Category: Law & Justice

Landmark legal case sees Australia’s biggest superannuation fund commit to strong action on climate change after 25-year old Brisbane man sues

Landmark legal case sees Australia’s biggest superannuation fund commit to strong action on climate change after 25-year old Brisbane man sues

By Will Bugler

Australia’s largest super fund, Rest, has agreed to test its investment strategies against various climate change scenarios and commit to net-zero emissions for its investments by 2050, after a legal case brought by a 25-year-old man from Brisbane. Mark McVeigh sued Rest in 2018 for failing to provide details on how it will minimise the risk of climate change. The landmark case represents the first time a superannuation fund has been sued for failing to consider climate change.

Mr McVeigh alleged Rest had breached Australia’s Superannuation Industry Act and the Corporations Act, after it failed to provide him with information on how it was managing the risks of climate change. These risks include physical climate risks that threaten Rest’s investments, and also transition risks which arise from the decarbonisation of the global economy.

Climate change is a ‘material, direct and current financial risk’

Australian law requires trustees of super funds to act with “care, sill and diligence to act in the best interest of members – including managing material risks to its investment portfolio”. In its settlement Rest agreed that its trustees have a duty to manage the financial risks of climate change.

In Rest’s statement about the settlement it said: “The superannuation industry is a cornerstone of the Australian economy — an economy that is exposed to the financial, physical and transition impacts associated with climate change.” and went on to emphasise that “climate change is a material, direct and current financial risk to the superannuation fund”.

Rest also agreed to take immediate action by testing its investment strategies against various climate change scenarios, publicly disclose all its holdings, and advocate for companies it invests in to comply with the goals of the Paris Agreement.

Mr McVeigh’s lawyer, David Barnden, head of Equity Generation Lawyers, said the case still sets an important precedent globally. “This outcome should represent a significant shift in the market’s willingness to tackle climate risk—a shift which should set a clear precedent for the industry in Australia, and also pension funds around the world,” he said. Mr Barnden is also representing 23-year-old Katta O’Donnell, who is suing the Australian Government for failing to disclose the risks that climate change could have on government bonds.

Growing momentum behind regulation

The latest cases in Australia are part of a global movement towards stricter regulation governing the financial risks posed by climate change (see Acclimatise’s timeline charting the rise of climate law). In 2015, for example, France introduced laws mandating climate disclosure for institutional investors and asset managers and in 2017 the Financial Stability Board’s Taskforce on Climate-related Financial Disclosure published recommendations for corporate climate disclosures. In 2019, National Instrument 51-102 Continuous Disclosure Obligations set out new requirements for firms reporting in Canada to disclose material risks in their Annual Information Form.

The implication of landmark cases such as the Rest settlement, is that super funds, pension funds, banks and other investors will increasingly require companies to understand and manage their climate risks. Earlier this year, Acclimatise worked Working with Asia-Pacific’s largest law firm, MinterEllison to produce a primer on physical climate risk aimed at Non-Executive Directors. The primer was published by Chapter Zero a global voluntary programme that connects and supports Non-Executive Directors to improve oversight and action on the issue of climate change.

Download the primer here.


Cover photo by Sippakorn, on Pixabay.
NEW GUIDANCE: Nine questions that Non-Executive Directors should ask boards today

NEW GUIDANCE: Nine questions that Non-Executive Directors should ask boards today

Acclimatise and Asia-Pacific’s largest law firm, Minter Ellison, are pleased to launch new guidance to assist Non-Executive Directors (NEDs) exercise oversight of corporate action on physical climate risk management. This guidance, prepared for the global Directors’ climate forum, Chapter Zero, brings leading physical risk and legal expertise to bear on an issue that represents one of – if not the – key challenge facing corporates today: How can business build resilience and thrive in the context of a changing climate?

The physical impacts of a changing climate are impacting businesses today, modifying a suite of risks that may previously have been viewed to be managed. These impacts – which are affecting firms, their key stakeholders and supply chains, and customers – risk undermining the foundations of corporate value (including reputation value) and placing constraints on the accomplishment of strategic objectives. Critically, these risks are becoming translated into foreseeable material financial risks and liability risks.

The physical impacts of climate change also raise important far-reaching structural and long-term implications across a host of factors that affect companies. These include access to critical material inputs, labour supply, household income, demand for goods and services, and ecosystem health.

At the same time, investor, insurer and regulatory expectations are increasing, with the disclosures aligned with the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) on a course to becoming mandatory in several jurisdictions.

