This article was inspired by and largely based on a seminar given by Alice Garton (Client Earth) at the Edie conference in Birmingham, UK earlier this summer. Already aware of the work Client Earth has been doing holding the UK government to account on air quality failures, I was intrigued to hear their take on climate change.
The talk gave me renewed hope that there were mature ways to promote climate action today, particularly at a time when voluntary government initiatives such as the Paris Agreement and Trump’s decision to remove America from it, seem so shaky.
In a nutshell, Alice pointed out that Directors’ responsibilities are to the company and not to shareholders. In essence, they can and should be putting long-term company success before short-term shareholder interests. Failure to do so could open them and their business to litigation.
Three main sources of potential litigation were identified:
1. Failure to Report
In the UK, and many other countries, companies are required to report on risks to their business over the short and longer term. As part of the decision-making process, any material risks to the business must be reported. Climate legislation and rising energy prices are clearly material for all energy intensive businesses. In fact, Mark Carney, Governor of the Bank of England has confirmed this in a number of high-profile speeches.
This was identified as the first area of concern for many companies as it is the easiest to fight in court and there are already a number of precedents. Litigation could attack a company’s annual report in several ways:
- Omission (silence) – e.g. Peabody Coal did not discuss climate-related financial risks at all
- Misrepresentation (lies) on compliance with regulatory standards e.g. Volkswagen emissions scandal
- Inconsistencies – e.g. Peabody Coal said they couldn’t quantify the impact of the Paris Agreement despite contracting a consultant who advised it could reduce coal prices by 30%
2. Failure to Invest Responsibly
The second source of future litigation, not yet tested to my knowledge, is the potential for shareholders and pension fund members suing investment and pension funds for investing in businesses with a negative climate impact.
The arguments for damages are likely to come from two main angles the way I see it. Firstly, it could be argued that investment in fossil fuel exploration, or companies that are investing heavily in this, is a reckless used of investment capital when fossil fuel reserves are already five times the carbon budget necessary to prevent temperatures exceeding 2oC. The Paris Agreement and other mechanisms both public and private are making it seem increasingly unlikely that existing assets will be used, therefore why waste money pursing more when you could be investing in alternative energy sources or other business activities entirely.
Secondly, damage resulting to stock performance as a result of climate impacts, such as increased flooding, drought and salinization could give shareholders and pension fund members a reason to pursue litigation.
3. Failure to Mitigate
This final possibility is by far the most interesting, but as yet is still in the early stages with mostly symbolic cases. In a nutshell it is where individuals or whole communities sue a business for contributing directly to pollution and climate change. This may have caused sea-level rise, floods or droughts that have displaced, impoverished or even led to deaths in these communities.
Up to now, the way most have viewed climate change is that it is a global problem and therefore virtually impossible to hold anyone to account for it. However, work by Richard Heede at the Climate Accountability Institute has helped to shift this perspective by tracing two thirds of all CO2 emitted since the industrial revolution to just 90 companies. You can read the full report for free here.
Suddenly, the earlier perspective that this problem is too large and global totally changes. After all, whilst the courts may struggle to hold all of the current and former billions of people accountable it can certainly pursue this far smaller number.
There are already 2 examples – mostly symbolic – that I am aware of at present:
- Pits Kids vs. Climate Change – 21 U.S. kids suing the American Government for its climate and energy policy.
- The People’s Declaration for Climate Justice – 6 South Pacific nations (Vanuata, Kiribati, Tuvalu, Fiji, the Solomon Islands, and the Philippines) bringing legal action against fossil fuel companies for their role in contributing to climate change.
Whilst these are unlikely to make much progress right now, that is not really their purpose. They are raising awareness not only of climate change and the need for change, but also what could be the main way that companies and governments that do not respond today will pay, quite literally, the cost tomorrow.