What is typically called ‘climate litigation’ is an increasing fact of life for corporates as well as state bodies in many jurisdictions. Individuals, investors and non-governmental organisations (NGOs) have sought orders requiring specific actions, targets and policies to be taken or adopted by governments, regulators and/or corporates. Stakeholders have brought claims against companies and boards seeking to require that specific climate policies be adopted, and in some instances sought to litigate on policies and statements around climate-related matters alleging that where these have been misleading or insufficient, losses have been (or could be) suffered.
We have seen a number of instances of climate-related litigation across Europe, including Ireland, in recent months. This is taking place against a backdrop of the proliferation of climate-related legislation. The EU’s focus on ESG has demonstrably intensified in recent months with a number of key initiatives hitting legislative milestones during 2023.
With 2024 now well and truly underway, it is timely to consider the changing landscape for climate-related litigation risks for corporates as legislative interventions increase potential grounds for liability. This article considers at a high level some of the most notable climate-related legal actions taken by stakeholders and the changing legislative backdrop which corporates must now navigate.
Claims against government bodies
Climate litigation has been brought successfully against government bodies in the EU. One live example relates to the Irish Government’s Climate Action Plan 2023 (CAP 2023) which is currently the subject of a High Court judicial review challenge taken by the environmental NGO Friends of the Irish Environment (FIE). FIE claims that CAP 2023 lacks sufficient detail as to how Ireland will attain the carbon budgets approved under the Climate Action and Low Carbon Development (Amendment) Act 2021, which require substantial annual emission cuts. This challenge will be determined during 2024. FIE successfully challenged a previous climate plan in the Supreme Court in 2020 on the basis that the plan failed to specify how Ireland would achieve the objective of transitioning to a low carbon, climate resilient and environmentally sustainable economy by the end of 2050.
Similar litigation has been undertaken elsewhere in the EU: the final verdict in the Urgenda case was delivered by the Dutch Supreme Court in December 2019. The case established that the Dutch government is under a legal obligation to significantly reduce its greenhouse gas emissions in the short-term to prevent dangerous climate change. Significantly, the Dutch Supreme Court decided that risks of climate change fell within the scope of the European Convention on Human Rights (specifically in terms of the right to life and right to private and family life) creating a legal basis for the argument that climate change is a human rights issue in that jurisdiction.
Claims against regulators
Climate activists are demonstrating an increasingly creative approach to applying pressure on corporates to consider their sustainability stances. For example, ClientEarth, an environmental law charity, recently sought judicial review of the decision by the UK’s Financial Conduct Authority (FCA) to approve the prospectus relating to the initial public offering (IPO) of shares by Ithaca Energy plc (Ithaca) in late 2022. ClientEarth argued that Ithaca breached the requirements of the UK’s Prospectus Regulation regarding the disclosure of risks by failing to:
assess climate-related risks and their magnitude and impact adequately or at all
adequately specify such risks
include necessary information on the effects of fully implementing the Paris Agreement on Ithaca’s business
and that as a result the FCA should not have approved the IPO prospectus.
The High Court dismissed ClientEarth’s application for judicial review finding that the FCA had exercised its judgment as expert regulator appropriately, providing corporates with comfort that once the FCA has approved a document that approval can be relied on absent manifest unreasonableness from the FCA.
Claims against corporates and/or their boards
While hurdles for claims against regulators remain relatively high, it is nevertheless open to investors to bring a claim directly against companies and again here we see creative strategies being deployed by climate activists. In one example, ClientEarth brought a derivative claim against the board of Shell plc (Shell) as a minority shareholder, alleging failures by the board to properly address the risk of climate change for Shell’s business in breach of the requirements of sections 172 and 174 of the UK’s Companies Act 2006 as this, it was argued, will ultimately not be in the best interests of the company. The case was ultimately dismissed by the UK’s High Court on a number of grounds, including that the Court could not step into the shoes of Shell’s board of directors to consider the range of competing considerations that the board of a business of the size and complexity of Shell is required to consider in carrying out its duties to the company.