The real physical risks facing firms and the evolving regulatory landscape both create growing urgency on the need for corporates to understand, assess and disclose physical-related climate risks and opportunities. In their oversight capacity, NEDs have a unique and powerful role to play in driving Board-level action on climate risk. By being prepared with key facts and probing questions, NEDs can help improve Board accountability and ensure that key – potentially overlooked – issues are being addressed.

This guidance is designed as a ‘pick-up-and-use’ tool to be used in the boardroom setting today, listing nine key questions (and follow-up questions), covering themes ranging from climate impacts to liability, that NEDs can ask company Directors. The questions are applicable across all sectors, globally. In due course, we intend to release questions targeted at specific sectors.

The guidance also includes a short scientific summary and an overview of recent developments in the disclosure and regulatory landscape.

Access the guidance here.

Contact us at: r.bater(at)acclimatise.uk.com

Click here for more information on Acclimatise’s TCFD-aligned disclosure services.

Click here to learn more about Acclimatise’s corporate climate risk and adaptation services.


Cover photo by Patrick Mueller on Unsplash.
Acclimatise’s work during COVID-19

Acclimatise’s work during COVID-19

As efforts to contain the COVID-19 virus continue in every country in the world, Acclimatise would like to take this opportunity to inform you of the measures it is taking to protect its staff and ensure the continuity of its operations.

Acclimatise is a global business, with staff on three continents and active projects in countries around the world. The safety and health of our staff, partners and clients remain the company’s number one priority.

We are actively monitoring advice from the UK government, and the World Health Organization (WHO) to establish our health and security measures. We are closely monitoring official sources of information to make adjustments as needed.

Acclimatise offices are now closed until further notice. We have made provisions for all of our staff to continue to work from home, to ensure the minimum possible disruption to our activities.

Regarding travel, Acclimatise has suspended all international and national travel until further notice. Employees who have travelled abroad recently for personal or professional reasons have been asked to quarantine themselves. Acclimatise staff will not participate in in-person events, meetings or gatherings until further notice. Staff will be able to arrange meetings online using digital conferencing facilities.

These are unprecedented times, however, Acclimatise will continue its work for its clients. Acclimatise project managers are, as always, available to discuss any issues with clients relating to COVID-19 or any other projected-related matter at any time.

Finally, Acclimatise staff would like to express their solidarity with clients, partners and colleagues around the world at this time, and hope that they and their loved ones remain safe and well in the coming months.

Sincerely,

All at Acclimatise.


Cover photo image credit: nursingschoolsnearme.com/
Learning to love in an era of climate justice

Learning to love in an era of climate justice

By Lydia Messling

What is love? Mother Teresa is quoted as saying “Justice without love is not justice, and love without justice is not love”. If this is true, without climate justice can humanity claim to be loving in an era of climate change?

The term ‘climate justice’ itself is not neutral. It is often associated with liberal, or left-wing politics, and the narrative connection has Abrahamic overtones which may be off-putting for some audiences. For some, it has become more of a protest slogan than an empowering approach to tackling the climate crisis. For others, the climate justice movement is, like Mother Teresa’s quote, all about love. In this sense the twin ideas of love and justice exist in the relationships between people and the actions that they take.

In the academic literature, ‘climate justice’ has a variety of definitions. Philosophers have examined different approaches to just climate change solutions for current generations, future generations, plant and animal life, the distribution of burdens and opportunities, and the morality of contributing to climate change and its solutions, and many more. The common theme, however, is that climate change is causing harm, and that this should be acted upon.

As climate change has been caused by people’s activities, it can be said that human actions have caused harm. But identifying which specific humans are responsible for this harm is complicated. It is impossible to say which person’s emissions from ten years ago caused the crop damage in another country this summer, for instance. We do know that some countries have contributed greater emissions than others, so it may be fair to say that they share more of the responsibility for causing harm.

Indeed, the people that are likely to suffer the worst impacts of climate change are those who have contributed least to it. Some suggest, therefore, that compensation should be paid. This gives rise to a panoply of difficult questions: Who pays the compensation? Are there limits on what the compensation will cover? How much compensation is enough, particularly when people are losing their homes, their livelihoods, and loved ones to rising seas, raging storms, and unbearable droughts? At what point did people become morally responsible for the harm they were causing? What agency did individuals have to affect the collective and prevent the harm? To whom should the compensation be paid? A lot of these people are yet to be born and many of the people who contributed to the harm have already died.

