People over profits: Learning from the rise in climate change lawsuits

Major corporations and investment funds are increasingly in the firing line for strategic climate litigation, which poses a real financial risk. Companies need to be thinking about liability risk when making the decisions that impact how they run their businesses and the information they provide to shareholders and the public.

Recent research by the Grantham Research Institute found that since the first climate change cases were brought in the early 1990s, at least 28 countries have seen plaintiffs take to the courts to advance climate action.

The increasingly voluntary nature of the international climate framework, and opposition to the idea of state liability for climate change, have also led to a shift in focus to place the responsibility for mitigating climate change on the public, businesses and non-governmental organisations.

And with climate litigation benefiting from advances in climate science and the use of new tools such as corporations and consumer law, corporations who fail to develop zero-carbon strategies and invest in climate resilience may be jeopardising not only the lives of those impacted, but also their own profits.

Advances in climate science are leading litigants closer to success

The first lawsuits against companies were brought in the 2000s by state and local governments in the United States, seeking to hold companies to account for the climate damages caused by their emissions of greenhouse gases. These initial cases were unsuccessful, the greatest challenge for litigants being to prove a link between the actions of corporations and climate impacts.

Doing so has become easier since, in 2014, Richard Heede identified the top 90 greenhouse gas emitting corporations globally, dubbing them the ‘carbon majors’ in a ground-breaking study. Along with improvements in the field of study known as attribution science, plaintiffs now have more tools at their disposal to argue in court that a particular corporation or group of corporations are responsible for their loss.

However, no case has yet succeeded. While a case brought in 2017 by the City of San Francisco against several large oil and gas companies recognised that fossil fuels have led to global warming and sea level rise, the initial decision fell short of holding the companies liable. The case is now being appealed.

In Lliuya v RWE a German court of appeal has provisionally accepted the argument that a corporation (in this case the Germany electricity utility RWE) could be found liable for climate impacts that it partially caused. This case was brought by Saúl Luciano Lliuya, a Peruvian farmer, who contends that RWE should be held liable for 0.47 per cent of the costs of flood protections that needed to be installed in Lliuya’s home city of Huaraz following the melting of a glacier due to rising temperatures – the equivalent proportion to RWE’s historic responsibility for total greenhouse gas emissions. Whether the court finds there is sufficient evidence and science to link RWE to the melting glacier remains to be determined. However, the case demonstrates the international reach of climate litigation and would set a significant precedent for vulnerable communities affected by climate change around the world if successful.

The lack of success by plaintiffs bringing climate change cases to date does not mean corporations should rest easy. As attribution science continues to improve, climate lawyers Sophie Marjanac and Lindene Patton argue that the first successful cases are likely to be those where a defendant failed to take an adaptation action that would have reduced harm to the plaintiff. Being held liable for failing to reduce greenhouse gas emissions likely won’t be far behind.

Much depends on where such cases are brought and the jurisdiction’s rules on causation. Asbestos cases were successful in the UK when it was held that it was enough for an employer to have materially increased the risk of the plaintiff’s illness, even if it was not the only cause. Lliuya is a test case for whether a similar argument could hold in German courts, and could very well be the case that opens the floodgates.

Lack of transparency: corporations sued for failing to disclose climate risks

While the use of attribution science in the courts has some catching up to do, plaintiffs have expanded their litigation efforts into new areas of law to greater success.

In 2016 shareholders invoked Australian corporations law to sue the Commonwealth Bank of Australia for failing to disclose climate change related business risks associated with the proposed new Carmichael Coal Mine. The case was eventually withdrawn when the Bank’s 2017 report did include this information. The Commonwealth Bank has since pledged not to lend any money to the coal mine that instigated the litigation, demonstrating the reputational pressure such litigation can apply.

In York County v Rambo investors are alleging the parent company of the utility Pacific Gas and Electric Company, PG&E, failed to take proper fire mitigation measures during the 2017–18 California wildfires and that this contradicted representations the company had made in offering documents for more than US$4 billion worth of bonds.

Also in the United States, fraud and consumer protection laws are being used in relation to disclosure of climate information or misleading consumers and investors with respect to the impact of fossil fuel products sold. The New York Attorney General has conducted several investigations into oil majors for potentially misleading investors about climate risks, leading to a settlement and requirement for improved climate change disclosures with Peabody Energy Corporation in 2015 and an ongoing investigation into ExxonMobil.

Lessons for corporations

Corporations should not underestimate the risk of successful public nuisance claims for damages arising from a failure to reduce greenhouse gas emissions or adapt to climate change. With several potentially landmark cases progressing through courts around the world, success in one jurisdiction could open the floodgates. This calls for proactive strategies to prevent future liability, including the adoption of zero-carbon policies and adaptation measures.

Transparency is also critical. Disclosure of climate risks may not only reduce future liability for climate change but also ensure these risks are being factored into corporate investment decisions, incentivising more sustainable decisions that protect people as well as profits.

This commentary draws on the work of Dr Joana Setzer and Rebecca Byrnes published in the Grantham Research Institute policy report ‘Global trends in climate change litigation: 2019 snapshot’ (July 2019). The commentary was first published by Business Green