Major listed companies are finding themselves the target of legal action designed to make them move faster towards a lower carbon world. These cases could mark an inflection point; when the conversation turns toward specific responsibilities to move away from fossil fuels rather than broad commitments to change.
Achieving net zero stands prominently in Royal Dutch Shell’s corporate strategy, just behind its commitment to shareholders. The oil major has already agreed to reduce the carbon intensity of the energy it sells and aims to become a net-zero emissions business by 2050. Shell says its ambitions are “in step with society’s progress”1 towards a lower carbon world. But is this enough?
In December 2020, high-profile environmental lawyer Roger Cox stood in a district court in The Hague and suggested Shell was not raising the bar high enough. Representing Milieudefensie, the Dutch arm of Friends of the Earth, he said Shell was “on a collision course” with the climate target agreed by the international scientific community and assorted governments.
To help meet the ambition of the Paris Agreement, where the goal is to limit global temperature increases to well below two degrees Celsius above the pre-industrial average, and ideally to 1.5 degrees, should Shell do more?
“Our climate lawsuit is unique, because we are not asking Shell for compensation, but for it to change course,” said Milieudefensie in a statement on its website. “We are demanding that Shell commits to reducing its CO2 emissions by 45 per cent by the year 2030.”2
Milieudefensie are demanding that Shell commits to reducing its CO2 emissions by 45 per cent by the year 2030
Cox has a strong track record. After writing Revolution justified: Why only the law can save us now3, he successfully led legal action against the Dutch government, forcing it to pick up speed on climate action [Proceedings concluded in 2019]. He used tort, the legal principle that sets out how action (or inaction) might lead to harm. By establishing the Dutch government was failing in its duty of care to its citizens by dragging its feet on climate action4, he injected greater urgency into the debate. At the time, UN special rapporteur on human rights and the environment David Boyd described the case as the “most important climate change court decision in the world so far”.5
Testing the law as a governance tool
The volume of climate litigation is stepping up. Since the Rio Earth Summit in 1992, a large body of climate legislation has developed around the world (see Figure 1), with assorted stakeholders and pressure groups prepared to test it.
Climate litigation cases have almost doubled from 884 to 1550 since 2017
Cases have almost doubled from 884 to 1550 since 2017.6 Most litigation (79 per cent) has been in the US; just 10 per cent has been directed at corporates. The majority of the 135 businesses facing challenges are energy and natural resources companies, with litigation concentrated in six areas: the rights to life and a clean environment, the need to keep carbon in the ground, areas of corporate responsibility, enforcement of climate targets, adaptation impacts and climate disclosures.
At this stage, the financial consequences are unclear. “Our understanding of the potential costs arising from climate change litigation is very poor,” wrote Javier Solana, a lecturer at University of Glasgow’s School of Law, in an academic paper last year.7 “Contrary to popular understanding, not all direct costs will arise at the end of legal proceedings.” Ultimately, total costs may be much higher than headline fines or court orders, particularly if litigation results in negative publicity and long-lasting reputational damage.
The action is testing the role of the judiciary and reflects important social questions around values and expectations. “There is a definite generational shift underway,” says Paul Pritchard from sustainability consultant Iken Associates. “People have been talking about climate for 25 years, but it is only recently that views have started to crystalise. The younger generation wants to see more action; they are taking this much more seriously. They will reflect their values and choices in their behaviour: where they work, where they invest their money and so on.”
Figure 1: Climate-related litigation: Total cases 1986-2019
Figure 2: Climate-related litigation: Cases against companies 1986-2019
So, how do experts view Cox’s latest crowdfunded challenge? Taking legal action against a company using tort is not straightforward; the nature of the law is different, as are the targets.
“It is challenging because the commitments a company makes are soft commitments,” says Joana Setzer, assistant professorial research fellow at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (read a detailed interview with Setzer here).
“They are voluntary, and it is questionable whether they could be enforced in court. The Shell case in the Netherlands is important, because it is asking whether Shell is going to deliver on its targets. Those bringing the case are saying: ‘It does not look as if you are doing that’, and really calling on Shell to change its core business model.”
The key analytical tool that might prove pertinent is climate attribution. This rapidly evolving science allows human impacts on climate change to be assessed (within certain data constraints), right down to the individual company level. By taking a pre-industrial climate scenario, then comparing it with one that takes man-made emissions into account, it may be possible to define the human contribution in a particular scenario. These developments are significant because until recently it was not possible to be definitive about causative relationships: to establish that a single company’s actions might have contributed to a particular weather event.
