Climate Litigation
Introduction to climate litigation
More than 2,666 climate change related lawsuits have been filed around the world. Roughly 70% have been filed since the Paris Agreement was signed in 2015, and hundreds of new cases are filed each year. At least 233 new cases were filed in 2023 alone.
Although most of these lawsuits target governments and public authorities, who have an established duty of care towards citizens, an increasing number of claims have been filed against companies and trade associations around the world. Between 2015 and 2023, around 230 strategic climate lawsuits were filed against companies and over two thirds of these were filed in last four years (since 2020). The sector most frequently targeted is, unsurprisingly, the oil and gas sector, but claims against companies in other carbon intensive industries, such as aviation, industry, agriculture, food and beverages, and finance (amongst others) have also been filed.
The most active jurisdictions for climate litigation are the US, Australia, the UK, Brazil and Germany, but climate cases have been identified in 55 jurisdictions around the world and cases are being filed in new jurisdictions each year. For example, in 2023 new cases were identified in Namibia, Hungary and Panama.
Another trend is the increased variety in the types of cases being filed against corporations. Although most claims against corporations seek damages based on the company’s alleged contributions to climate change-induced harms (‘climate liability’ cases) or seek to disincentivise companies from continuing with high-emitting activities by requiring them to change their policies or conduct (‘corporate framework’ cases), many newer cases advance more ‘creative’ causes of action, which are testing the boundaries of conventional law and commercial practice. Such cases seek a variety of remedies, including damages (i.e. financial compensation), declaratory relief (i.e. court declarations clarifying that, for example, a company’s conduct was unlawful, without ordering any action or damages), and/or injunctive relief (i.e. the court ordering the company to take or refrain from a specific act). However, often the main goal of strategic climate litigation is to set a legal precedent and/or to make an example of the defendant company, so as to influence wider corporate behaviour.
Below we discuss five trends of particular relevance to boards and directors: first, a new class of securities and directors’ duties lawsuits targeting companies’ directors over the management and/or disclosure of climate risk; second, lawsuits targeting asset managers over their consideration of ESG factors in investment decisionmaking (or lack thereof); third, the rapidly evolving field of ‘greenwashing’ claims; and fourth, how climate litigation may influence corporate governance and business strategy
Fiduciary and securities claims against board members
In recent years, cases have been filed in jurisdictions including the US, Australia, the UK and Poland, against companies and/or their directors in relation to their management and/or disclosure of climate- or ESG-related risks. These cases fall broadly into two categories: (1) securities lawsuits; and (2) fiduciary and/or directors’ duties claims. Such cases filed to date clearly show the risks to companies and their directors and officers from failing to incorporate climate change into business strategy, oversight, risk management and disclosure.
(1) Fiduciary and/or directors’ duties claims against companies.
Claims targeting directors for allegedly mismanaging climate risk have been filed in the UK and Poland. These test the application of directors’ duties to climate risk in relation to specific (stranded) assets (in Poland) and more widely in relation to company strategy (in the UK).
In 2023, UK Courts handed down the world’s first court decisions directly addressing directors’ duties in relation to managing climate risk in ClientEarth v Shell. The lawsuit – a ‘derivative action’ – was filed by NGO ClientEarth in its capacity as a minority shareholder, arguing that Shell’s directors had breached their statutory duties of care and loyalty by failing to put in place a business strategy that adequately addressed material and foreseeable climate risk. The claim was dismissed, but the decision has since been criticised by high profile commentators, including the former Chief Justice of the Supreme Court, potentially leaving the door open for future claims to be filed. See the case study in the UK section of the Navigator for more information.
In December 2023, Polish power generation company Enea SA (Enea) filed a lawsuit (with 87% shareholder support) against Enea’s former directors and insurers for alleged improper due diligence and consideration of climate transition risk when they decided to invest in a new €1.2bn 1GW Ostrołęka C coal-fired power plant in 2018, despite independent warnings that the plant would be unprofitable in light of rising carbon prices, competition from cheaper renewables, and new EU regulations making it harder to secure financing. The 2018 board resolution authorising the project was annulled after a lawsuit by minority shareholder ClientEarth in 2019 succeeded in demonstrating that construction would harm the economic interests of the company in light of climate transition risk, which had not been adequately considered. As a result of the 2019 lawsuit, Enea abandoned the project mid-construction and decided to write it off, creating a stranded asset, in February 2020. The company is seeking damages of PLN 650 million, equivalent to €152 million, to recoup these losses from its former directors under their D&O insurers. The claim is novel, and the decision will provide useful clarity on directors’ duties to consider climate risk on an asset level.