Even the very fundamental questions are difficult to answer when it comes to climate justice: What would be considered a ‘just outcome’? 1.5 degrees of warming, or 2? Or none? Does it matter how this is achieved?

With all of these unknowns how is climate justice attainable or even useful as a concept?


Maybe the answer, as Mother Teresa suggests, is to ‘do love’. If love requires a relationship, then justice is to be done in relationship. ‘Achieving justice’ often makes it sound like justice is about an end outcome. ‘Achieving love’, however, is about a reaching a point in a relationship where all the actions are loving – the end point here is defined by the actions in the relationship.

You don’t say you have achieved love only when there are 64 pairs of earrings that have been given, and 102 romantic meals achieved. That’s a very transactional way of looking at love (and would probably deem a lot of loving relationships void!). Whilst giving gifts may be an aspect of showing love and something one does to express love towards another, it is not the sole definition of love. So, saying that justice had been done-and-dusted when a certain amount of compensation has been paid also seems bizarre. Compensation may be a valid and important aspect of justice, but compensation does not necessarily mean that the issues that led to that situation have been addressed. By understanding climate justice as a ‘relationship status’ – a description of how the actions are in a relationship – rather than just an end outcome, it helps to reveal what’s at the heart of injustices. In this way, we may be able to navigate some of the problems of climate justice without having to knowing about the exact ‘who’ or ‘what’.

By thinking about climate justice in this way, we can begin to talk about procedural justice and the way in which we can develop climate-just relationships – not only transactional checks and balances. Relational climate justice can provide a way of valuing things that are impossible to monetise (like people losing their homes and communities), and think about approaches to actions with people that don’t even exist yet (like how we use resources today that impact upon future generations). In this way, we can move away from the cumbersome conversations about climate justice as a transactional approach solely focussed on achieving a particular end point. Instead, climate justice can be doing love, and love is about how we relate to one another and the earth.


Cover photo by Markus Spiske on Unsplash

Citizens, assemble!

Citizens, assemble!

By Lydia Messling

2019 was the year that the conversation changed on climate change.

The Media and Climate Change Observatory’s analysis showed that across the one hundred newspaper sources, coverage of climate change was up 73% in 2019 compared to 2018, global radio coverage was up 74%, and in the UK and Germany, coverage more than doubled, and the US television coverage increased by 138%.

Figure 1: Newspaper media coverage of climate change or global warming in one hundred sources in seven different regions of around the world, from January 2004 to December 2019.

In a YouGov survey commissioned by the CAST Centre in August 2019, 62% of the UK public said that addressing climate change requires a ‘high’ or ‘extremely high’ level of urgency, with 48% saying they had grown more worried about climate change over the past 12 months.

Figure 2: YouGov survey results of 2000 respondents’ view on the urgency of acting on climate change.

In the lead up to the 2017 general election, only 8% of the British public  considered the environment to be one of the top three important issues, yet in another YouGov survey on issues defining the 2019 UK general election, 25% of Brits put it in their top three, making the environment the 4th most important issue, and neck-and-neck with the economy.

Figure 3: Comparison of 2017 and 2019 YouGov survey results when asking the UK public about opinions on the top three important issues facing the country.

And in 2020, we saw another change in how climate change is talked about.

On the 24th of January, the UK House of Commons launches its citizen assembly on climate change, which will run for four weekends. Unhampered by political rivalries and conflicts of interest, the hope is that ordinary members of the public will meet and form a consensus on how to take action on climate change – succeeding where the politicians have failed. Of the 30,000 people that were invited to participate, only 110 will actually take part, but will form a demographically representative picture of the UK. They will be asked for their thoughts on how the UK should respond to declaring a climate emergency, and what policies should be implemented to meet the net-zero by 2050 target. Many local governments across the UK are hoping to follow suit with councils in Oxford, Bristol, Lincoln, Norwich, Lancaster, Brighton and Hove, and Surrey County Council, to just name a few.

The French government are also holding a citizen’s assembly but equipping them with more bite, having been promised the ability to set France’s policies on cutting carbon emissions by presenting their “unfiltered” proposals to parliament.  Chosen at random, 150 people will meet over seven weekends to discuss issues ranging from plastics and fast fashion, to transport and housing, and to come up with real policy answers to these difficult questions.

