By Edward Baker
In our new ESG world, litigation is an important tool for shaping the development of regulatory frameworks and for influencing the corresponding corporate and societal behaviours impacting our well-being. Litigation can motivate change, even in the face of intransigent legal and economic hurdles. It can be effectively used to fine tune new legislation and modify existing regulations affecting business practices seen as being at odds with the new emerging ESG standards and goals. This article focuses primarily on the rapid rise of climate-related litigation over the past decade. It emphasises the broader conversations among stakeholders this litigation represents as regulators seek to clarify responsibilities. Public policy is thereby being adapted to address the growing problems litigants are raising in the courts.
The Rise of Climate-Related Litigation
As is well known, “ESG” stands for Environmental, Social and Governance. Both the Social and Governance components have a long history of legal actions in court systems around the globe. These actions have had a broad and significantly positive impact on legislative and regulatory rules and practices, from improving labour conditions and protecting minority groups under “S” to ensuring minority investors are treated fairly under “G.”
Currently, it’s the “E” component of ESG that’s having its day in court and seeing significant growth in court cases, largely motivated by the widespread destructive impacts of global climate change. A 2024 report (referred to throughout as Litigation Trends) supported by the Grantham Research Institute on Climate Change and the Environment, titled “Global trends in climate change litigation: 2024 snapshot”, by Joana Setzer and Catherine Higham, provides a comprehensive view into the state of climate-related cases[1].
The Litigation Trends report relies extensively on a set of databases compiled by the Sabin Center for Climate Change Law at Columbia University focused exclusively on climate change-related case filings [2].These databases include 2,666 climate change-related cases filed since 1986, with about 70% of the cases filed since 2015 (around the date of the Paris Agreement). The number of case filings has accelerated dramatically since 2018, with 233 cases filed in 2023. See Chart 1 for further details of the filing dates.
Chart 1
Source: Global trends in climate change litigation: 2024 snapshot, J Setzer & C Higham
Significantly, the data and results presented in Litigation Trends are global. There are cases from 55 countries in every region of the globe. This global participation underscores the interconnectedness of our efforts in addressing climate related issues. Given the litigious nature of the United States and the tensions between the monied interests behind the fossil fuel industry and the growing cohort of supporters for environmental wellbeing, it shouldn't come as a surprise that more cases have been filed in the United States than anywhere else — in fact, more than in the rest of the world combined. In 2023, 129 cases were filed in the United States, which constitutes 55% of the total cases filed globally. The United Kingdom was the next most active country in 2023 with 29 cases, followed by Brazil with 10 cases and Germany with 7 cases. It should be noted that case growth slowed somewhat in 2023. However, there was an increase in the number of countries with case filings, and filings have noticeably increased in the Global South.
New Environmental Framework Laws Set the Stage
Most countries have adopted environmental laws. According to a 2019 UN Environment Report, Environmental Rule of Law: First Global Report, 150 countries made environmental protection or the right to a healthy environment a constitutional right by 2017, and 176 countries have enacted environmental framework laws [3]. Furthermore, over 350 environmental courts and tribunals have been established in over 50 countries.
The Climate Change Laws of the World database is another important source for climate litigants, containing 1236 climate-related laws and 2652 policies [4]. It documents that 59 countries and the European Union now have climate change framework laws. These laws go a step beyond laws that make a healthy environment a constitutional right by setting a broader legal context for addressing the issues around climate change, particularly the transition to a net-zero carbon emissions world. The World Bank Reference Guide to Climate Change Framework Legislation (2022) [5] defines climate change framework laws as broad-scope, strategic laws that advance climate change goals and set the institutional arrangements for formulating and implementing climate change policy.
The United States is a surprising exception to the rise in climate change framework laws. President Joe Biden signed the Inflation Reduction Act into law in August 2022, which contains several measures aimed at motivating a reduction in greenhouse gas emissions [6]. However, it falls short of providing a framework for getting the United States to a net-zero carbon goal.