Another avenue that activists may explore is liability based on the market price of a company’s listed securities. This style of ‘share drop’ litigation will be more familiar to a US audience, but is not limited to US markets. If loss is suffered as a result of reliance on a misleading or omitted statement in a prospectus approved in Ireland (and indeed across the EU) investors can seek compensation via the courts. A hurdle for these types of claims is that it has traditionally been thought difficult to demonstrate that reliance has been placed on a particular statement occasioning a loss for the relevant investor. However, as legislation requiring statements around sustainability matures (see below) with the result that statements of this kind become more prevalent and likely to be incorporated in regulatory submissions, the odds that this type of claim may be brought in future correspondingly increase.
Finally, legal complaints have been filed against corporates on the basis of climate-related claims which are allegedly misleading. For example, the European Consumer Organisation filed a complaint with EU consumer protection bodies against three major multinationals in respect of claims pertaining to the recyclability of their single-use PET water bottles. This type of claim is very likely to increase with the introduction of legislation around green claims discussed below.
The EU’s concerted efforts to direct capital flows to more sustainable activities include the Corporate Sustainability Reporting Directive (EU) 2022/2464 which came into force in early 2023 and which imposes requirements to report on sustainability matters. This will apply to a growing number of corporates in the coming years. Further examples include a proposed Green Claims Directive which will create strict rules for substantiating ‘environmental claims’ and a proposed Directive Empowering Consumers for the Green Transition which will ban certain unsubstantiated environmental claims. The effect of these proposed directives once adopted and transposed, in tandem with recent Irish legislation concerning consumer representative actions, which provides a framework for collective redress for breaches of consumer law, may lead to an increase in actions involving misleading environmental claims.
With a liability lens in mind, the really key piece of forthcoming legislation is the proposed Corporate Sustainability Due Diligence Directive (the Diligence Directive). The agreed text is not yet available although it is expected that it will be published in 2024. It has been announced that the Diligence Directive will, in summary impose obligations on in-scope companies to “identify, assess, prevent, mitigate, bring to an end and remedy” adverse human rights and environmental impacts, by applying due diligence to their own operations, and those of their upstream and downstream partners and to adopt and put into effect a transition plan for climate change mitigation in line with the Paris Agreement to seek to keep man-made global warming to below 1.5˚C. Significantly, for our purposes, the Diligence Directive will specifically provide for civil liability for breaching companies to “their victims”. This category is specifically intended to include trade unions or civil society organisations. Affected parties benefit from five years in which to bring claims for damages, and the Diligence Directive will limit requirements for disclosure of evidence, injunctive measures and costs of proceedings for such claimants. This approach to liability for environmental and human rights impacts will almost certainly represent a broadening of civil liability in most Member States, although we’ll need to see transposing legislation to fully understand the position case by case. A corresponding increase in the likelihood of claims of the type discussed above being brought seems likely although this remains to be seen.
We seem to expect more from our corporates; not least that they clearly articulate a considered and objective stance on sustainability. Where they fail to meet our expectations, we see an increasing willingness by stakeholders to intervene, by judicial means if necessary. As we have seen, this is underpinned by the legislative expansion of requirements for corporates to behave in a climate-conscious manner as states and supra-national organisations like the EU grapple with their long-term sustainability goals.
With the continuing threat of ESG-related legislation, and the expansion of the liability landscape as set out above, it is reasonable to assume that corporates will come under increasing pressure from potential litigants as the sustainability landscape matures.
It remains the case that potential litigants looking to the courts to address ESG and climate-related issues face many hurdles, including technical legal issues and the deference of many courts to the legislature when confronted with contentious policy issues. However, as demonstrated by the claims referred to above, litigants are becoming increasingly creative in this space and exploring new avenues to raise ESG related challenges. Indeed, even where a court action may be of uncertain outcome, stakeholders appear to be willing to use litigation as a tool to highlight the perceived ESG frailties of companies, exerting pressure on them by way of adverse publicity and reputational harm.
Against this backdrop, corporates would be well advised to engage with incoming legislation as a matter of priority to allow them to assess areas of concern and to put in place strategies to ensure compliance with their obligations on a timely basis to minimise potential liability.
For further information, please contact Liam Murphy, Senior Knowledge Lawyer or Rachel Kemp, Knowledge Lawyer.
 The State of the Netherlands v Urgenda Foundation, Supreme Court of the Netherlands, 20 December 2019, ecli:NL:HR:2019:2006, English translation ecli:NL:HR:2019:2007.