Whilst these curated citizen conversations are a radical move with the potential to jump-start action on climate change, they unfortunately don’t necessarily guarantee political action. Even the French approach promising an unedited hearing of the policy proposals, does not guarantee they will pass parliament’s vote. Therefore, it is crucial that we do not just limit climate conversation to citizen assemblies in 2020. The conversations that follow these assemblies, and how well their outcomes are communicated will be vital for ensuring that engagement continues, and for governments to enact the policies needed. Those of us not part of the ‘chosen few’ do not lose our voice either, and can feed into the ongoing conversation and creation of policy options, as well as influencing the context that these citizen assemblies take place. Highly profiled and valued for being representative, the outcomes from the citizen assemblies should be taken seriously and can be a powerful tool in demonstrating a consensus for change. We need to be ready to use the outcomes of these conversations as a way of holding elected decision makers accountable and demonstrating that in a world of uncertainty about climate change and its impacts, the public are certain about taking action, and taking it now.


Cover photo by Lewis Parsons on Unsplash
2019 picks from the Acclimatise article archive – Law

2019 picks from the Acclimatise article archive – Law

Our second article of top picks from our 2019 article archive, features six articles related to climate adaptation and the legal services sector. As climate change and its impacts become increasingly transparent, so has a rise in litigation and the emergence of climate-specific national legislation and policies.  With exposure to legal liability an almost certainty resulting from a failure to understand, disclose and manage climate risk, it is vital to look ahead in an effort to reduce legal liabilities in a changing climate. 

Climate risk disclosures remain a firm part of the voluntary disclosure landscape, due largely in part to the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. In fact, recent analysis from accounting literature finds that firms following best practice through TCFD-style scenario-analysis and disclosures stand to benefit from minimising liability risk. Over the next decade, Acclimatise will continue to work on physical climate risk and adaptation with corporates and financial institutions helping them to identify and respond to physical risks.

Update to landmark legal opinion highlights growing climate liability of company directors

By Robin Hamaker-Taylor and Nadine Coudel

The 2016 Hutley opinion set out the ways that company directors who do not properly manage climate risk could be held liable for breaching their legal duty of due care and diligence. An update by the Centre for Policy Development reinforces and strengthens the original opinion by highlighting the financial and economic significance of climate change and the resulting risks.

Read the full article here.

Climate change could lead to great wave of legal liability

By Nadine Coudel and Dr Richard Bater 

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. 

Read the full article here.

Climate and law: Sarah Barker, Special Counsel and Head of Climate Risk Governance at MinterEllison

By Will Bugler

In this Acclimatise Conversation on Climate Change Adaptation, Sarah Barker, Special Counsel and Head of Climate Risk Governance at MinterEllison, talks us through why it is so important, from a legal perspective, for businesses to govern for the financial risks associated with climate change.

Read the full article and listen to the podcast here.

Podcast: Global law firm Clyde & Co warns clients of a ‘wave of litigation’ from climate change

By Acclimatise News

In this Acclimatise Conversation on Climate Change Adaptation, we speak with Clyde and Co lawyers Wynne Lawrence and Nigel Brook, about the emerging field of climate liability risk and the pioneering works that the firm is doing to advise its clients about how to respond.

Read the full article and listen to the podcast here.

Podcast: Legal implications of climate change are a big deal for corporates says legal analyst Marcela Scarpellini

By Acclimatise News

In this Accliamtise Conversation on Climate Change Adaptation, we speak with Marcella Scarpellini, a lawyer and legal analyst at right.based on science, a climate metrics and data services provider that is helping companies manage the financial risks of climate change. Here she discusses why legal implications of climate change are a big deal for corporates.

Read the full article here.

Voluntary climate disclosures can reduce litigation risk

By Robin Hamaker-Taylor, Richard Bater, Nadine Coudel

With climate risk disclosures now a crucial part of the voluntary disclosure activities of many corporates and financial institutions, questions around the extent to which they may leave disclosures exposed to litigation linger. Recent analysis from the accounting literature indicates that voluntary disclosures can actually lead to reduced litigation risk.

Read the full article here.


Podcast: Global law firm Clyde & Co. warns clients of a ‘wave of litigation’ from climate change

Podcast: Global law firm Clyde & Co. warns clients of a ‘wave of litigation’ from climate change

In this Acclimatise Conversation on Climate Change Adaptation, we speak with Clyde & Co lawyers Wynne Lawrence and Nigel Brook, about the emerging field of climate liability risk and the pioneering work that the firm is doing to advise its clients about how to respond.

