Activist company

Why climate litigators might come for your business

Send the lawyers!

That seems to be the marching order for climate activists these days. And not just major NGOs: individuals, cities, indigenous tribes and even children are asking to rush where regulators fear to tread.

And businesses are a growing target.

Lawsuits aimed at accelerating progress in reducing or eliminating greenhouse gas emissions, or addressing other environmental harms, have existed for decades. Among the first was one filed by activist economist Jeremy Rifkin in 1992, challenging several US agencies which, according to the lawsuit, failed to take into account the effects of climate change in their policies. It was summarily rejected, but it helped pave the way for many more to follow.

Three decades later, nearly 2,000 climate lawsuits are ongoing around the world, 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 gone to court since then. Most rely on these early efforts to hold public agencies accountable, but many take aim at the private sector.

A new era of climate and sustainability-related lawsuits against corporations is on the horizon.

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

Many private sector lawsuits have been brought, unsurprisingly, against oil and gas companies. In a landmark case last year, a Dutch court ruled that Shell needed to cut its greenhouse gas emissions more aggressively. (Shell is appealing, calling the Scope 3 emissions reduction requirement “unreasonable.”) Fossil fuel companies have lost court decisions in California, Colorado, Maryland and Massachusetts. France has sued TotalEnergies, the country’s largest energy producer, for misleading the public about its net zero claims. In March, a complaint, the first of its kind, was filed against Shell’s board, seeking to hold its members personally responsible for failing to adopt and implement a climate strategy in line with the Paris.

But it’s not just the fossil fuel people. According to the Grantham Institute, a growing 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, funds pension funds, asset managers and large retailers, among others.” Plastics, packaging and other forms of waste are also on the agenda, as are corporate ESG marketing claims.

law and disorder

A confluence of factors is contributing to the flurry of lawsuits. In the United States, the lack of clear and overarching climate laws has contributed to some cases. Globally, the growth of companies making net zero commitments and setting zero waste goals, among other commitments, has provided a new set of criteria against which companies can be judged – and prosecuted. Increasing climate disclosure requirements by national governments and institutional investors have brought some companies to court, accused of making false or misleading statements about their climate impacts.

The financial resources to take these actions – which can take years to work their way through the courts – seem to be flowing. The activists receive funding from philanthropic foundations, including the MacArthur Foundation and the George Soros-backed Open Society Foundation, both of which have opened their portfolios to support climate action in general and climate justice in particular.

“What we’ve seen is that these types of cases survive motions to dismiss and move beyond the pleading stages,” said William F. Tarantino, a partner at San Francisco-based law firm Morrison Foerster. “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 them,” Tarantino told me. “And so you have large swathes of businesses that never even thought they had environmental impacts and need to figure out how to do that. These are significant risks to your business. They need to be analyzed, they must be disclosed and you must tell investors what you are doing about them.”

Many cases against companies are class action lawsuits filed on behalf of investors. Tarantino says activists are recruiting investors who may not even be aware of the company’s public disclosures, which may contain material misrepresentations about their climate commitments, contrasting those claims with actual activities and investments. of the company. Activists then demand that the board investigate these discrepancies on behalf of investors, “and when that doesn’t happen, which often doesn’t happen, they file a class action lawsuit, essentially seeking redress for being misled into error by these companies on the state of the currency.”

Many of these lawsuits invoke the “nuisance doctrine” — “essentially a legal allegation that a certain conduct in which a business engages disturbs the enjoyment of its property or the public welfare,” Tarantino explained. “The traditional nuisance is the factory dumping toxic fumes onto your property or polluting a river. It’s the foundation of all environmental law.”

Regarding climate, Tarantino said, “We see 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 electricity company for its greenhouse gas emissions over more than 150 years, which the farmer says helped put his home in danger of flooding due to a swollen alpine lake teetering behind a melting glacial dam on the brink of rupture.

Winning such lawsuits is rare and may not even be the #1 goal of some litigants. Having a day in court — and generating negative publicity for the companies involved — can be a win in itself. And since trials often take on a herd mentality, in which certain types of cases have spawned even more of these cases, a well-publicized trial can have a snowball effect.

Of course, the success of such litigation largely depends on the judiciary itself, which – in the United States, at least – has swung decidedly to the right, with a strong aversion to environmental laws in general and climate laws. especially. It is unclear if and how these views affect litigation against the companies.

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

One of these days the securities plaintiffs bar and the environmental groups are going to meet.

“One of these days the securities plaintiffs bar and environmental groups are going to come together,” Tarantino predicted. “And I think that’s on the horizon. The good outcome is that most companies are going to pay a lot more attention, making sure their disclosures are correct, defensible and thorough and aren’t the type of disclosures who would raise any concerns.”

You can probably guess what the wrong result is.

So what should companies do to protect themselves? Tarantino offered free legal advice.

“Just as plaintiffs’ attorneys and environmental advocacy groups come together, your company’s sustainability executive committee needs to bring together a team of disclosure lawyers – someone who is an expert in securities who understands what will be needed, sustainability professionals who know how to do the right analysis, especially when it comes to accounting for carbon emissions, and someone who understands the impact of the operations of the on climate risk.”

Beyond that, Tarantino advises companies to make sure “what you’re telling people in your public materials is what you’re trying to communicate to consumers. We tell our customers all the time that if you’re going to put out there, the most important aspect of sustainability communication is credibility, making real and defensible commitments, not just pure aspiration.”

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

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