold countries accountable for their pledges.
However, the Paris Agreement has and will continue to lead to increasing climate change legislation and litigation as nations grapple with meeting the goals set-out in the agreement.
Partly driven by the UNFCCC process, the volume of climate-specific legislation and policies has increased twenty-fold during the past two decades. According to the Grantham Institute, all 197 signatories of the Paris Agreement have at least one law or policy on climate change. This legislation can be roughly classified into mitigation-related and adaptation-related legislation. The former sets a country’s low-carbon transition plans in a legal framework (e.g. carbon markets), whilst the latter codifies standards or duties regarding how organisations adapt to the physical impacts of climate change. Laws relating to either type may be developed at the national or sub-national levels, and can also be targeted at specifics sectors. According to Columbia University’s Climate Case Law database, by 2018 there had been 1522 climate-related laws and policies enacted globally, of which 489 were related to climate adaptation. A total of 282 laws have come into force since the Paris Agreement, of which 109 are adaptation related.
Laws such as the UK’s Climate Change Act (2008) or France’s Article 173 place duties on Governments or corporates to advance the transition to a low-carbon economy or manage physical risks to assets and risks latent in portfolios. By placing clear duties and responsibilities on Government in respect of climate change, such laws have transversal implications for what activities are permitted to take place and where ultimately having economy-wide ramifications. Whilst such legislation can preclude much litigation, such as by clearly establishing ‘reasonable person’ expectations, it can also be a driver of litigation where the law remains ambiguous or where a state is alleged to have failed in its own duties.
The introduction of climate-related laws, regulation, and policy is dramatically shifting the compliance, disclosure, and due diligence landscape. However, climate law represents only one angle of the implications of climate change for legislation. As Alice Garton has succinctly noted, “It’s not the laws that need to evolve, it’s the understanding [of companies and investors] of how laws apply to new risks”.
First, it is increasingly recognised that the management of climate-related risk falls within existing company law in many commonwealth jurisdictions. Likewise, the duties that Directors, fiduciaries, officers, and professionals are under regarding their responsibilities regarding climate risk are also contained within existing law. In neither case would climate change have been a consideration when laws were drafted, but in both cases the law is deliberately flexible in order to accommodate an evolving environment and standards of practice.
Second, the physical impacts of climate change can raise implications for compliance with existing laws and regulations across a host of areas, from health and safety (e.g. worker exposure to heat), the environment (e.g. permissible discharges), construction (e.g. building design) to corporate disclosure (e.g. the Martin Act). In all cases, the physical impacts of a changing climate can give rise to liability risks in connection with existing obligations that may have been considered to be managed.
Developments in hard and soft law continue across jurisdictions also. In the United States, a proposed Climate Change Disclosures Act would require companies to disclose climate risks to assets to the Security and Exchange Commission. In the EU context, there are proposals to strengthen climate risk disclosure requirements in existing pensions regulations, laying the groundwork for possible future sustainable finance regulations. At the same time, driven by the recommendations of the Task force on Climate-related Financial Disclosures (TCFD), banking regulators are placing increasing pressure on financial institutions to manage and disclose climate-related financial risks.
Most climate-related litigation to date has been brought in the United States, with 761 cases reported by the end of 2017. Of these, 41 cases were connected with climate adaptation. According to the Climate Law Database, by the end of 2018, 280 cases had been brought outside the US, of which 14 related to adaptation; the majority of which was in the U.K.
There has been a marked increase in the volume of climate litigation, notably outside the U.S.
Mis-representation, infringement of rights, mis-sold or faulty goods and services, and failure to prevent harm are all major potential causes for litigation.
The key drivers for climate change litigation are:
1.Climate change as a rights-based issue: cases where governments fail to act to protect their citizens from the impacts of climate.
Requiring governments or regulators to take action to meet national or international commitments challenging climate change-related legislation and policies, or their application. In Leghariv v. Republic of Pakistan, the plaintiff successfully sued the government on grounds that its failure to adequately implement the country’s National Climate Change Policy offended his fundamental rights.
2. Climate change as a financial issue (raising awareness and exerting pressure on corporate actors, regulators or investors)
- ‘Failure to mitigate’: cases that link the impacts of fossil fuel extraction to climate change and resilience by seeking to establish that an organisation’s emissions are the proximate cause of adverse climate change impacts. Several cases, brought by industries and municipalities against oil majors (e.g. Kivalina v. ExxonMobil Corp.), aim to limit future emissions of large emitters. Residents of an Alaskan island facing extreme erosion and other impacts have claimed damages from energy companies, arguing that the new and extreme weather patterns are attributable to changes driven by the defendants’ actions. Similarly, litigation has been brought in the US by cities and states against oil majors seeking compensation for the costs of adapting to climate change. Of all these types of cases, it has been asserted that ‘failure to prevent’ litigation against public bodies could be the most likely to succeed.