In September 2015 the Governor of the Bank of England, Mark Carney, gave his seminal ‘Tragedy of the Horizon’s’ speech, to the insurance market at Lloyd’s of London. In it, he highlighted the severe threats posed by climate change to the financial system and warned the problem risked being ignored because of institutional near-sightedness.

“The classic problem in environmental economics is the ‘tragedy of the commons’… but climate change is a tragedy of the horizon,” Carney said, “We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors. It will impose costs on future generations that the current one has little direct incentive to fix.”

The horizon for monetary policy goes out just a couple of years, and financial stability only about a decade. Carney went on to outline the three main ways in which climate change can affect financial stability:

  1. Physical risks like storms and floods;
  2. Transition risks associated with the transition to a low carbon economy; and
  3. Liability risks, legal claims by those suffering losses due to climate change.

Much of the attention since then has been on the first two categories, the physical and transition risks, but a growing number of lawyers and pioneering legal firms are drawing attention to the third category, the liability risks.

Their work has been reinforced by a growing number of international regulations and national laws and a growing body of case law. One such firm is Clyde & Co, a global firm that focusses on five key sectors: insurance, energy, trade and commodities, infrastructure and transport. The firm soon realised that climate change posed risks to all of these sectors, and so they set up a cross-disciplinary team on climate resilience. Listen to the full podcast to learn more.

Download Clyde & Co.’s climate resilience reports here.

Clyde and Co.’s London Climate Week event signals growing interest in climate liability risk

Clyde and Co.’s London Climate Week event signals growing interest in climate liability risk

By Robin Hamaker-Taylor and Nadine Coudel

As part of London Climate Action Week, law firm Clyde & Co. hosted an event on 5th July, which is indicative of the growing interest and understanding of climate-related liability risks. While the first ever London Climate Action Week saw around 200 events relating to a wide range of aspects of climate change and action to address it, the Clyde & Co. event was one of just a few relating to the legal dimensions of a changing climate. Titled, ‘Climate Change Liability Risk Conference’ the engaging event was well attended by company representatives across various industry sectors, members of the financial services and legal sectors among others.

The event coincided with the release of a new Clyde & Co. report, the third of a report series focusing on climate-related legal risks:  

Acclimatise’s Nadine Coudel, John Firth and Dr Richard Bater were part of the external reviewer group for these reports the second and third Clyde & Co. reports, which were featured during he the Climate Change Liability Risk Conference. The event itself was divided into two main sessions: firstly, each of the three main categories of climate risks (physical, transition, liability) were explored with experts from each of these fields. Then in the second part of the discussion, the practical implications of climate risks for businesses, directors, and officers were addressed by a set of expert panels. Acclimatise’s Chief Technology Officer and co-founder Dr Richenda Connell sat on one of the panels.

The event highlighted many important emerging liability risks associated with the effects of climate change. Significant takeaways from the day are summarised below.

Liability risks grow as the climate continues to change

Presentations from experts in the physical climate science and emerging policies and technologies kicked off the event. Important background information around the physical and transition risks associated with a changing climate was shared, serving as a stark reminder of the scale of the challenge at hand.

Set against the incontrovertible evidence of a climate system where fundamental and severe changes are already underway, partners from Clyde & Co.’s offices in Sydney, New York, and London discussed the overall trends regarding climate-related litigation, regulation and standard setting. The number of climate-related litigation cases is on the rise: there are currently more than 1000 pieces of climate litigation, including federal statutory claims, over 300 state law claims, and 69 adaptation-related claims. The U.S., Germany, and Australia are currently where most activity can be found on climate litigation.

The legal basis of claims includes public or private nuisance, product liability, or negligence. The fossil fuel industry, for example, is particularly exposed to liability risk as courts consider whether leading firms have done enough to enable the transition to a low carbon economy, in the face of evidence that the product that they are selling does harm.

The assertions at the event that there has been an increase in climate litigation are reinforced by analysis by Acclimatise, showing that there is simultaneously an increase in national legislation – translating countries’ commitments set out in their NDCs under the Paris Agreement into national laws and policies. Liability risks look to increase and advance in the future, as panellists suggested attribution science, supervisory or regulatory scrutiny, and investor interest, to name just a few.

