Thinking ahead: How climate change litigation will shape future liabilities

Climate change litigation is on a clear upward trajectory, with the number of cases doubling since 2015, the year of the Paris Agreement. In total, there were 1,841 ongoing or concluded cases of climate change litigation between 1986 and May 2021, of which the majority (1,006) have been filed since 2015, according to analysis by the LSE’s Grantham Research Institute.

Once a mainly US trend targeting energy companies, climate litigation has expanded to incorporate new plaintiffs, claimants and jurisdictions. This second phase of litigation is beginning to reach other parts of the carbon value chain, such as car manufacturers, while arguments have broadened beyond historic pollution to include human rights, corporate and financial market cases, and more recently cases concerning climate change adaptation.

As climate change litigation evolves, it is becoming a bigger drain on company resources. Litigation is now more targeted, while the arguments used by claimants are more diverse and include themes from disclosure and greenwashing to fiduciary duty, consumer protection and human rights.

While the first wave of climate change cases remains largely mired in procedural challenges, the latest phase of litigation is often more targeted in the hope of avoiding those same obstacles. Plaintiffs are now pressing forward with these narrower cases and new theories of liability hoping to move these cases to a discovery and trial phase.

Landmark decisions

One of the turning points in climate change litigation has been the rise of environmental groups and other non-governmental organizations using the courts to raise awareness and challenge an organization’s strategy or environmental policy.

Recent rulings signal a gear change for climate litigation and Europe may experience a new wave of climate change litigation with a focus on human rights arguments and European constitutional protections. While early days, climate change litigation looks set to expand further into new areas of liability, and we are likely to see more cases in areas like climate change adaptation, environmental, social and governance (ESG), and the transition to a low carbon economy.

Emerging liabilities

As the consequences of climate change intensify amid the race to Net Zero, the liability landscape is likely to change rapidly in the years ahead. Companies could face emerging liabilities and potential litigation across their enterprises as well as their supply chains, employees, customers, investors and other stakeholders.

Directors and officers, for example, could face litigation over their failure to carry out fiduciary duties related to climate change, such as to consider the risks and opportunities or implement risk controls. U.S. companies could also face securities class action lawsuits based on climate change related to disclosures or regulatory actions.

ESG disclosure requirements will make it easier to hold companies to account, while directors could find themselves open to allegations of greenwashing. Environmental and consumer groups are increasingly challenging companies’ environmental credentials, calling out misleading or false claims. For example, Canadian coffee maker Keurig was recently ordered to pay a $3 million fine after it made false claims about the recyclability of its packaging, while last year the UK Advertising Standards Authority found Ryanair’s low-emissions advertising campaign had misled consumers.

Businesses are increasingly being held to account for their supply chains, and future legislation could extend responsibility to include environmental and human rights. Litigation could also arise from products that damage the environment, or where the rush to switch to greener products results in defects or unintended consequences. New technologies could trigger emerging environmental risks, or present new disposal and transport issues (Lithium-Ion batteries used in electric vehicles, for example, present a heightened fire risk).

The use of environmentally-friendly materials, designs or processes, could also lead to professional liability claims. For example, the construction industry could see claims where structures fail to meet performance guarantees or withstand environmental conditions brought on by climate change.

Integrating climate liability with risk management

For risk managers, climate change liability is a complex topic that will touch on almost every part of a business’s operations. For example, Climate Resilience by Zurich Resilience Solutions has been helping risk managers understand their first party and pollution exposures, and it is increasingly working with customers on assessing and managing their climate change risks more broadly.

Companies need to take a holistic approach to climate change liability, and incorporate it into their controls and procedures, including risk and corporate governance frameworks, supply chain due diligence, health and safety, and quality control procedures. They will also need to pay careful attention to climate change-related disclosure and reporting, including potential exposure to climate change litigation, and ensure they are able to clearly measure and evidence their ESG disclosure.

Given the growing threat of climate change litigation and changing risk landscape, businesses need to be proactive and consider the impact on liabilities going forward. Decisions and actions taken today will set the stage for future climate change-related liabilities and litigation.

Originally published on Commercial Risk Online on April 5, 2022.