Climate change reaches the civil courts: what types of legal action can companies face?

Spain - 22 / 11 / 2023

Cecilia Rosende Villar and Teresa Lin Qiu, Garrigues Dispute Resolution: Litigation and Arbitration Department

Increasingly, the courts are becoming a new scenario for the fight against climate change. We analyze the growing number of claims being brought against private entities related to the environment, together with the different types of action that claimants are taking.

Climate change and sustainability are leading to the emergence of new litigation trends, characterized by proceedings brought to seek very different liabilities or the adoption of certain preventive measures by companies. It is no longer unusual for liability to be sought from governments and public authorities and we have been witnessing an increase in litigation against individuals and private entities in relation to the areas of their respective activities.

Introduction

A number of reports have recently been published by recognized institutions on climate litigation and the legal action that is being taken worldwide. Notable examples are the reports by Sabin Centre for Climate Change Law de la Universidad de Columbia and Grantham Research Institute on Climate Change and the Environment de la London School of Economics (LSE). Both of these provide a very complete compendium of the cases initiated and pursued in every country on the subject.

The cases that are being seen may be divided into two broad classes by reference to who is being sued: (i) those directed against governments and public authorities; and (ii) those filed against individuals and private entities.

This publication concerns the second class, in which more changes are being seen. From one angle, regarding the significant increase in claims in recent years, and from another, the type of relief that is being applied for, in other words, the type of protection sought: which is no longer confined to claims for damages against the polluter and includes a gradually growing array of cases.

The types of cases being brought

We will refer to some of these different types of cases that have been brought against private entities. We classify them by the type of protection sought and provide examples of a few of the most prominent cases of each different type:

a. Action for damages related to climate change and its effects

This action may be described as the “classic” type, liability action by the parties harmed by damage caused, against the person liable for the damage, with respect - in this case - to alleged unlawful conduct related to climate change. This type of litigation is becoming increasingly common. The main targets in these cases are the companies extracting or producing fossil fuels in attempts to hold them liable for the damage caused by extreme weather events related to climate change, as a result of their activities.

This is the case, for example, of the class action filed in Puerto Rico in 2022 by various municipalities in that country against large oil industry companies for losses caused by storms in the hurricane season in 2017. The case is ongoing. The argument in the claim is that these companies had known since the 70s that their greenhouse gas emissions would have effects on the climate, but instead of reporting the results of scientific studies, they promoted advertising initiatives that played down the impact of fossil fuels and cast doubt about climate change.

This is not an isolated case, diverse similar claims have been filed by states and municipalities in the USA against companies in that industry between 2019 y 2023.

Although many of the cases have yet to be decided, a varied range of outcomes have been reported to date. The claim filed in 2019 by the City of New York against a U.S. oil company was dismissed after the court found that liability cannot be imposed simply on the ground of the production of fossil fuels: a decision that was later confirmed by the court of appeal. However, in a claim, currently in progress, filed in 2023 by the city of Honolulu against another U.S. oil and natural gas company, the court rejected the defendants’ petition that, on the basis of the argument mentioned above, the claim should be rejected outright; as a result of finding that it did not simply relate to fossil fuel production but also to tortious speech and failure to warn.

b. Preventive action for adoption of measures by private companies

The claims in this other category have in common that they were filed before the damage occurred, and on the basis that the defendant companies did not take adequate measures to prevent climate change together with its consequences, and that the companies are urged to adopt them.

This is the case of the claim filed in the USA in 2016 by environmental organization Conservation Law Foundation against a fossil fuel company, in relation to a shipping storage terminal in Massachusetts for not adopting measures related to a potential sea-level rise and more frequent and serious storms caused by climate change. In the claim, various types of declaratory and executory relief were sought and a petition was made for the defendant to take the appropriate measures in relation to the shipping storage terminal. The proceedings are still in progress, despite having started several years ago.

c. Liability action against company directors

The sought liability is based on both the incompatibility of the business strategy with climate obligations as well as on the financial consequences arising from poor management and/or lack of information on climate risks.

An example is the claim filed in the UK in 2023 by environmental NGO ClientEarth against the board of directors of a large oil company - in which it was shareholder -, for not having adopted or implemented a net-zero transition strategy compatible with the Paris Agreement of December 12, 2015, adopted in the United Nations Framework Convention on Climate Change. The case has initially been rejected outright, due to the court finding that to uphold liability the directors’ approach had to fall outside a reasonable response to climate change, which was held not to apply in this case.

Despite that initial outcome, this example highlights the impact that sustainability may have in relation to directors’ decision-making and potential liability.

d. Liability action against financial institutions

The ultimate aim behind this other type of claims against companies in the financial industry is to make it difficult for polluting companies to obtain funding. The issue brought before the courts concerns the liability of financial institutions for their financial support for projects contributing to exacerbating climate change and the consequences, in this respect, of their investments.