The Strategic Nature of Climate Litigation
The surge in climate-related laws and litigation reflects the escalating worries about global warming and its destructive impacts on our livelihoods and the environment. Governments and vested economic interests are increasingly held accountable for not doing enough to address the issues - or worse, impeding efforts to deal with climate change-related concerns. The fundamental problem now is that, despite the raft of new climate change-related laws and policies, implementation and enforcement have lagged - and, as is broadly recognised, the environmental impacts have actually gotten worse.
Under such circumstances, litigation becomes a preferred tool for mobilising action and protecting rights. Climate litigation is classified as “Strategic” in the Litigation Trends report when it has an overriding goal of influencing the policy framework orchanging corporate or societal behaviour. Of course, as should be expected, a group of strategic anti-climate cases have also been filed by those whose economic interests supersede concerns for the environmental impacts of further greenhouse gas emissions.
Importantly, these so-called anti-climate litigation cases are included in Litigation Trends. These cases are generally aimed at reversing, or at least slowing, the progress in the global shift away from carbon-based energy sources. 2023 saw a pick-up in anti-climate cases, with 50 such cases filed, representing 21% of the 2023 total. More recently, a new class of “anti-” cases has emerged in the US labelled “Anti-ESG backlash.” These cases challenge the incorporation of climate risk and other ESG elements into financial decisions and represent a backlash against the growing insistence on reflecting ESG considerations in financial, especially investment decisions. Anti-ESG backlash is a growing trend in the US and sets it apart from the rest of the world, where shifts in policy frameworks have been largely supportive of encouraging investment flows into climate-friendly alternatives. The issue is highly politically charged, and strongly influenced by party politics, which adds to the growing fervour on both sides of the problem.
A specific group of strategic claims against governments based on human and constitutional rights interpretations argue that society has a right to a healthy and sustainable environment. Aligned with these cases is an emerging push for climate justice, which seeks to take action against climate exploitation and unfair climate treatment for underprivileged segments of society, particularly in the developing world.
Suits of this ilk are more likely to arise in the international court systems. April 2024 saw a landmark ruling in the European Court of Human Rights in a case brought by a group of Swiss women against Switzerland. The litigants claimed the Swiss government failed to shield them from climate change-related damages. The court ruled in their favour, noting that humans have a right to safety from climate catastrophes rooted in the right to life, privacy, and family [7].
As a consequence of this ruling, all 46 governments that are part of the European Convention of Human Rights now face similar climate responsibilities - and in September 2024, the first follow-on suit was filed in Ireland. In this suit, a grandfather, a young climate activist, and a toddler, in conjunction with a community law firm, claim that the government is breaking the law by failing to cut emissions fast enough. Undoubtedly, these suits mark the beginning of a new era of climate justice litigation, at least in Europe [8].
A 2021 landmark case filed in a district court in The Hague against oil giant Royal Dutch Shell plc (Shell) also deserves mention. The case was filed by a group of environmental NGO’s along with 17,000 other parties. It claimed that Shell was not cutting its greenhouse gas emissions quickly enough to be in line with the net-zero targets of the Paris Agreement. The judge ruled in favour of the litigants and issued a ruling requiring a net 45% cut in Shell’s emissions by 2030. However, the ruling applies only to Shell’s operations in the Netherlands. This caveat clearly illustrates the factionalised nature of the global court system and the need for global coordination if climate change-related problems are to be effectively addressed [9].
Key Focus Areas: Mitigation, Transition and Adaptation
Issues around climate change and attempts to deal with its negative impacts fall into three areas of focus: mitigation, transition, and adaptation. Mitigation seeks to stop or reduce the factors causing climate change, principally greenhouse gas emissions. It has so far received the most attention from all interested parties. A second area of focus is climate change transition. Transition in this context means taking steps to ensure we become a net-zero carbon emissions world by 2050, in line with the targets of the Paris Agreement.
The third area is referred to as climate change adaptation. It recognises that climate change has resulted in a world where extreme climate events have become more frequent and severe. Dealing with the implications of these intensified climate risks requires introducing measures to reduce or eliminate their destructive impacts - these interventions are called adaptations. Examples of adaptation projects are seawalls and dams to deal with the ravages of floods and hurricane-induced storm surges or new infrastructure investments to prevent existing infrastructure collapse in the face of excessive heat waves or other extreme weather-related events.