(2) Securities lawsuits against companies
The Enea lawsuit is not the first case to consider whether a decline in company value can be attributed to mismanagement and poor communication of climate risks associated with new fossil fuel investment. In 2016, in the US, an investor in ExxonMobil Corp (Exxon) filed a securities class action alleging breach of fiduciary duties and securities fraud against Exxon and three officers, including the Chief Executive Officer at the time, Rex Tillerson (Ramirez v ExxonMobil). The claim was filed on behalf of all purchasers of Exxon stock during a certain period, alleging they were misled and purchased shares at an artificially inflated price as a result of Exxon’s public statements that misrepresented the company’s protection from exposure to climate risk by its misrepresentations about its use of a proxy cost of carbon in evaluating future investments. Later, Exxon’s Q3 2016 financial results disclosed that it might have to write down 20% of its oil and gas assets due to the falling price of oil, causing its share price to fall by more than USD 2 per share. The investors are seeking damages for those losses. The claim is proceeding as a class action in federal District Court in the Northern District of Texas on the claims about overstatements of the value of the company's oil and gas assets. Class certification was denied on the proxy cost of carbon claims since the company was able to show there was no price impact when corrections were made to its prior statements about the proxy cost of carbon, and thus no reliance, which is one of the elements of a securities fraud claim.
In addition, there is an ongoing claim from 2019 against Exxon’s directors alleging that they have breached their fiduciary duties by allowing misleading disclosures about stranded assets.
More recently, in August 2024, shareholders in publishing company RELX PLC filed a securities class action in Massachusetts alleging that the company engaged in greenwashing by misleading investors about their climate commitments, while continuing business activities that contradicted those pledges, such as publishing content that promoted fossil fuel expansion. The complaint argues that the company’s alleged greenwashing artificially inflated the stock price.
Similarly, in the UK, in May 2024, institutional investors in Boohoo Group PLC filed a securities class action seeking compensation of around £100 million for financial losses caused by the company’s non-disclosure of human rights and modern slavery violations in its suppliers’ factories, which, when exposed in the press, caused the share price to fall by more than 40%. The shareholders are seeking to recover these losses, alleging they arose from the company’s untrue and/or misleading statements and/or omissions. The lawsuit addresses wider ESG issues, but its findings will be applicable to alleged nondisclosure or misrepresentation of any material risk, including climate risk. This is the first (reported) securities lawsuit of this kind in the UK (see more in the UK section of the Navigator).
These cases demonstrate the need for directors to ensure that public statements align with actual corporate strategy and conduct (i.e. to not greenwash) and touch upon the importance of properly accounting for climate risks. Each of these cases may set important precedents when decided.
Fiduciary claims against asset managers
Investors and asset managers have also faced challenges regarding their fiduciary duties. In Australia, the corporate trustee of A$50 billion AUM pension fund Retail Employees Superannuation Trust (REST) was sued for breach of its duty of care for failing to integrate climate change considerations into its investment strategy. The case was settled in November 2020 on favourable terms to the plaintiff. REST issued a press release recognizing climate change as a material financial risk, and undertook to be net-zero by 2050 and to ensure that its investment managers “take active steps to consider, measure, and manage financial risks posed by climate change and other relevant ESG risks.”
A case with possible implications for both company and investor fiduciary duties was brought in October 2021. Beneficiaries of the UK University Superannuation Scheme (USS) pension fund filed a claim against the directors of the fund management company, claiming that by continuing to invest in fossil fuels, while acknowledging that climate change is a material financial risk to the returns of assets is a breach of fiduciary duties. This case was dismissed on procedural grounds in May 2022, and in July 2023, the Court of Appeal dismissed the claim in full. See the UK section of the Navigator for more information.