“Because of the causation issues, quantifying damages for acceleration of climate change may be difficult,” noted law firm Norton Rose Fulbright.8 The evolution of climate attribution has gripped the legal profession; a judge hearing a case in the US is reported to have asked for a relevant ‘teach-in’, to help him prepare.9
“This is where the work of Dr. Friedereike Otto, Richard Heede and others has made a real difference,” Setzer says (read more about Otto’s work here). “They have developed attribution science, but they are also producing science that is useful for courts. We had science produced prior to that, but lawyers couldn’t readily use it. Now the lawyers and scientists are talking, the scientists are producing information that is purposeful and this is already making a difference.”
One important consideration in legal action is whether greenhouse gas emitters can be shown to have known about environmental risks but pressed ahead regardless. If evidence like this coexists with information from an internationally recognised body like the Intergovernmental Panel on Climate Change, companies may find it harder to have the cases against them dismissed.
“If they rule against Shell in this case, it could be game changing,” says Sora Utzinger, senior environmental, social and governance (ESG) analyst at Aviva Investors. “It would potentially open the door to similar action elsewhere. Prior to now, most of the behaviour change related to climate has come about from top-down regulation. More governments have announced plans to reach net zero, and companies have changed their behaviour accordingly, to reflect what society wants to achieve. This is different; it would make their commitments binding.”
It is not particularly helpful to demonise a small group of companies
Meanwhile, environmental consultants warn of oversimplifying the analysis, making it all about the few. “One concern I have is about the need for quite a simple narrative, about good guys and bad guys,” says Pritchard. “It is not particularly helpful to demonise a small group of companies. The oil majors are not the only ones involved here.
“They might be supplying a product, but lots of others are using it, and perhaps those individuals could be doing more to look for alternatives themselves,” he adds. “I hope the discussion becomes broader. There are companies that need to be held to account, but hopefully that does not lead to the conclusion that only a handful are the problem. It is much bigger and more complex than that. We need to be asking more questions, like who burns the gas and puts the aviation fuel in the planes?”
Facing up to responsibility for the global commons
Meanwhile, in Germany, another climate case is being played out. A small-scale Peruvian farmer, Saul Luciano Lliuya, is taking on the German utility RWE, backed by the sustainable development organisation Germanwatch.10 To clarify, RWE is in the dock for impacts in Peru, although it has no operations there at all.
A Peruvian farmer, Saul Luciano Lliuya, is taking on the German utility RWE
RWE is one of Europe’s largest carbon dioxide emitters, giving out around 100 million tonnes of CO2 annually from fossil-fuel fired power stations and other assets. It has plans to phase out coal and be carbon neutral by 2040.
“German regulations require an end to coal-fired energy generation by 2038,” says Charles Devereux, ESG sector analyst at Aviva investors. “RWE plans to use one of the dirtier fuels right up to that regulatory deadline. Other European peers seem to be moving faster in the energy transition, although generally they are all ahead of their equivalents in the US.”
Lliuya lives in the Andes, about 280 miles north of Lima, where rising temperatures have led a glacier to retreat. The melting ice is feeding a glacial lake, which threatens to burst. If it does, it will affect Lliuya and the lives of thousands of other local residents.
“This is the first lawsuit in Europe where a person affected by the hazards of climate change has sued a private company,” Germanwatch says.11 Lliuya is seeking damages from RWE to compensate for the investment he has made to protect his home. The amount itself is not vast – less than half of one per cent of the total cost incurred by himself and the local authorities. That’s the same percentage as RWE’s estimated contribution to global greenhouse gas emissions since industrialisation began.12 If Lliuya’s legal team is ultimately successful using a ‘general nuisance’ clause in the German Civil Code, it potentially opens the floodgates to countless other claims.
Litigation like this presents both a risk and an opportunity from an ESG perspective
“Litigation like this presents both a risk and an opportunity from an ESG perspective,” says Devereux. “Companies can differentiate themselves through the progress they make as they move towards an effective low carbon transition. But we should not underestimate the risks. These cases could set quite wide-ranging precedents in terms of establishing a company’s liability towards society, not based on a specific locale.”
In a story of many twists, RWE has now taken legal action against the Netherlands in a Є1.4 billion corporate/state dispute. It is looking to offset the cost of retiring a coal-fired power station early;13 that decision came about after Cox’s successful case against the state. RWE is the subject of climate litigation and also using it.