The Dutch claim foundation Milieudefensie recently published a letter addressed to 29 large companies in the Netherlands in which it demands that the companies take a frontline role in climate change and comply with the Paris Climate Agreement. The letter threatens that stragglers in climate action can count on 'unrelenting pressure', which could include litigation in which there is a precedent for success.
Milieudefensie's open letter: impact litigation by naming and shaming
After the revolutionary climate change judgment against Royal Dutch Shell in 26 May 2021, which ordered the Shell group to bring its activities in line with the CO2 reduction trajectory set out in the Paris Climate Agreement, Milieudefensie is now targeting additional large companies on its 'hit list', pressuring them to reduce their CO2 emissions. The civil society organisation states that its letter serves as an announcement, as well as an invitation to enter into a dialogue on achieving a just climate transition.
Milieudefensie gives each enterprise until 15 April 2022 to "come up with its own climate plan to combat dangerous climate change", and reduce CO2 emissions by at least 45% by 2030.
Milieudefensie is planning to assess the requested climate plans in collaboration with an external expert, the New Climate Institute. This institute will calculate and assess all plans for quality and feasibility. Results and a ranking will be published in June 2022. By sending this open letter, Milieudefensie is implying that it may, after assessing these plans, initiate legal proceedings as it did against Shell.
This media offensive by Milieudefensie appears to fall within a strategy of 'naming and shaming' and then using the threat of litigation to increase public pressure on companies to focus on climate-change prevention.
Enforcing corporate responsibility
The Netherlands appears to be a fertile breeding ground for protest groups to organise through an association or foundation, and then – in accordance with their statutory purpose – initiate legal proceedings against companies and even the Dutch government (e.g. the work of the pressure group Urgenda).
This kind of 'impact litigation', accelerated by the COVID-19 crisis, which puts a focus on sustainability and social responsibility, is a direct and growing risk to corporations that may be subject to a variety of potential claims against an increasing number of potential claimants.
Risk management: pro-active innovative and integrated multidisciplinary approach
This approach creates the real threat of not only lawsuits, but also reputational damage as a consequence of media campaigns surrounding the potential litigation. All of these factors can affect a company's brand value, public support, and stock value.
As a result, companies must not only act proactively to manage the risk of litigation through dispute avoidance strategies (i.e. having plans in place to deal with claims), but above all they must devise ways to avoid falling under a negative spotlight regarding their brand and role in the energy transition.
This requires a pro-active approach to communication regarding the company's role in sustainable innovations. In addition, it is advisable to create a dedicated multidisciplinary energy transition team that specialises in different disciplines to cope with this matter, including public relations/marketing, stakeholder management and legal matters.
Companies that are openly confronted about taking responsibility vis-à-vis the Milieudefensie's letter should be careful not to condemn this action. Instead, they must acknowledge the urgency of sustainability.
Staying in the good graces of the public, however, is not only a matter of crisis management, but also means being continuously open about the social and environmental dilemmas that companies face. Many companies deluge investors with reports and information on how they are measuring and managing their impact on climate change.
Now companies may also need to show that they have internal policies in place (e.g. sustainable innovations) in line with the Paris Climate Agreement. Furthermore, it is important that each company is able to meet all of the publicly announced measures it has taken (i.e. those obligations that the company is bound to). If these measures are not met, this can lead to legal actions as we have seen in the Shell judgment.
In the 21st century, companies, particularly large ones, must be mindful of their role in the climate transition. In order to tackle potential class actions and prevent reputational damage at an early stage, companies must create an adequate multidisciplinary risk and crisis assessment management team to respond to the threat of litigation and 'naming and shaming' campaigns.
At present, companies are expected to continuously take proactive measures that incorporates climate change in their business operations and clearly communicate these strategies. This approach is essential in order for each company to sustain its brand and the sympathy of consumers and shareholders (which for listed companies also impacts stock value).
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