Litigation can arise from any of these three areas, and there are important examples of all three. Climate change mitigation and transition have seen the bulk of the cases - so far. Litigation Trends introduces a taxonomy of strategic case types, identifying eight categories that cut across the mitigation, transition, and adaptation triumvirate. Of these categories, the one they label as “Integrating climate considerations” has seen the most cases since 2015, at least outside of the United States, with 97 new cases filed in 2023. Cases in this category typically seek to influence government policy or corporate actions with a specific mitigation goal - i.e., reduce greenhouse gas emissions. Many of these cases seek to thwart or delay new fossil fuel licensing or production projects.
Greenwashing Has Far-Reaching Implications
One of the fastest-growing categories in Litigation Trends is “Climate-washing” (usually called “greenwashing”). In 2023, 47 of the 140 cumulative cases on the topic were filed. Cases in this category litigate against false or unsupported claims and narratives about climate-friendly or sustainable products or actions. While these suits can be brought against governments or corporations, the vast majority have been against corporations.
Greenwashing behaviour appears to be shockingly pervasive in the corporate sector. In a November 2023 PwC Global Investor Survey, 94% of 345 investors and analysts in 30 countries surveyed said corporate sustainability reporting contains unsupportable claims [10]. For those who like taxonomies, it is worth noting that Chartered Accountants Worldwide has issued an informative report on greenwashing, “Stemming the tide of greenwashing,” in which they identify six distinct greenwashing types [11]. Any phenomena requiring a taxonomy, like rainbows in Hawaii, has reached quotidian status.
Given these observations, we should expect greenwashing to be a continuing hotbed of litigation. The financial regulators are aware of the problem and have been creating regulations to require clarity and factual integrity for ESG claims made by the financial services sector. The European Union introduced the first set of such rules in 2022 [12] , and as recently as May 2024 [13], the Financial Conduct Authority in the United Kingdom introduced its own set of anti-greenwashing rules. These rules apply to any statement a regulated company makes about the sustainability characteristics of any products or services. The broad scope of these new Financial Conduct Authority rules will undoubtedly prove treacherous for regulated firms and lead to further litigation.
While the new financial service regulations will make the investment community more cautious in its claims about the ESG credentials of investment strategies offered, the non-financial sector has to wait for accounting and reporting standards to catch up in order for it to follow suit. Greenwashing is pervasive across industries, from food labelling to car manufacturing. One of the most challenging aspects of climate impact transparency in the corporate sector is a result of complex supply chains, which are often global. These supply chains can be a significant source of greenhouse gas emissions and corporate behaviour that falls outside of generally accepted ESG standards. Clear standards and accountability across the supply chain are needed to motivate meaningful change.
Notably, the Securities and Exchange Commission in the United States introduced a new set of disclosure rules in March 2024 that require United States and international companies filing financial statements in the United States to report extensive climate-related information [14]. The rules mandate disclosures of all material climate-related risks, governance, and risk management. In the spirit of United States-style democracy, nine lawsuits were filed challenging this new set of rules within ten days of its adoption, and the Securities and Exchange Commission subsequently issued a stay of the ruling in April to “facilitate the orderly judicial resolution.” Interestingly, the litigants constitute a motley group, which includes environmental groups, oil companies, and state attorneys general, reflecting the overarching complexity of the situation in the United States.
It should also be mentioned that in January of 2024, the European Union Parliament, always a front runner in promoting its green agenda, similarly approved a set of corporate-level anti-greenwashing disclosure rules. These new proposed rules are moving through the European Union bureaucracy, and EU countries have 24 months to incorporate them into their national laws. This new directive effectively amends the longer-standing European Union Green Claims Directive, which focuses on green claims at the product level [15]. Together, these two directives form a comprehensive set of disclosure rules designed to protect consumers from companies’ spurious environmental claims about both their businesses and products.