Climate-related legal risks stemming from physical risks

In the expert panel, ‘Indirect exposures – the sleeping giant of liability risks to corporations’ the discussion turned to the known and potential liabilities businesses, directors, and officers are facing stemming from both physical and transition climate risks. Dr Richenda Connell, made several salient points about climate-related legal risks stemming from physical risks and climate adaptation that corporates may not be immediately aware of, including the following:

  • For corporates with long-lived fixed assets, physical climate risk and adaptation is a relevant consideration at many stages in the asset lifecycle – from early concept, to site selection, design, construction, operation and through to decommissioning. But in many cases is not yet being considered. Existing physical assets may already have embedded risk and liabilities if physical climate risk was not taken into account;
  • Public-private-partnership (PPP) contracts are another area. These contracts are typically long term (ca. 20 years) and inflexible. A changing climate can stress the risk-sharing contractual obligations of all parties in a PPP. PPP contracts have provisions for unforeseen risks in “force majeure” clauses, for example. But today’s extreme weather events will be tomorrow’s new normal. Force majeure clauses do not adequately capture changing climate risks. Acclimatise produced a report with the World Bank which discusses these challenges in the management of climate risks in infrastructure PPPs; and
  • Contractual relationships in supply chains is another area. Supply chain disruption is relevant to many corporate sectors. The Thailand floods in 2011 showed how climate impacts in one part of the world can affect customers globally. Similar issues are relevant for supply chains reliant on agriculture, which is a particularly climate-sensitive sector. Contractual relationships for all actors in the supply chain, up to commodity traders, will be increasing stressed by a changing climate.

The direction of travel for businesses, directors, and officers is clear

A growing number of organisations have taken action on transition risks and have started to actively engage with physical climate risks, albeit to a lesser extent. Yet, interest and action relating to climate-related liability risks is still in nascent stages, so this Clyde & Co. event was a welcome addition to the wider progress on climate risks. In fact, the event signals the growing awareness of the legal dimensions of climate change. The direction of travel was made clear during the event: climate change is now a ‘c-suite’ issue and along with that comes liability to engage with the issue.

As Acclimatise has recently written, 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.


Cover photo by J Zamora on Unsplash.
Podcast: Legal implications of climate change are a big deal for corporates says legal analyst Marcela Scarpellini

Podcast: Legal implications of climate change are a big deal for corporates says legal analyst Marcela Scarpellini

Climate change and its impacts cause hundreds of billions of dollars of damage each year. As the scale of losses increases, so too will the number of legal cases apportioning blame to those most responsible. There have already been over one thousand litigation cases related to climate change, a number that is expected to rise dramatically as climate change continues, and legislation and regulations increase. However, there is another factor driving the number of legal cases: advances in climate science and the tools to interpret it.

When it comes to litigation, it is important to be able to identify some sort of loss, and also attribute that loss to the actions, or non-actions, of a legal entity. In the past it has been difficult to apportion blame for climate change impacts to individual companies or governments. It has also been difficult to argue that their failure to act to build resilience to climate change constitutes negligence that has led to a specific loss. However, as the science of climate change advances, a new suite of tools is changing all of this.

In this interview we speak with Marcella Scarpellini, a lawyer and legal analyst at right. based on science, a climate metrics and data services provider that is helping companies manage the financial risk of climate change. The company has developed its X-Degree Compatibility (“XDC”) tool, a science-based climate metric that estimates how many °C the Earth would warm by 2050 if all companies were to operate as emissions-intensively as the company under consideration.

The XDC tool can be used by companies, investors, governments or others who want to better understand their contribution to climate change, and gauge how to best respond. It is also useful for lawyers to hold companies and governments to account, showing whether they are contributing to a wold of 1.5˚C and in line with the Paris Agreement or a much hotter world where climate damages will be significantly higher.

“For corporates [climate change] is going to be big” Marcella said “As climate change increases the search for culprits is also going to increase… we know that there is causality between emissions and climate change, so people are going to start pointing fingers. I think for companies it will be in the forms of fines and penalties, of course litigation, and even class action damages are expected.”


Cover photo of Hurricane Katrina Damage / From Wikimedia Commons
Climate change could lead to great wave of legal liability

Climate change could lead to great wave of legal liability

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.

The rise of climate law. Credit: Anandita Bishnoi. Copyright: Acclimatise.

Legislation

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.

Litigation

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.

3Enforcement 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.

The Legal Dimensions of Climate Change Diagram
The legal dimensions of climate change. Credit: Anandita Bishnoi. Copyright: Acclimatise.

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.


Cover photo by Patrick Fore on Unsplash.