Our first bulletin of 2024 reviews activity in the first quarter on ESG-related disputes. Early signs suggest a busy court calendar with continued pressure from environmental NGOs to bring about behavioural change in a range of cases across the globe. The traffic is not one way, however, as we also report on some robust measures being sought by companies seeking to curtail activist litigation.

Activity continues in the Dutch courts with Shell's climate appeal set for April this year. We have also seen further evidence of the focus of NGOs shifting to financial institutions with a claim against Dutch banking giant ING, challenging its climate impact. Farming is also a focus in this quarter with the decision of the New Zealand Supreme Court to allow a novel climate tort claim to proceed to trial, with the defendants including New Zealand's largest dairy farming co-operative.

Milieudefensie et al. v. Royal Dutch Shell plc – Shell's appeal against the court finding it had a duty of care to avoid negative human rights impacts

Shell's long-awaited appeal in the case brought against it by Milieudefensie is set to be heard at the Hague Court of Appeal in April this year. In the landmark decision issued by the Dutch District Court in May 2021, the oil giant was ordered to slash its CO2 emissions by 45% by 2030 and align its business with the Paris Agreement, after the NGO and others successfully drew upon Dutch and European human rights law. Read our coverage of the original decision here.

The District Court considered that the duty of care under the Dutch Civil Code requires companies to avoid causing or contributing to negative human rights impacts through their own activities. In this case, the court interpreted Shell's duty of care towards Dutch citizens as requiring it to mitigate climate change by reducing emissions from its global operations, including those of its suppliers and customers, based on a "significant best-efforts obligation". The decision was a watershed moment for the energy industry, as it was the first time a court imposed such broad climate mitigation obligations on a company.

Shell says its decision to appeal the verdict does not detract from its commitment to reach net zero targets by 2050, but argues that the obligations and targets set by the Hague are far more ambitious and "stringent" than other global targets. However, even if Shell succeeds in its appeal, we do not anticipate a strategic rethinking from environmental NGOs in pursuing these sorts of claims.

Milieudefensie also targets ING – intended claim based on alleged contribution to climate change

Building on its success against Shell, Milieudefensie has announced it intends to bring legal action against major Dutch bank ING for its alleged contribution to climate change, both in terms of its own emissions and the emissions of those it funds, including oil and gas companies. The claim is on the same legal basis as the claim against Shell – breach of the duty of care owed by large companies to society under Dutch law and their duty to respect human rights.

Milieudefensie's focus on ING followed a request made to 29 companies, identified as major polluters, to set out their climate plans and Milieudefensie concluding that ING's plans did not go far enough. Milieudefensie alleges that the bank is in breach of its duty of care, with its climate policies being "miles away" from realistically achieving Paris Agreement targets. In support of its claims, the NGO cites ING continuing to lend to fossil fuel companies and its support of bond issuances worth more than €80 billion for the fossil fuel industry since the Paris Agreement was signed, as well as being said to be responsible on its own account for more emissions than any other bank in the country (and, according to Milieudefensie, far larger emissions than admitted).

Milieudefensie's demands of ING include that it cuts its own total emissions in half and that it stops financing polluting companies within a year.

ING provided its formal response to Milieudefensie's letter before action on 14 February 2024, in which it confirmed its commitment to Paris Agreement goals, agreed urgent action is required to limit global warming and cited the steps it has taken within its business to achieve those goals. However, Milieudefensie's subsequent press releases indicate that it is not satisfied ING has done enough and will commence litigation as a result.

Smith v Fonterra & others: novel tort climate case against seven NZ companies allowed by NZ Supreme Court to proceed to trial

Across the globe in New Zealand, the NZ Supreme Court has overturned a decision striking out a claim which argued companies have a duty of care to reduce greenhouse gases (GHGs) and so this novel tort claim can now proceed to trial. In this case, the farming industry, amongst others, is under scrutiny.

The claim has been brought by Mr Smith, a Māori elder, against seven New Zealand companies in the dairy, energy, steel, infrastructure and coal mining industries. Mr Smith claims that the defendants were responsible in 2020-2021 for "more than one-third of New Zealand's total reported GHG emissions", that their activities have contributed materially to the climate crisis and damaged places of significance to him and his community.

In addition to the more traditional claims of public nuisance and negligence, Mr Smith bases his claim on a novel climate damage tort, under which the defendants would owe a legal duty to cease material contributions to climate damage through the emission of GHGs. The case was struck out by the Court of Appeal, but the NZ Supreme Court has now allowed it to proceed to trial on all three arguments.

The claim is at an early stage, but is likely to consider many of the questions faced in other climate claims including those of:

• Standing: Why does this claimant have a right to bring the claim and is he owed a particular duty of care?
• Causation: Can it be shown that the activities of these defendants caused damage to the claimant's community and how can any impact be separated from the cumulative effect of the activities of parties the world over?
• Policy concerns: In particular, how, if a duty is found, can the risk of indeterminate liability for an enormous number of defendants be avoided?