Failure-to-adapt Claims Increase Alongside Climate Risks
Another important category defined in Litigation Trends is “Failure-to-adapt.” Litigation claims in this category bring actions based on claims that defendants failed to take adequate steps to adapt to climate risks or to embrace appropriate transition strategies. There have not been a significant number of cases in this category - yet. However, in my opinion, this will become another hotbed of litigation filings, with the successful 2021 case against Shell filed in the Netherlands setting the path for others. Although that was a case focussed on the transition problem, the dominant pending concern is that climate risks are generally grossly underestimated by both the public and private sectors.
The banking sector is particularly at risk, as banks generally don’t factor the impact of broad-scale climate risk events into their credit assessments. The banking system is, as a result, particularly vulnerable to an extreme climate event crisis. Central banks have recognised the importance of this issue and are now actively looking to introduce climate risk into their bank stress testing scenarios. They have already formed a coalition of central banks, the Network for Greening the Financial System (NGFS), which has developed a set of such scenarios for assessing transition risk, and physical risk scenarios are expected to be added.
Failure-to-adapt cases will follow naturally from the extreme climate events that are erupting around the globe. Insurers are either not offering policies in areas prone to extreme climate events or are pricing themselves out of the market. An interesting report issued in September 2024 by Verisk, a risk modelling firm focussed on the insurance industry, estimates that total global economic losses resulting from natural catastrophes will hit $472 billion with insured losses estimated at only $151 billion - this leaves an uninsured gap of $321 billion [16]. Without insurance, property owners and businesses will increasingly look to the courts for disaster relief.
It is interesting to note that so far, litigants outside of the United States have had pretty good success, with about 57% of decided cases favouring them. Unfortunately, a comparable assessment of case outcomes in the United States has not recently been conducted, although historically, judicial rulings in the United States have favoured anti-climate outcomes. Nevertheless, one category that has consistently seen favourable outcomes for litigants globally is greenwashing, where more than 70% of completed greenwashing cases have been decided in the litigant’s favour.
Ever Evolving Trends Reflect Shifts in Pressing Issues
Other areas of growing concern related to environmental degradation will most assuredly see litigation. These include biodiversity loss, coral reef degradation, and ocean protection concerns. Pollution is a continuing problem. The most recent UNEP Environmental Rule of Law report notes that 99% of people live in areas that do not meet the World Health Organisation’s (WHO) air quality standards [17], and the WHO estimates that air pollution kills 7 million people each year [18]. Plastics pollution is another massive problem.
The Litigation Trends report identifies the class of cases focusing on pollution impacts as “Polluter Pays.” Only 34 of these have been filed since 2015, with five filed in 2023. Historically, most of these cases have been in the United States, but new cases are being filed worldwide. In late October 2024, the U.K. government settled a case with a family whose daughter's death was materially linked to air pollution from cars, based on the coroner’s report. The U.K. government apologised to the family and offered an undisclosed sum as a settlement payment. This is likely to be an area of case growth in the future.
Underlying the myriad of problems and concerns, the global warming process continues. Chart 2 clearly underscores this problem. Taken from the United States-based NOAA National Centers for Environmental Information, the August 2024 Global Climate Report shows that August 2024 has had the warmest global surface temperatures over the 175-year period for which this data has been recorded [19]. In fact, the warming has been trending sharply upwards since the 70’s, with a noticeable jump in 2024.
Angst and frustration levels are fomenting among both the pro- and anti-climate and environment contingents due to their concerns not being adequately addressed by both governments and the corporate sector. Actions will be taken either in the courts or through protests and civil unrest. Undoubtedly, the courts will be a key mechanism for promoting and achieving the desired changes.
