The UN's Intergovernmental Panel on Climate Change's Sixth Assessment Report ("IPCC Report"), published on 9 August 2021, delivered the starkest warning to date that human activity is responsible for significant changes in the Earth's climate. The attention of the world's scientific, political, and business communities, and of society at large, is increasingly focused on the urgency of the need for drastic action to counteract these changes, and the devastating impacts they are having. We explore whether, and how, the issues addressed in the IPCC Report may heighten the already-growing climate change litigation risk for businesses.
Key findings of the IPCC Report
The findings and conclusions of the IPCC Report, endorsed by 195 national governments, have been widely reported worldwide.
In essence, the IPCC warns that, unless deep reductions in greenhouse gas emissions occur in the coming decades, the goals of the 2015 Paris Agreement – to limit global warming to well below 2, and preferably 1.5, degrees Celsius, compared to the pre-industrial level – will be out of reach. According to the IPCC Report, a failure to meet those goals would result in devastating consequences to the climate, including leaving some parts of the world uninhabitable.
The IPCC Report & litigation risk
Climate litigation has been a growing feature of the litigation landscape for some years. According to a July 2021 Policy Report published by the London School of Economics, Columbia Law School and the Centre for Climate Change Economics and Policy ("Policy Report"), the number of climate change-related cases around the world has more than doubled since 2015. Just over 800 cases were filed between 1986 and 2014, while over 1,000 cases have been commenced in the last six years; these cases are targeting a wider range of defendants than previously, including those in the private sector (and energy and financial services in particular), in addition to national governments.
The Policy Report highlights that an increasing number of claims focus on financial risks, fiduciary duties and corporate due diligence, which directly affect not just energy companies but also banks, pension funds, and insurers, amongst others.
A striking feature of many climate actions, which often differentiates them from much "traditional" litigation, is the redress commonly sought. Not all claims seek monetary compensation for damage caused by climate change; rather, the litigation is focused on effecting behavioural change. For example, claims arising out of climate disinformation (e.g. "greenwashing"), failure to manage climate change risk or inaction, as well as cases that challenge specific projects or developments and disclosures in relation thereto, are increasingly common. The Policy Report predicts that the range of defendants to such claims will continue to diversify, and "in particular, it is likely that more litigation will be brought against financial market actors."
According to the Policy Report, the IPCC's previous Assessment Reports have played a role in "affirming" the imperative to limit global warming to the levels prescribed under the Paris Agreement, thereby assisting claimants around the world to establish a link between emissions and climate impacts, and in turn strengthening their cases (where similar cases have historically struggled to surmount difficulties in establishing the requisite causation elements of the claim).
Crucially, courts around the world are increasingly engaged in, and sympathetic to, the emerging case theories upon which climate litigation is based. Perhaps most notably in this regard, the judgment of the Dutch District Court in Milieudefensie et. al. v. Royal Dutch Shell (which we previously reported on here and here), was one of the first clear judicial determinations that the Paris Agreement should be used to inform a legal standard of conduct, because the Paris Agreement represents a "universally endorsed and accepted standard that protects the common interest of preventing dangerous climate change" (see the Judgment at 4.4.27). The judgment referred extensively to previous reports of the IPCC to support its determination, which – although is subject to appeal by Shell – may provide an important precedent that the Paris goals should inform legal obligations and standards.
Thus, the widely endorsed science and findings from latest IPCC Report may well contribute to the ongoing, and accelerating, trend of multiple stakeholders using litigation, based on climate change attribution theories and evidence, to target a range of actors, including corporations and financial institutions, in an effort not only to seek redress where appropriate, but also to force behavioural change. This, in turn, brings a heightened litigation risk for those operating in a wide range of sectors.