- ‘Failure to adapt’: cases that seek to establish liability for failure take adequate steps to adapt to climate change. Such claims could be brought against engineers, architects and other professional services for breach of their duty of care should they fail to design structures compatible with future climate conditions.
- ‘Failure to disclose’: Some organisations have shown reticence in disclosing climate risks in their financial reporting, partly for fear of increasing liability risk. However, Sarah Barker and colleagues have argued that such concerns are misplaced, and suggest that disclosing risks in line with, for instance, the TCFD recommendations will in fact reduce corporates’ and directors’ liability exposure. A key test case, settled out of court, was brought by shareholders in the Commonwealth Bank of Australia in 2017, alleging that the Bank failed to disclose material (climate) risks to investors, as is required by Australia’s Corporations Act (2001). Whether driven by new law, the reinterpretation of existing law or the demands asset owners, the onus is increasingly on companies and Directors to properly disclose climate risk.
3. Enforcement of existing legislation: cases that use existing non-climate related legal frameworks to bring climate-related litigation. The range of potential cases in this category is considerable, from failure to manage liabilities associated with fiduciary and Directors’ duties, to environmental regulations being transgressed owing to failure to adapt business practices to climate-related risks. Cases as diverse as ‘Dieselgate’, that uncovered fraudulent diesel emissions claims by Volkswagen, and Client Earth’s litigation against the British government, for its ‘unlawful’ air quality plans, represent precedents for how companies or governments could be held liable for false claims (e.g. carbon accounting) or failure to implement climate policy. Jurisdictions that widely apply the precautionary principle – such as the EU – could see litigation that tests how that principle applies to explicitly climate-related questions, including permitting, mitigation plans, and adaptation plans. Indeed, the precautionary principle was referred to in the ground-breaking Urgenda case. In the US, California energy utility PG&E is facing litigation for alleged hazardous negligence and breaching safety rules, whilst both the New York ‘Martin Act’ and consumer protection law has been invoked in litigation brought against ExxonMobil. Moreover, in some jurisdictions, litigation can itself precipitate policy. For example, the ‘Endangerment Finding’ in the United States, in which greenhouse gases were ruled harmful pollutants under the Clean Air Act, became a key enabler of the Clean Power Plan.
Looking ahead – reducing legal liabilities in a changing climate
Uncertainty about the future climate is not a reason for inaction. In fact, trends are already becoming apparent which fundamentally affect the strategic context that businesses will operate in during the coming years. These trends are manifold, and include the domino effect of actions to meet the objectives set-out in the Paris Agreement, which establishes a clear trajectory for how expectations for corporate action; investor diligence on climate-related risks; and the role of state and local authorities with respect to climate mitigation and adaptation will evolve. In broad terms, changing expectations and laws will catalyse shifts in the sectors and activities that are encouraged (or discouraged) and lead to new standards and duties. A changing regulatory landscape, and the effects it has on potential climate change litigation, is already forcing businesses to update their resiliency plans. In addition, judges are dealing more and more with climate-related arguments and facts that were previously not presented before courts.
There has also been progress in climate attribution science in understanding causal links between elements of the earth system and society. Scientific findings make it possible to attribute some extreme events to human-induced climate change and can already enable loss and damage associated with such events to be assigned country-level responsibility. Attribution science is often associated with foreseeability and responsibility, and therefore linked to discussions about liability and compensation. It is conceivable that attribution of climate change to particular ‘wrongdoers’ – such as polluters or emitters – could be placed high on the agenda of the global climate debate. Given the influence of climate-related hazards on displacement of people, this may further stimulate the debate on rights and duties in respect to climate-induced migration.
To date, much climate-related litigation has centred on assessments, permits, and emissions, with public bodies often the defendant. However, the variety of litigation and defendants is broadening, and beginning to affect corporates too. ‘Failure to disclose’, ‘false or misleading disclosure’ (e.g shareholder-led) and ‘failure to adapt’ represent types of litigation likely to be tested ever more in the coming years, particularly until clear legal precedents are established. With increasing documentation of physical impacts of climate change, third-party funded class action suits could finance previously out-of-reach scientific evidence in cases brought by those that experience preventable harm.
Scientific development is accompanied by an increasing demand for ‘climate services’, that translate the existing wealth of climate data and information into customised tools, products and information in order to understand, manage, and communicate climate-related risks. As such, climate-related scenario analysis will play an increasingly important role with respect to disclosing forward-looking information and potential climate-related risks in order to avoid claims for misleading or fraudulent disclosures.
Company directors must not only adopt an enquiring posture toward their firm’s contribution to, and vulnerability to, climate change, but manage and disclose climate risks they face in a robust and transparent fashion.
Learn more about Acclimatise’s work on climate risk disclosure here.