Although not currently covered in this Navigator, a related lawsuit was filed in South Korea in 2023 seeking to compel the National Pension Service, one of the largest asset owners in the world that manages over USD 800 billion, to disclose a coal divestment plan announced in 2021.
However, the picture is not one sided, and there have been strong movements in the US against fiduciaries considering climate risks, motivated by political and socio-economic reasons. This anti-ESG fiduciary backlash includes amendments to fiduciary legislation seeking to prevent asset managers from considering ESG factors in investment decision making, as well as fiduciary lawsuits alleging that asset managers have breached their fiduciary duties for doing so. These developments are numerous and are discussed in detail in the US section of the Navigator, along with commentary on the wider ‘anti-ESG backlash’ in the US. However, notable examples include a claim by New York workers against the New York City Employees’ Retirement System and two other pension funds, alleging that the funds breached their fiduciary duties by divesting from fossil fuel assets (which failed because the plaintiffs could not demonstrate loss); and a claim by American Airlines pilots accusing the airline of breaching its fiduciary duties under US pensions law by prioritising ESG goals over financial returns (which is pending).
These developments demonstrate the critical role that fiduciaries will play in the energy transition, as well as the growing divergence between the US and other jurisdictions regarding ESG measures.
Greenwashing liability
‘Greenwashing’ claims, which can lead to personal liability for directors, have rapidly increased in scope, ambition and number in recent years. ‘Greenwashing’ arises when companies make false or misleading statements about the sustainability or environmental impact of their operations, products, services, strategy, targets, and plans. ‘Greenwashing’ is extremely broad, and greenwashing liability can generally arise from (1) consumer protection regulations; (2) advertising standards; and (3) measures to prevent financial greenwashing. Businesses are increasingly at risk of greenwashing lawsuits or regulatory enforcement. At the end of 2023, more than 140 greenwashing lawsuits had been filed since 2016, with 47 new cases filed in 2023 alone. Most of these cases (around 70%) have been successful. Notable (non-exhaustive) examples of the three greenwashing categories are set out below.
(1) Consumer protection claims
In August 2021, shareholder activist group, the Australasian Centre for Corporate Responsibility (ACCR) sued Australian oil and gas company Santos alleging misrepresentations under consumer protection and corporation laws. Claims by Santos include that their natural gas is “clean fuel” that provides “clean energy” and that it has a “credible and clear plan” towards achieving “net-zero” emissions by 2040. This was the first case in the world to challenge the veracity of a company’s net zero plan. The claim is still proceeding in the Australian courts.
In March 2024, a Dutch Court found that the Dutch airline KLM had engaged in misleading advertising (i.e. greenwashing) and breached EU consumer law in its ‘Fly Responsibly’ campaign. The Court found that its campaign misrepresented the positive effects of sustainable aviation fuels (SAFs), carbon offsetting, and emerging technologies, and that its claims about how it was tackling climate change were inconsistent with KLM’s wider business strategy of increasing aviation travel. This was the first greenwashing decision against an airline in the world, and has had significant implications in the wider sector. Aside from numerous regulatory actions being taken against the industry for greenwashing, in July 2024, environmental NGOs wrote to 71 European airlines warning that, following the KLM judgment, the use of claims about SAFs, offsetting and net zero are likely to be unlawful.
In the US, a class action was filed in May 2023 against Delta Airlines alleging that the airline’s advertisements claiming to be the “world’s first carbon neutral airline” are misleading.The class action alleges that the airline’s carbon neutrality claim relies on unverified carbon offsets and misleads consumers, in breach of California consumer protection laws. The plaintiffs are seeking over USD 1 billion in damages. The claim is pending.
However, it is worth noting that not all greenwashing lawsuits are successful, and in August 2024, a US court dismissed a class action lawsuit filed against United Airlines alleging that the airline misrepresented its use of SAFs and made customers believe that its flights were climate-friendly.
(2) Advertising greenwashing
Advertising standards agencies in many jurisdictions, including the UK and Netherlands, have banned hundreds of adverts on the basis that they mislead consumers as to the company, product or service’s environmental impact. Although such enforcement actions impact a company’s reputation, and directors have a duty to oversee the company’s marketing, advertising liability is beyond the scope of this Navigator.
