Litigation focused on contributions to climate change continued to multiply globally in 2022, with a number of significant new cases emerging, alongside regulators requiring increased precision in businesses' reporting and accountability for their emissions. As businesses in every sector strive to pick up the pace in their transition to net zero, managing litigation and regulatory risk must form a key part of any climate strategy.

The LSE's Grantham Research Institute on Climate Change and the Environment and The Centre for Climate Change and Economics and Policy reported in June 2022 that climate-change-related cases have more than doubled worldwide since 2015, with around 300 cases filed in the 18 months preceding the report. Of particular note was the geographical spread of new claims (with just 39 of the new cases being filed in the US, and the remaining 122 cases filed before the courts of 43 other countries and 15 international or regional courts).

In this briefing, we highlight some of the main developments in the climate litigation and regulatory space in 2022, and what these mean for businesses looking ahead to 2023 and beyond.

1. Direct actions seeking reduction of corporate contributions to climate change set to continue in wake of Milieudefensie v. Shell

Since the Hague District Court's decision in May 2021¹ ordering Shell to reduce its emissions by 45% by 2030², cases against companies seeking direct change (either in their policies or with regard to a specific project) have continued. For instance, in late 2021 environmental organisation DUH-Environmental Action Germany filed suits against Mercedes-Benz, BMW and Volkswagen, seeking orders that the companies stop producing internal combustion engine (ICE) cars unless they prove neutrality for Scope 3 emissions resulting from such cars after 2029/2030. And, in July 2022, four inhabitants of Indonesian island Pari launched a claim in Switzerland against building material company Holcim, seeking an order that it reduces its 2019 CO2 emissions by 43% by 2030. In addition, they sought compensation for climate-change-related damages on Pari and a contribution to associated adaptation measures.

Such claims continue to face a variety of jurisdiction-specific challenges – for example, in September 2022, the Stuttgart Regional Court dismissed DUH's case against Mercedes-Benz, primarily on the basis that it was for the legislator to create a legal framework to prevent global warming. However, DUH has announced it will appeal that ruling, and the similar claims against BMW and Volkswagen continue. We would expect to see further such claims launched against entities in a growing range of sectors (certainly not limited to those traditionally targeted, such as fossil fuel companies), as public attention focuses on the breadth of environmental challenges and sources of CO2 emissions.

At the same time, we anticipate a continuing proliferation of challenges to governmental authorisations for corporate projects heavily reliant on fossil fuels. For instance, in this sphere, July 2022 saw Greenpeace initiate a legal challenge against the approval of the Jackdaw gas field development project located in the North Sea and owned by an affiliate of Shell, plans for which were previously rejected on environmental grounds and then resubmitted.

2. Climate-washing actions ramp up

The need to avoid accusations of climate-washing (or "greenwashing") has become an increasingly challenging area for businesses across every sector and jurisdiction. This is an area of particular risk given the requirements (both regulatory and emanating from a range of stakeholders) to clearly set out corporate decarbonisation aspirations. Indeed, the results of a European Commission screening exercise in 2021 revealed that 42% of websites contained environmental claims that were false, deceptive or exaggerated and could qualify as unfair commercial practice under EU regulations. Moreover, in 59% of cases, the trader had not provided easily accessible evidence to support its claim.

Articulating a company's plans and targets in an aspirational yet realistically achievable manner has become a yet more critical focus area in 2022 in light of new litigation in a number of regions and the increasing intervention of regulators.

On the litigation front, there is a perceptible shift in focus in claims away from overt misstatements about a business's decarbonisation credentials or expectations, towards misrepresentations based on omissions or implicit misstatements. Such claims also increasingly involve scrutiny of the scientific evidence behind corporate claims, such that their attainability can be directly challenged. For example, in Australasian Centre for Corporate Responsibility (ACCR) v.Santos, the claimant alleges that Santos's projection in its annual report – that it would achieve net zero emissions by 2040 – relies upon carbon capture and storage technologies that do not yet exist or the viability of which have not been tested, and also on offsets that Santos has yet to seek to procure (and so are not guaranteed). Similarly, we are seeing claimants draw upon definitions of terms like "net zero" in independent frameworks such as the GHG Protocol or the Science Based Targets initiative to test business' use of these terms.

