Legal risks
Guilty by emission

Courtrooms are the new battleground for climate activism

Special reportSep 17th 2020 edition

“MAN HAS A time window of five to ten years before the need for hard decisions regarding changes in energy strategies might become critical.” That is a summary of James Black’s research on climate change. He was a scientist at ExxonMobil and shared his findings with his bosses in 1978, while underscoring the scientific consensus on global warming. The warnings were ignored. Over the following three decades the oil firm’s bosses cast doubt on the consensus and lobbied vigorously against climate-friendly policies.

In 2015 the archive notes were uncovered by InsideClimate News, a website. They formed part of the evidence in a case brought against ExxonMobil by New York’s attorney-general. The accusation was that the company had misled investors about the risks to its business from climate-related regulations. On this narrow charge, the judge was not convinced, ruling in ExxonMobil’s favour in December 2019. However he hinted that other allegations could yet stick, concluding that “nothing in this opinion is intended to absolve ExxonMobil from responsibility for contributing to climate change”.

Climate litigation is a growing risk for businesses and bosses alike. Data from the Sabin Centre for Climate Change Law at Columbia University show that in the 1990s a mere handful of cases were brought against companies. The following decade saw about 20. But since 2010 there have been over 110. The cases mainly target fossil-fuel producers and come in three varieties.

The most ambitious are those brought by American states and cities against such oil majors as ExxonMobil and Chevron. A typical claim is that an oil company has extracted fossil fuels and then sold them for profit. The fuels’ combustion has made a weather event more likely—and the extra damage needs to be paid for. The big legal challenge is to establish a clear chain of causation. The scientific link between emissions and climate change is solid enough, but to connect a single firm’s actions to a specific disaster is far harder than it was for tobacco. It could take a decade for any of these lawsuits to secure a conviction, sighs one lawyer who is working on them.

If cases follow the same route as those against Big Tobacco, the costs could be high

Yet environmentalists take heart from the success of lawsuits against Big Tobacco since the 1970s. Both industries knew about the problem for many years. Both used similar tactics to spread doubt about causation. Some of the same think-tanks even produced water-muddying research for both Big Tobacco and Big Oil. And some of the same scientists and publicists were used too, according to the Center for International Environmental Law, a Washington-based lobby group.

If cases follow a similar route as those against Big Tobacco, the costs could be high. In a forthcoming report, the 2° Investing Initiative, a think-tank, looked at 17 energy companies and, based on the settlements that were made by tobacco firms, estimated that they could be hit with liabilities of $58bn to $107bn annually. On average that amounts to between 5% and 20% of the companies’ pre-tax earnings.

Another type of litigation is cases that look at climate change through the prism of human rights. In December 2019 the Philippines commission on human rights ruled that oil majors could be sued on human-rights grounds. That links two strands of law which were previously largely separate. Thus it will make further litigation more likely, argues Joana Setzer of the Grantham Research Institute in London.

Then there are cases brought against individual executives. Such actions are common outside the climate-change arena: insolvencies are sometimes followed by shareholder claims against board members. Nigel Brook of Clyde & Co, a law firm, expects this form of climate litigation to grow. Bosses’ duty-of-care obligations will increase as more information about the impact of climate change comes to light. And activist green investors will see this as yet another weapon to use in the fight.

Investor activism has already produced some results. In 2018 ClientEarth, a group of environmentally minded lawyers, bought shares in Enea, a Polish utility, and challenged the economic argument for building a new coal-fired power plant. The lawyers argued that the €1.2bn investment would destroy shareholder value. Last August a judge ruled in their favour.

Sue and be damned

It is not always bosses in the dock. Across the world, activists are also using the courts against their governments. In December the Dutch supreme court ordered the government to cut the country’s greenhouse-gas emissions by a quarter from 1990 levels by the end of 2020, the first time a court has forced a government to take direct climate action. Two months later a court in London said that the British government’s decision to expand Heathrow airport was unlawful because it had not taken national climate commitments into account. Both cases could have broader implications for businesses, especially utilities and airlines.

The legal risks will only grow over time. One reason is that the science that demonstrates the links between weather events and climate change is likely to improve. More scientists are publishing “attribution” studies, in which experts model the world with and without greenhouse-gas emissions. Another is that activists will start targeting firms outside the fossil-fuel industry. In November a trial will begin in Australia that asks whether a pension fund ought to do more to protect savers’ money from climate risks. A victory for the claimant, a 24-year-old saver, could set a precedent for how pension funds manage climate risk. Many think that the risk will spread to fossil-fuel consumers, such as carmakers. Sophie Marjanac of ClientEarth likes to claim that no one is safe.

A third catalyst is the changing attitudes of judges. In a speech in August, Lord Sales, an English high-court judge, argued that “the old dichotomy between a company’s financial success and its environmental profile is collapsing”. Australian judges have exhibited similar sentiments. As judges retire and younger ones take their place, the judiciary may yet become more concerned about saving the planet.

The great hope for businesses harassed by consumers, regulators and lawyers may be technological change. Even lobby groups such as America’s Chamber of Commerce support this. “Innovation is one area everyone can get behind,” says Marty Durbin, head of the chamber’s energy arm. He points to American shale gas, which took off in the 2000s after a technological breakthrough. The price of gas plummeted and its share of American power generation rose from 20% in 2006 to 38% in 2019, overtaking coal. A booming new industry was created that helped America cut emissions. Today tumbling oil prices mean that many frackers are going bust. But for the next wave of climate-minded entrepreneurs, the technology boom is only just beginning.

This article appeared in the Special report section of the print edition under the headline "Guilty by emission"

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