Exxon pushes for lawsuit against shareholder investors seeking climate action

As the matters referred to above illustrate, the number and frequency of climate-related cases is on the increase and so too it appears are defensive actions being taken by companies to try to keep the cases in check. Those facing litigation by activist investors and environmental groups tend to try to carefully balance litigation risk against reputational considerations. However, in a case before the US Federal Courts, Exxon Mobil has adopted a robust approach in seeking to curtail investor actions.

ESG-focused investors Arjuna Capital and Follow This were behind a shareholder-proposed resolution on Exxon's climate policy. The shareholder vote proposed that Exxon should go materially beyond its current plans to accelerate the pace of emission reductions in the medium term. Faced with the proposals, Exxon sought a declaratory judgment from the Texas District Court to exclude them. Exxon's move forced the two investors to rescind their proposals and, in turn, Exxon withdrew its application to expedite summary judgment on the matter. However, Exxon has continued the legal action to try to prevent similar proposals from being tabled in the future and gain clarification on SEC rules. In response, Arjuna and Follow This applied to dismiss the action on the basis that there is no "case" or "controversy" for determination, because they have withdrawn their proposal and agreed not to resubmit or present it at any future Exxon shareholder meeting.

It is noteworthy that Exxon has seen business support for its suit, with the Chamber of Commerce and Business Roundtable filing a joint brief in support of Exxon, arguing the necessity to stop shareholder activists that "inundate public corporations with proposals designed to push ideological agendas".

This action will be one to watch for both business and investor activists.

Undertakings accepted from three fashion brands as part of CMA's investigation scrutinising "green" claims

On 27 March 2024, ASOS, Boohoo and George at Asda (the Brands) signed formal undertakings to ensure their 'green' claims are accurate and clear. The CMA required these undertakings in order to commit the Brands to changing the way they advertise their environmental credentials.

The Brands' commitments include the following:

• Green claims: The Brands must ensure that all green claims are accurate and not misleading.
• Statements regarding fabrics: Statements made about materials in environmentally-friendly clothing ranges must be specific and clear.
• Criteria for green clothing ranges: The criteria used to decide which products are included in such environmentally-friendly collections must clearly state any minimum requirements.
• Use of imagery: The Brands must not use "natural" imagery such as green leaves, logos or icons that suggest a product is environmentally-friendly when it is not.
• Product filters: Search filters on the Brands' websites must be accurate, only showing items that meet the filter requirements.
• Environmental targets: Claims made to consumers about environmental targets must be supported by a clear and verifiable strategy, with more details readily available to customers.
• Accreditation schemes: Statements made by the Brands about accreditation schemes and standards should not be misleading.

Going forward the Brands must regularly update the CMA with reports on compliance with their signed undertakings. If they do not comply, the CMA could investigate whether the Brands have breached consumer protection law. The CMA's interim Chief executive has made clear that it "won't hesitate to take enforcement action through the courts if necessary".

FCA anti-greenwashing rule – a baseline for future litigation?

We close out this ESG disputes update not with commentary on a new case, but on the new FCA anti-greenwashing rules which come into force later in the spring – a potential source for future litigation, providing as they do a basis for individuals as well as the regulator to hold financial firms to account.

The FCA published its long-awaited policy statement on "Sustainability Disclosure Requirements (SDR) and investment labels" at the end of November 2023, with the rules now due to come into effect in May 2024. This package of measures is designed to inform consumers of, and protect them against, exaggerated and misleading ESG-related claims and to improve trust in the market for sustainable investments. One of the measures is an "anti-greenwashing rule" (FCA ESG 4.3.1R(2)), applying to all firms, regardless of whether they are undertaking sustainably focused business. The new rules impose restrictions on how labels like "ESG", "green" and "sustainable" can be used in the context of investment products and provide that: "any reference to the sustainability characteristics (i.e., the environmental or social characteristics) of a product or service is: (a) consistent with the sustainability characteristics of the product or service; and (b) fair, clear and not misleading".

The FCA has also consulted on and published guidance on the anti-greenwashing rule, which will accompany the new measures and is to assist firms in complying with the new rule. The focus of the guidance is ensuring sustainability characteristics and claims about them are accurate and can be evidenced; are clear and understandable; are complete, including the full lifecycle of the product; and are fair and meaningful when being compared to other products or services.

The challenge for financial services firms in complying with the new rules will include meeting expectations where there is no universally recognised measure of sustainability characteristics and doing so in a way that does not provide information overload to consumers (therefore negatively impacting levels of understanding), whilst at the same time ensuring there are no disclosure gaps. Firms should anticipate early enforcement of the rules by the FCA and, based on experience, enforcement action often provides a platform for follow-on civil claims.