These claims are for the most part at an early stage, so we can expect developments in 2023 and potentially case law seeking to balance the competing concerns at play. At the same time, more claims appear inevitable. These may well take the form of increased group litigation where misleading claims have caused consumers demonstrable loss, such as the threatened US class action against H&M³, challenging statements regarding its "Conscious Choice" range, where claimants argue they have been misled into paying a premium for products based on untrue claimed environmental credentials.

Perhaps yet more notable in the past 12-18 months has been the ramping-up of activity on the part of regulators seeking to crack down on climate-washing. In the UK alone, the regulatory framework changed substantially, such as with the CMA introducing its Green Claims Code, stating a number of fundamental principles linking green claims to obligations under consumer law dealing with misleading marketing. Further, a raft of household names have come under regulatory scrutiny and/or been subject to negative decisions, including George at Asda, Asos and Boohoo, all of which are subject to ongoing investigations by the CMA.

Another likely stimulus for future climate-related litigation comes from strategic reform of the energy sector as governments seek to adopt (binding or non-binding) decarbonisation and biodiversity targets and stimulate investment in decarbonising industries in order to meet those targets. In the UK, the Energy Bill 2022 is currently in Parliament and its measures include those to stimulate carbon capture and storage, blue and green hydrogen production and nuclear investment, to name a few. Some of these measures are controversial and imply dependence on future decisions to grant permits and subsidise specific projects, an area ripe for legal challenge.

3. Holding decision-makers personally to account

A further burgeoning trend concerns efforts to make decision-makers such as company directors personally liable for contributions to climate change and/or failures to adequately manage climate risk. In the UK, the headline action in 2022 was ClientEarth's announcement of its intention to bring a derivative action against the Board of Directors of Shell. ClientEarth argues that the Shell Board has failed to adopt and implement a climate strategy that truly aligns with the Paris Agreement goals, and that it is breaching its duties under sections 172 and 174 of the UK Companies Act, which legally requires it to act in a way that promotes the company’s success, and to exercise reasonable care, skill and diligence. ClientEarth notified Shell of its claim in March 2022, so we expect to see developments in the coming year.

Indeed, actions based on personal responsibilities such as directors' or fiduciary duties appear potentially fruitful territory for activists. Also in the UK, in Ewan McGaughey et al v. Universities Superannuation Scheme Limited⁴, the claimant group of academics issued proceedings against directors of the Universities Superannuation Scheme, a private pension scheme for academic staff of UK universities, on the basis that the directors had breached their Companies Act and fiduciary duties to act in the beneficiaries' best interests. Among the various arguments made regarding the administration of the scheme, the claimants pleaded that the directors had "failed to form an adequate plan to deal with the financial risks involved in [investments in fossil fuels]". The claim was dismissed by the High Court on 24 May 2022, including because the judge found the claimants had not established a prima facie case that the pension scheme had suffered any loss as a result of the directors' actions in not planning for divestment. However, it has been reported that the case will be heard by the Court of Appeal and, in Lord Justice Lewison's October 2022 decision to grant permission to appeal, he reportedly noted that "the grounds of appeal raise important issues (some of which are novel) and have sufficient merit to warrant consideration by the full court".

4. Greater focus on human rights impacts

Another fast-growing trend is the emphasis in litigation on the negative human rights impacts of climate change, enabling reliance upon or invoking international and domestic human rights instruments as well as businesses' responsibilities under the UN Guiding Principles on Business and Human Rights (UNGPs), which require companies to protect, respect and remedy adverse human rights impacts they cause or contribute to (including through their supply chain). The link between contributions to climate change and a range of human rights has solid international recognition, bolstered by recent studies such as the final report of the Commission on Human Rights of the Philippines' investigation into 47 investor-owned corporations for human rights harms resulting from their actions triggering climate change, issued in May 2022.

