Pressure points for climate litigation in EU reforms to corporate governance

Against the backdrop of increasing legislation on managing the climate impacts of non-state actors, Tiffanie Chan applies a ‘climate litigation lens’ to explore how EU reforms to supply chain due diligence and consumer protection could shape the next generation of EU climate cases. 

In February 2023 the first court decision interpreting the French Duty of Vigilance Law was handed down. Among other issues, the Court determined that the Law only outlines in a ‘high-level fashion’ the measures to be implemented, and that it does not refer to any specific standards on the diligence required. The Court did, however, establish that there is a substantive requirement to develop vigilance plans collaboratively with stakeholders.

France was the first jurisdiction within the EU to adopt mandatory human rights due diligence laws. Yet as shown in the recent judgment, the law is vague on the requisite degree and quality of diligence. We have since seen similar legislation in other European jurisdictions (e.g. the German Supply Chain Due Diligence Act). Notably, the European Commission will soon adopt a due diligence directive applicable to all Member States. Many stakeholders are calling for policymakers to extend human rights due diligence legislation to climate obligations. But even if successful, to what extent will high-level transparency and corporate governance measures realistically move the needle on climate?

Although the ink has yet to dry on the EU proposals, much of the focus of company obligations thus far is around increasing transparency, transition planning, and information sharing. I explore below potential impacts on climate litigation from two key areas of reform: corporate due diligence and climate-washing.

Using litigation to address ambiguity: the Corporate Sustainability Due Diligence Directive

The proposed Corporate Sustainability Due Diligence Directive (CSDDD; see here for the draft text) requires companies falling under its scope to conduct due diligence along its ‘chain of activities’ and identify actual or potential negative impacts on human rights and the ‘environment’. However, climate change is not expressly listed in the proposal as one of the adverse environmental impacts against which companies need to exercise due diligence. Thus, it is still unclear if the primary due diligence obligations, which have corresponding civil liability and redress provisions, extend to climate impacts.

This ambiguity is further muddied by the fact that climate is expressly called out in the requirement to adopt ‘transition plans’ (see draft Article 15). This is defined as plans to “ensure that their business model and strategy are compatible with the transition to a sustainable economy and with the limiting of global warming to 1.5°C in line with the Paris Agreement”. Several civil society groups have criticised this provision for being unclear and weak. There is little detail on the contents of the plan and it may create an opening for greenwashing, thus also potentially spurring further litigation.

Lastly, even if it is accepted that climate impacts are covered under the primary due diligence obligations, there remains a lack of precision around which corporate entity civil liability for non-compliance attaches to. Based on the proposal, a parent company domiciled in the EU may be responsible for the actions of a subsidiary. However, the Council also expressed a desire to not interfere with national systems and therefore indicated that where domestic liability thresholds are met, the subsidiary may still be held responsible, regardless of which entity actually conducted the due diligence.

As a result, for litigants who try to use the CSDDD to hold companies accountable for climate impacts, there are already at least three areas where litigation seeking ambitious interpretations of ambiguous provisions from the courts is likely to arise.

We note that on 25 April 2023, the Committee for Legal Affairs of the European Parliament adopted a revised position on the CSDDD proposal. The revisions to the definition of ‘adverse environmental impacts’ and article 15 may address some of the issues raised in this commentary. Once Parliament approves this proposal at the next May plenary, inter-institutional negotiations with the Council will start on the final text.

Climate-washing: litigation as a gap-filler

Although legislation may provide the main legal grounds for enforcement of a specific obligation, importantly, litigation can also fill gaps where legislation does not yet exist, or push for improvements in existing legislation. One area we see this happening is ‘climate-washing’ litigation. In March 2022, the Commission published plans for a Directive that would amend the Unfair Commercial Practices Directive 2005/29/EC (UCPD) and the Consumer Rights Directive 2011/83/EU (see the proposal here). In March 2023, the European Commission also published a proposed ‘Green Claims Directive’.

While various pieces of legislation are still in progress, we have already seen litigation cases questioning information from non-state actors that misleadingly claim to address climate change (e.g. Greenpeace France & Others v. TotalEnergies SE and TotalEnergies Electricité et Gaz France, and FossielVrij NL v. KLM). In FossielVrij NL v. KLM, claimants used both the proposed Directive and the updated UCPD guidelines to build their argument that airline KLM used misleading advertising under its ‘Fly Responsibly’ campaign.

It is difficult to predict the specific parameters of future litigation stemming from the consumer protection reforms, but it appears likely that national courts and administrative authorities will be called on to play an even more active role in assessing the credibility of ‘sustainability’ claims. For example, the proposed reforms require claims on future environmental practice to be subject to an independent monitoring system. This is likely to lead to litigation connected to compliance with third-party schemes. Making generic claims such as ‘environmentally friendly’ without demonstrating ‘excellent environmental performance’ may also become prohibited under Annex 1 of the UCPD. This increased stringency could lead to more litigation contesting generic green claims. 

Being reactive carries risk – futureproof now

How, therefore, can non-state actors mitigate litigation risk? Companies should proactively futureproof. An approach focused solely on the bare bones of compliance carries risk. Adopting a ‘do the minimum’ attitude in one area may lead businesses to fall short in another. It is important to embed better internal governance processes now. Coordination and communication between in-house legal and marketing teams should also be well integrated, to find a ‘sweet spot’ between complying with consumer protection legislation and effective advertising.

For multinational companies, there is also a real need to assess how different jurisdictions’ disclosure regimes apply or overlap across various stages of their supply chains. It is practical to open conversations with third-party suppliers and contractors now, to better understand whether there are sufficient safeguards down the chain.

Finally, companies should stay up-to-date on developments in climate case law in Europe, but also around the world. In recent years, European climate litigation has broadly followed the global trend.

The bigger picture

A package of EU reforms is evolving, designed to steer economic activity within the Union to be better aligned with its climate goals. The reforms to corporate governance described above are underpinned by the idea that requiring non-state actors to plan and publicly disclose clear information on climate risks and impacts will (indirectly) push them towards more sustainable activities. However, if climate initiatives are not credible, they create a dangerous illusion of progress. In light of this, civil society actors will continue to apply significant scrutiny to how these changes manifest in practice.

Meeting the EU’s 2030 target will require an economy-wide transformation. The inter-sectoral nature of the net zero transition makes legislating coherently a challenge for policymakers, but also complying with the evolving regulatory landscape a challenge for companies. While there may be a steep learning curve ahead, to achieve net zero we need leadership from non-state actors.  

This commentary is based on ‘Climate change law in Europe: what do new EU climate laws mean for the courts?’, a Grantham Research Institute policy brief by Catherine Higham, Joana Setzer, Harj Narulla and Emily Bradeen (March 2023).

The author would like to thank Joana Setzer, Catherine Higham and Georgina Kyriacou for their helpful review of this commentary.