Walker Morris has recently published an article which provides  practical advice to mitigate against the risk of 'greenwashing' (that is, exaggerating environmental/sustainability credentials).  In this related article, Commercial Dispute Resolution partners Gwendoline Davies and Nick McQueen highlight another major ESG (environmental, social, governance)-related issue facing many businesses now and in the near future: the threat of green litigation.  Gwendoline and Nick offer their practical advice.

Why is the Royal Dutch Shell  case of interest?

The cultural shift, in recent years, towards a global community with an increasing social and environmental conscience has resulted in a marked increase in climate-related/green litigation.  For example, a  2021 study by the UN Environment Programme confirmed that climate cases have nearly doubled in the just the last three years.  Such cases have, so far, generally involved claims brought by activist organisations against states alleging breaches of duties of care, incompatibility with fundamental or human rights and/or non-disclosure.

The recent Royal Dutch Shell (RDS)  case 1, however, (a Netherlands case, but attracting a great deal of international attention) is arguably the most significant climate change-related decision to date.  RDS is a landmark case because it is the first time a private company has been ordered to align its policies with the  Paris Agreement.

Whilst the RDS  judgment was based on Dutch civil law principles which may not easily translate into other jurisdictions, and whilst RDS  is likely to appeal the decision (and may well succeed), nevertheless the decision is enforceable now, meaning that RDS  must immediately take steps to comply, notwithstanding any potential appeal down the line.

In addition, the media attention that the case has garnered, and the reputational implications for RDS, will no doubt drive significant changes to the group's policies and strategies in any event.

Other environment-related litigation, recently heard in the UK's Supreme Court 2, confirmed that a UK parent company's duty of care may extend to foreign subsidiaries.  That litigation opened the door for claimants wishing to target UK parent companies for the ESG failings of subsidiaries nationally and even internationally.  The RDS case seemingly goes much further - imposing a legal obligation on a private company and its subsidiaries to reduce CO2 emissions 3in line with international climate targets, and  imposing a 'best efforts' obligation on the company to reduce CO2 emissions throughout its supply chain.

All of this is, of course, likely to encourage increasing numbers of green actions to be brought against states and corporates in other jurisdictions, including in the UK.  It is also likely to encourage shareholders, investors, employees, customers and other stakeholders to demand climate-friendly changes in policies and strategies throughout all types of corporate and other organisations across the board.  Whilst RDS is an energy company, green litigation is no longer just an issue for Big Oil.

RDS therefore signals the very clear direction of travel for green litigation: going forward, the numbers and types of climate-related claims that are likely to be brought, and the types of organisations that are likely to be targeted, are likely to expand.

What practical advice arises?

There are a number of practical steps that can be taken to help minimise the risk of climate-related allegations being made, and to respond quickly and effectively if/when any green litigation is threatened or brought against a business.

In terms of 'prevention', businesses can:

  • Be proactive. Tackling the ESG agenda and getting the business' approach right now  can avoid the business being in the firing line for green claims later down the line.
  • Engender an ESG/sustainability ethos throughout the business, from the top down
  • Audit all aspects of the business which have an environmental/climate change impact
  • Undertake operational and contract reviews to test for areas of vulnerability to green litigation
  • Consider own/subsidiaries'/investors'/supply chain third parties' products, processes, policies and, for each:
    • Ask whether energy/emissions/waste be reduced? How?
    • Critically assess what green claims are being made and can they be substantiated (beware 'greenwashing')
    • Where appropriate, consider whether climate-friendly contract clauses be used in existing or new relationships 4
  • Critically assess whether the language used in the business' corporate statements, policies, promotional material, etc. might amount to legally binding representations or commitments
  • Train staff - at all levels, and regularly - on green litigation-related issues
  • Train directors and senior staff on legal duties and policy/procedure-driven strategies and obligations to consider and improve sustainability
  • Keep up-to-date, and comply, with legal developments and with legal, regulatory and reporting requirements.
  • Keep accurate and up-to-date records of all ESG activities, efforts to improve sustainability and statements, all of which will help when it comes to formal reporting and disclosure requirements

In terms of 'cure':

  • If/when the threat of any green litigation does become a reality, a business should seek immediate expert legal advice. Apart from providing advice on merits and strategy, the involvement of a specialist solicitor should ensure that the business' overall position remains protected, and in particular that legal privilege applies, from the outset of any action or investigation
  • Keeping accurate and up-to-date records of all ESG activities, efforts to improve sustainability and disclosures/statements/reports should also help to found a robust response, and potentially even an outright defence, to any climate-related allegations

Horizon scanning

It is clear that RDS is likely to result in the growth of green litigation.  In fact, this is already happening in a number of jurisdictions across the world.  For example, in February 2021 activist group Client Earth published a report entitled  Accountability Emergency in which it claims that top-listed companies are failing to make adequate climate change-related disclosures.  In April 2021 ClientEarth launched legal action against the Belgian National Bank, alleging that the bank had breached human rights and environmental obligation when buying corporate assets.  In Australia a claim alleging that failure to sufficiently address climate change issues detrimentally affected pension fund investments was settled by the fund in question.  The same logic could, of course, underpin shareholder claims against private companies and their directors for breach of corporate law requirements and directors' duties.

In terms of what green litigation and the wider ESG agenda is likely to mean for businesses in the longer term, there is little doubt that investment in green technologies, assets, infrastructure and renewables must increase - at the international, national and corporate level.  Businesses will have to consider and proactively address environmental impact at every stage, from the securing of green finance, through their supply chains, to the impact of goods/services offered to end users, and ultimately in respect of any waste/disposal concerns.  Innovation 5, as well as embedding in the culture of the business the principles of responsibility and transparency in respect of all-things ESG-related, will be key.

Footnotes

1  Vereniging Milieudefensie & ors v Royal Dutch Shell plc

2 See Walker Morris' briefings on the  Lungowe and Okpabi UK Supreme Court decisions for further information and advice

3 by 45% by the end of 2030, relative to 2019 levels

4 See The Chancery Lane Project's model clauses, for example

5 such as McDonalds converting used cooking oil to biofuels, M&S and H&M's clothes recycling schemes, Deutsche Post DHL's self-designed electric delivery van, and the like

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.