[1] Setzer, J., & Higham, C. (2024). Global trends in climate change litigation: 2024 snapshot. Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science. https://www.lse.ac.uk/granthaminstitute/publication/global-trends-in-climate-change-litigation-2024-snapshot/
[2] Sabin Center for Climate Change Law. Climate change litigation databases. Columbia Law School. https://climate.law.columbia.edu/
[3] United Nations Environment Programme. (2019). Environmental rule of law: First global report. United Nations. https://www.unep.org/resources/assessment/environmental-rule-law-first-global-report
[4] Grantham Research Institute on Climate Change and the Environment. Climate Change Laws of the World database. London School of Economics and Political Science. https://climate-laws.org/
[5] Menzies, N., Almuzaini, A. A. A. Y., Annandsingh Rattia, D. C., Averchenkova, A., Fozzard, A., & Kirchhofer, X. V. (2020). World Bank reference guide to climate change framework legislation. World Bank Group. https://documents.worldbank.org/curated/en/267111608646003221/World-Bank-Reference-Guide-to-Climate-Change-Framework-Legislation
[6] Inflation Reduction Act of 2022, Pub. L. No. 117-169, 136 Stat. 1818 (2022). https://www.congress.gov/bill/117th-congress/house-bill/5376
[7] European Court of Human Rights. (2024). Verein KlimaSeniorinnen Schweiz and Others v. Switzerland (Application No. 53600/20). https://hudoc.echr.coe.int/app/conversion/docx/pdf?library=ECHR&id=002-13212&filename=Verein%20KlimaSeniorinnen%20Schweiz%20and%20others%20v.%20Switzerland%20(communicated%20case).pdf
[8] Community Law and Mediation Centre, & others v. Ireland. (2024). High Court of Ireland (Case pending). https://climatecasechart.com/non-us-case/community-law-and-mediation-centre-and-others-v-ireland/
[9] Milieudefensie et al. v. Royal Dutch Shell plc. (2021). District Court of The Hague (Case No. C/09/571932). https://uitspraken.rechtspraak.nl/inziendocument?id=ECLI:NL:RBDHA:2021:5339
[10] PricewaterhouseCoopers (PwC). (2023). PwC Global Investor Survey: Trust, tech and transformation. PwC. https://www.pwc.ch/en/insights/sustainability/global-investor-survey-2023.html
[11] Chartered Accountants Worldwide. (2024). Stemming the tide of greenwashing. Chartered Accountants Worldwide. https://www.charteredaccountantsworldwide.com/stemming-the-tide-of-greenwashing-lies/
[12] European Commission. EU taxonomy for sustainable activities. European Commission. https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en
[13] Financial Conduct Authority. (2024). Finalised non-handbook guidance on the anti-greenwashing rule (FG 24/3). https://www.fca.org.uk/publications/finalised-guidance/fg24-3-finalised-non-handbook-guidance-anti-greenwashing-rule
[14] U.S. Securities and Exchange Commission. (2024). SEC adopts rules to enhance and standardize climate-related disclosures for investors (Release No. 2024-31). SEC. https://www.sec.gov/news/press-release/2024-31
[15] European Parliament. (2024). Directive (EU) 2024/825 of the European Parliament and of the Council of 28 February 2024 amending Directives 2005/29/EC and 2011/83/EU as regards empowering consumers for the green transition through better protection against unfair practices and through better information. Official Journal of the European Union. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202400825
[16] Verisk. (2024). 2024 Global Modelled Catastrophe Losses Report. Verisk. https://www.verisk.com/resources/campaigns/modeling-insured-catastrophe-losses-a-global-perspective-for-2024/
[17] United Nations Environment Programme. (2024). Environmental rule of law: 2024 global report. UNEP. https://www.unep.org/interactives/air-pollution-note/
[18] World Health Organization. (2021). Air pollution: Key facts. WHO. https://www.who.int/news-room/fact-sheets/detail/air-pollution
[19] National Oceanic and Atmospheric Administration (NOAA). (2024). Assessing the Global Climate in August 2024. NOAA National Centers for Environmental Information. https://www.ncei.noaa.gov/news/global-climate-202408
EXPERT INVOLVED
Edward Baker has enjoyed a 40 plus year career in the investment management business, with a focus on ESG investing, quantitative investing and corporate governance. He is currently an advisor to climate change and extreme risk modelling firm Tipping Frontier; their mission is to help companies and government entities assess the potential risks and costs from both the direct and indirect impacts of extreme risks, particularly climate related risks.
Learn more about SEDA at sedaexperts.com
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