Again following the Milieudefensie v. Shell case, which drew upon ECHR Articles 2 (right to life) and 8 (respect for private and family life) as well as the Dutch civil code, strategic litigation placing individual rights at the centre of climate issues has increased. There are now a number of cases against states involving climate issues pending before the European Court of Human Rights, including Greenpeace Nordic and Others v. Norway ⁵ seeking an order against Norway's plans for more drilling in the Arctic.

Against corporates, examples include Youth Verdict v. Waratah Coal⁶ in which an Australian court ruled in November 2022 that a coal project, owned by Australian businessman Clive Palmer, should not continue due to its contribution to climate change and detrimental impact on the environment and human rights. In considering the human rights impact, the court, applying the Queensland Human Rights Act, weighed social or economic benefits to be gained from the mining operations against the possible limitations to human rights (such as the right to life, the cultural rights of indigenous peoples, the rights of children and the right to property). The court held that the importance of preserving the human rights of Queenslanders outweighed the potential A$2.5 billion of economic benefits of the proposed mine.

In the UK, the trend of bringing group human rights and environmental actions against parent companies and foreign subsidiaries based on the subsidiary's actions abroad is likely to continue following expansive judgments such as Vedanta v. Lungowe⁷, Okpabi v. Shell⁸ and, in July 2022, Municipio de Mariana v. BHP⁹ in which a group of 200,000 Brazilian claimants succeeded in the Court of Appeal and will now proceed with £5 billion group claims against BHP arising from a 2015 dam collapse.

With this in mind, businesses should take care to ensure their group human rights policies take real account of climate risk arising from their operations and supply chains, conduct thorough due diligence upon human rights impacts of new and ongoing projects, and implement remedial measures where adverse impacts are identified.

5. Litigation and regulatory action based on financial disclosures

Finally, the increasingly stringent requirements on businesses across many jurisdictions to give detailed financial disclosures in relation to their climate strategies, together with regulators' increasingly clear mandates to take enforcement action based on them, is likely to give rise to greater risk for businesses during 2023. One only has to look to the SEC's USD 1.5 million fine of BNY Mellon in May 2022, concerning misstatements about ESG considerations relating to certain funds, to see the potential for difficulty such disclosures can cause.

In the UK, the FCA has enhanced its regulatory framework with its new ESG sourcebook, focused on climate disclosures and structured on the four pillars developed by the Task Force on Climate-related Financial Disclosures (TCFD) (Governance (of climate risk); Strategy; Risk Management; Metrics and Targets). The first reports under the sourcebook are due in June 2023 and require businesses to make fair, clear and non-misleading disclosures, and to provide information on any limitations on their ability to disclose and the steps being taken to address climate risk. The FCA is also consulting on sustainability investment labelling and consumer-facing disclosures with new rules expected in the first half of 2023. The new rules will introduce common standards, a requirement for clear terminology and accessible product classification and labelling to assist consumers in assessing product suitability.

Regarding enforcement, while the FCA has not yet publicly begun any investigations in relation to climate-related disclosures, it has made clear that it will address poor conduct as a priority and, having built the regulatory framework, from 2023 it will be in a stronger position to do so. As regulators and law enforcement agencies take more robust action on "climate-washing" claims (e.g. in relation to which, DWS's Frankfurt office premises was raided by German prosecutors in May 2022, and the CMA commenced investigations into fast fashion brands on the back of its Green Claims Code mentioned above), we expect to see analogous actions taken against climate-related financial disclosures which do not stand up to scrutiny.

Conclusion

As illustrated by our five key trends, 2023 will, without question, bring continued pressure on businesses and business leaders in all sectors to integrate rapidly and then conscientiously monitor regulatory requirements targeted at climate preservation. The pace of change enhances the litigation and enforcement risk and we can expect claims and regulatory action to increase considerably in the next 12 months.

1. Case no. C/09/571932/HA ZA 19-379.
2. The decision is currently under appeal by Shell.
3. Commodore v. H&M Hennes & Mauritz LP (case no. 7:22-cv-06247).
4. [2022] EWHC 1233 (Ch).
5. App. No. 34068/21
6. [2022] QLC 21.
7. [2019] UKSC 20.
8. [2021] UKSC 3.
9. [2022] EWCA Civ 951.