(3) Financial greenwashing
As concerned directors and fiduciaries, financial greenwashing generally (but not exclusively) involves two types of misleading activity. The first involves asset managers using misleading sustainability-related names (such as ‘ESG’, ‘green’, ‘sustainable’, and ‘impact’) for funds and financial products which, in practice, do not align with the product’s investment strategy or screening policies. The second involves directors making material misstatements or omissions of climate-related information in financial statements, annual narrative reports, listing prospectuses, and other representations to the market. Although the details of each type of financial greenwashing vary depending on jurisdiction, in practice, both operate to misrepresent investors about the company or fund’s approach to ESG-factors and climate risk. Claims arise when an investor’s decision to invest in a fund purporting to be ‘sustainable’ or ‘ESG’-focussed, or to buy shares in a company, has been influenced by the material misstatement or omission, and the investor suffers financial loss as a result.
Regulators around the world are implementing measures to crack down on the use of misleading fund names, and asset managers may face regulatory penalties under new names and labelling rules if they fall foul of these stringent requirements (see in particular in the Australia, UK and US sections of the Navigator). However, in addition to regulatory liability, liability for asset managers may also arise from financial greenwashing in court. Such litigation has evolved most rapidly in Australia. For example, in March 2024, Australia’s Federal Court rule that Vanguard Investment Australia’s claims about an “ethically conscious” fund were false and misleading; in June 2024, the Federal Court found that a trustee of Mercer Superannuation Fund had made misleading representations over ESG credentials; and in August 2024, the Australian Federal Court ordered Mercer Superannuation Fund to pay AUD 11.3 million (equivalent to USD 7.3 million) for making misleading claims about the sustainability of its investment options, in breach of Australian securities law.
Directors and officers may also be held liable for financial greenwashing by misrepresenting climate-related information in representations to the market. Although criminal liability is possible in severe cases (e.g. where directors intentionally engage in false accounting or fraud), directors and officers are more likely to face regulatory liability (e.g. penalties and sanctions from the financial regulator arising from the director or officer’s breach of national listing rules or requirements for preparing accounts) or civil liability (e.g. arising from investors pursuing claims against the company and/or director personally for losses suffered as a result of the company and/or directors’ misrepresentation or omission of climate-related information in financial statements or other public statements). The few claims of this nature to date have been brought as securities class actions by investors who allegedly purchased shares at an inflated price and suffered loss when particular non-disclosed information was exposed (see for example Ramirez v ExxonMobil or the recent UK lawsuit against Boohoo). However, it is also possible that such claims could take the form of a claim for breach of the director’s duties of care, oversight and loyalty, although (with the exception of the ClientEarth v Shell case) these arguments have not been tested in court.
The impact of climate litigation on business
Climate litigation against corporations can have a significant impact on companies’ business models. For example, in May 2021, in a landmark decision, a Dutch Court ordered Shell to cut its CO2 emissions by 45% by the end of 2030, compared to 2019 levels. In reaching this decision, the court considered the impacts of Shell’s actions as a major fossil fuel company on the human rights of the Dutch citizens bringing the claim and ordered Shell to reduce emissions across its entire group. Shell would be required to fundamentally change its business model to fully comply with the decision. The claim built on an earlier a successful claim against the Dutch government in 2020, and established for the first time that corporations owe citizens a duty of care. Although Shell has appealed and a decision is expected shortly, the claimant, Milieudefensie, has since informed 30 other multinational companies that it is willing to take them to court, using the same type of claim as used against Shell, if they do not produce transition plans.
Furthermore, lawsuits are increasingly being filed targeting companies’ inadequate climate risk strategy and plans, which, if successful, will require the defendant companies to align their business model with the Paris Agreement goals.
As climate litigation evolves, and with claims increasingly targeting directors and officers directly, forward-thinking boards would be well-advised to prioritise implementing governance mechanisms and measures, including educational and training programs, to mitigate the risks of liability. This navigator is being published in order to help guide thinking about those governance mechanisms. However, the Navigator is not and should not be relied on as legal advice.
Commonwealth Climate and Law Initiative