Posted in GreenBiz
June 20, 2022

Why climate litigators may be coming for your company


Send in the lawyers!

That seems to be the marching orders for climate activists these days. And not just the leading NGOs: Individuals, cities, Indigenous tribes, even kids are lawyering up to rush in where regulators fear to tread.

And companies are a growing target.

Lawsuits seeking to accelerate progress on reducing or eliminating greenhouse gas emissions, or addressing other environmental wrongs, have been around for decades. Among the earliest was one filed by activist economist Jeremy Rifkin in 1992, challenging several U.S. agencies that, according to the suit, did not consider the effects of climate change in their policies. It was summarily dismissed, but it helped pave the way for many others to follow.

Three decades later, there are nearly 2,000 climate lawsuits active worldwide, according to a database maintained by the London School of Economics’ Grantham Research Institute on Climate Change and the Environment. Just over 800 cases were filed between 1986 and 2014, but more than 1,000 have been brought before the courts since then. Most build on those early efforts to hold public agencies accountable, but many are taking on the private sector.

A new era of climate- and sustainability-related lawsuits against companies is on the docket.

According to the U.N. Intergovernmental Panel on Climate Change, climate litigation “has influenced the outcome and ambition of climate governance.” As its 2022 report noted: “Outside the formal climate policy processes, climate litigation is an important arena for various actors to confront and interact over how climate change should be governed.”

Many private-sector suits have been aimed, unsurprisingly, at oil and gas companies. In a landmark case last year, a Dutch court ruled that Shell must more aggressively reduce its greenhouse gas emissions. (Shell is appealing, calling the obligation to reduce Scope 3 emissions “unreasonable.”) Fossil fuel companies have lost court rulings in California, Colorado, Maryland and Massachusetts. France sued TotalEnergies, the country’s largest energy producer, for misleading the public about its net-zero claims. In March, a first-of-its-kind case was filed against Shell’s board of directors seeking to hold its members personally liable for failing to adopt and implement a climate strategy that aligns with the Paris Agreement.

But it’s not just the fossil-fuel folks. According to the Grantham Institute, an increasing number of claims focus “on financial risks, fiduciary duties and corporate due diligence, which directly affect not only fossil fuel and cement companies, but also banks, pension funds, asset managers and major retailers, among others.” Plastics, packaging and other forms of waste are also on the docket, as are companies’ ESG marketing claims.

Law and disorder

A confluence of factors is contributing to the surge of suits. In the United States, the lack of clear, overarching climate laws has contributed to some cases. Globally, the growth of companies making net-zero pledges and setting zero-waste targets, among other commitments, has provided a new set of benchmarks against which companies can be judged — and sued. The ascension of climate disclosure requirements by national governments and institutional investors has landed some companies in court, charged with false or misleading representations about their climate impacts.

The financial resources to take on these actions — which can take years to work their way through the courts — seem to be flowing in. Activists are getting funding from philanthropic foundations, notably the MacArthur Foundation and the George Soros-backed Open Society Foundation, both of which have opened their wallets to support climate action in general and climate justice in particular.

“What we’ve seen is that these types of cases are surviving motions to dismiss and are getting beyond the pleading stages,” William F. Tarantino, a partner in the San Francisco-based law firm Morrison Foerster, explained. “And now that everyone is putting these disclosures in their public filings and communicating them to their investors, litigation is only going to increase.”

“Everyone now has to analyze Scope 1, 2 and 3 emissions, and they have to quantify it,” Tarantino told me. “And so you have broad swaths of companies that never even thought they had any environmental impacts needing to figure out how to do this. These are material risks to your business. They have to be analyzed, they have to be disclosed and you have to tell investors what you’re doing about them.”

Many cases against companies are class-action suits filed on behalf of investors. According to Tarantino, activists enlist investors who may not even be aware of the company’s public disclosures, which may contain material misrepresentations about their climate commitments, contrasting those statements with the company’s actual activities and investments. The activists then demand that the board investigate these discrepancies on behalf of the investors, “and when that doesn’t happen, which often does not, they file a class action, basically seeking redress for being misled by these companies about the state of climate change.”

Many such suits invoke the “nuisance doctrine” — “basically a legal claim that a certain conduct that a company engages in is causing disruption to the enjoyment of one’s property or the public well-being,” Tarantino explained. “The traditional nuisance is the factory that’s flowing toxic fumes onto your property or polluting a river. It’s the foundation of all environmental law.”

When it comes to climate, Tarantino said, “We’re seeing plaintiffs pushing and stretching the nuisance doctrine as far as it can go.”

For example, a German court allowed a Peruvian farmer to sue Germany’s largest power company for its emissions of greenhouse gases over more than 150 years, which, the farmer claimed, helped put his house at risk of flooding due to a swollen alpine lake that teeters behind a melting glacier dam on the brink of failure.

Winning such suits is rare and may not even be the No. 1 goal of some litigants. Having a day in court — and generating negative publicity for the companies involved — may be a victory unto itself. And as lawsuits often take on a herd mentality, in which certain types of cases begat even more of those cases, a well-publicized lawsuit can have a snowball effect.

Of course, the success of such litigation depends in no small matter on the judiciary itself, which — in the United States, at least — has tilted decidedly to the right, with a strong aversion to environmental laws in general and climate laws in particular. Whether and how those views affect litigation against companies is unclear.

Either way, there’s the prospect of a growing wave of suits.

One of these days, the securities plaintiffs’ bar and environmental groups are going to get together.

“One of these days, the securities plaintiffs’ bar and environmental groups are going to get together,” Tarantino predicted. “And I think that’s on the horizon. The good outcome is that most companies are going to be paying a heck of a lot more attention, ensuring that their disclosures are correct and defensible and thorough and are not the type of disclosures that would raise any concerns.”

You can probably guess what the bad outcome is.

So, what should companies be doing to protect themselves? Tarantino proffered some free legal advice.

“Just as plaintiffs’ lawyers and environmental advocacy groups are getting together, your company’s sustainability executive committee needs to bring together a team of disclosure counsel — someone who is a securities law expert who understands what will be required, sustainability professionals who understand how to do the right analysis, especially when it comes to accounting for carbon emissions, and someone who understands how the company’s operations impact climate risk.”

Beyond that, Tarantino advises companies to ensure “that what you’re telling people in your public filings lines up with what you’re trying to communicate to consumers. We tell our clients all the time that if you’re going to be putting yourself out there, the most important aspect of sustainability communication is credibility, making commitments that are real and defensible, and not just purely aspirational.”

To paraphrase business guru Don Tapscott: In the age of transparency, if you’re going to be naked, you’d better be buff.

Thanks for reading. You can find my past articles here. Also, I invite you to follow me on Twitter and LinkedIn, subscribe to my Monday morning newsletter, GreenBuzz, from which this was reprinted, and listen to GreenBiz 350, my weekly podcast, co-hosted with Heather Clancy.

June 20, 2022 at 03:10PM

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