Time to change the oil?

Maurice MacSweeney, director of litigation funding at Harbour explains how climate litigation is seeking to change corporate behaviour.

Maurice MacSweeney, director of litigation funding, Harbour

In the summer of 2015, the Dutch government found itself a reluctant defendant in a case which would determine whether ordinary citizens could bring about tougher climate policies through action in the courts. After a six-year legal battle fought by the non-profit Urgenda Foundation and 900 Dutch citizens, the District Court of The Hague found the government has a legal duty to prevent the occurrence of dangerous climate change.

The government appealed twice, failing both times, and eventually in December 2019 the original decision was upheld by the Dutch Supreme Court. As a result, the government must now take urgent action to cut carbon emissions in order to comply with its obligations to protect the human rights of Dutch citizens.

A watershed

The case was a true watershed moment, opening a floodgate of litigation designed to bring about an improved environment. As of July 2020 there were at least 1,500 climate change cases filed in 38 countries (double the numbers reported in 2017), and the UN high commissioner for Human Rights has said the Urgenda case “confirms that the Government of The Netherlands, and by implication, other governments, have binding legal obligations, based on international human rights law, to undertake strong reductions in emissions of greenhouse gases”. Indeed, cases have already been brought against all European governments (and other governments around the world) where claimants are seeking declarations that they must improve their climate change efforts, and as recently as 4 March 2021 the EU’s highest court ruled that the UK had for years breached air pollution limits, and ordered it to comply with these limits or risk a fine. This litigation trend is very much here to stay.

But it’s not just governments who are the defendants in this new wave of litigation; oil and gas companies are also in the sights of lawyers, and claimants know the best way to change corporate behaviour is to strike the pocket. This may be through substantial commercial claims for damages, but just as strategic is litigation which generates publicity, and seeks to persuade investors to drive change in listed companies, as well as litigation which forces companies to change their business models more quickly than planned, which will inevitably incur very significant costs.
Urgenda’s lawyer has returned to The Hague in pursuit of multinational Royal Dutch Shell, demanding that they be ordered to reduce carbon dioxide emissions by 45% (compared with 2019 levels) before 2030. Shell already has its own goal of achieving net zero emissions by 2050 but losing a case of this magnitude could still have a transformative financial impact on them. Other cases are already underway against other global oil majors.

The stakes are high
The Corporate Duty of Vigilance law recently enacted in France is being used by NGOs and local authorities to force Total to set out how they are preventing (amongst other things) environmental damage (and the company has renamed itself TotalEnergies to underline a shift away from oil products). The US State of Connecticut seeks to make ExxonMobil pay for the cost of mitigating damage caused by climate change, and Oakland and San Francisco city officials brought similar litigation against Chevron, BP, Shell, and others, citing the costs they will face to upgrade sea walls to protect against future higher tides.

The stakes are high, and the familiar tactic of defendant corporates outspending claimants will no longer be as effective.  The significant growth of the litigation funding industry means claimants can now call on large amounts of capital to help them pursue their case. Funders will only support meritorious cases, as to do otherwise would pose too high a risk to their investment [and encourage frivolous cases]. It should be noted that some funders also provide solutions for defendants, offering insurance products to help them recoup some of the costs of successfully defending cases. But with the trend of climate litigation only set to increase, and with greater involvement of external capital, settlement may become a much more attractive option. A litigation strategy of “fight all the way to trial” may not just be costly in terms of damages awards, but for those cases seeking to change corporate behaviour in other ways, it may also prove very costly in the court of public opinion.

It cost over $200bn for tobacco manufacturers to settle claims from US states. For many, carbon emissions are an even greater health threat, and so climate litigation is undoubtedly here to stay. The question is, how large a bill will the oil and gas industries face?