An example is the claim filed in Belgium in 2021 by NGO ClientEarth against the Belgian national bank for purchasing bonds of fossil fuel companies and other greenhouse-gas intensive companies, with which it is supporting polluting industries, and for giving the companies improved lending conditions which allowed them to continue expanding their harmful business activities. In December 2021, the Brussels court of first instance rejected ClientEarth’s application on procedural grounds. ClientEarth filed an appeal against this decision. During the appeal proceedings, ClientEarth withdrew the claim after the European Central Bank announced it would redirect its policy towards bond issuers with climate-friendly activities and aligned with the Paris Agreement.

e. Liability action in relation to greenwashing or climate washing

Another type of litigation that is gaining pace concerns misinformation or misleading communications on the impact of a company’s activities, products or services on climate change. The scenarios are varied: ranging from concealing investments in high-pollutant emitting activities to misleading communications on the sustainability measures adopted by companies or affirmatively misrepresenting the environmental attributes of their products.

This was the case of challenges filed in Australia in 2022 against a company producing raw materials in relation to misleading claims about its decarbonization plans which it said were in progress, when in actual fact it was expanding its carbon production.

Another notable case due to the publicity it has received, even though it is not strictly speaking legal action, is that involving the claims brought in 2022 in a number of European countries against the organization of the World Cup in Qatar in 2022 for greenwashing, due to being advertised as carbon neutral. In this case, the claims were brought against the advertising standards authority. In 2023, the Swiss authority held that the statements made on that neutrality were not true.

f. Liability action in the supply chain

The claims in this category are focused on seeking from companies a greater standard of care and responsible management in their operations in relation to supply chains.

A notable example is the claim filed in France in 2021 by a coalition of eleven NGOs, together with representatives of indigenous peoples, against a supermarket chain for selling meat that had come from cattle in Brazil and Colombia, an activity causing deforestation in those countries, and demanded compliance with their obligations under French law 2017/399, dated March 27, 2017, on the duty of vigilance. The case is in progress.

g. Action for companies to reduce their polluting gas emissions

These cases include, for example, the claim brought in 2022 by an environmental association (Milieudefensie) against a Netherlands oil company. The first instance court ordered the company to reduce its CO₂ emissions associated with its products by 45% before 2030, with respect to 2019 levels. This was the first time a court ordered a private company to comply with the Paris Agreement. The decision was based on responsibility under human rights law and climate standards along with tort law, including due diligence obligations. The judgment was appealed, and a decision is awaited.

The described cases are a small sample of a few of the many that have been brought, which are largely still in progress. Regardless of the greater or lesser success of these initiatives, their outcome will at least serve as a guide for future claims in which litigation strategies will be refined.

EU legislation and ongoing projects

The claims being brought will influence the legislative developments in this field in the same way that the future legislation will set the basis for legal proceedings that will be filed once the relevant rules have been adopted.

Among the regulation already in force, we highlight Directive (EU) 2022/2464 of the European Parliament and of the Council, on corporate sustainability reporting, applicable in fiscal years that began on or after January 1, 2024 (for further information on this directive, see here).

As regards ongoing legislative projects, we should mention:

The Proposal for a Directive of the European Parliament and of the Council of 23 February 2022 on corporate sustainability due diligence, expected to be approved over the coming months, is aimed at ensuring that companies adopt measures to identify, prevent, mitigate, bring to an end and remedy the adverse effects of their activities on the environment and on human rights. Companies’ due diligence obligations include the activities of their subsidiaries and of their value chains. For further information, see here.

The draft Directive expressly sets out companies’ civil liability for damages (article 22): (i) if they fail to comply with their obligations relating to preventing potential adverse impacts and bringing actual adverse impacts to an end, and (ii) as a result of this failure an adverse impact that should have been identified, prevented, mitigated, brought to an end or its extent minimized occurred and led to damage.

Initially, the Proposal for a Directive defined due diligence in relation to sustainability as one of the obligations of the directors (article 25) and they were also made responsible for setting up and overseeing due diligence measures and adopting the corporate strategy to take into account identified adverse impacts (article 26). However, the Council in its position dated November 30, 2022, proposed removing both articles, and for the time being the second has been removed in the amendments approved by the European Parliament on June 1, 2023. For further information, see here.
The Proposal for a Directive of the European Parliament and of the Council of 22 March 2023, on so-called green claims relating to consumer protection regarding “green labels” on products, with the aim of protecting consumers from misleading information by companies on the positive environmental impact of their practices, products and services. It expressly provides (article 16) that consumers may bring claims and have access to justice in the event of a breach by a trader.

In a comparison between these proposals and a few of the cases described, a certain degree of consistency may be seen among them.

Conclusion

A gradual raising of awareness over climate change in recent years is leading to an increase in climate and environmental litigation. Along with a progressive broadening of the spectrum of the types of action brought against individuals and public and private entities, and the liability and conduct sought.

Consequently, action is no longer only directed against entities considered liable for affecting climate change due to their own activities, but also against other entities that allow or enable them to act, for example through their funding; or is based on those companies engaging in types of conduct which, while not polluting in themselves, are considered to be harmful to climate change: such as action aimed at challenging misinformation on the sustainability of companies’ activities, products or services.

The courts are therefore becoming a new scenario for combating climate change. And although the feasibility of this type of action is still seen to be uncertain, there can not be many doubts that the fact of it existing and gaining pace is bound to have an immediate and direct effect on companies’ behavior: when it comes to preventing and avoiding risks, and in relation to protecting themselves against potential liability. It is also certain to have an impact on new legislative initiatives and projects which will determine clearly and precisely the obligations and rules on the liability that may be sought in this area.