Can Climate Change Litigation Save the World?
21 December 2018
In the global fight against climate change, people are turning to litigation to redress damage arising from the threat of climate change. An increasing number of high profile cases around the world are being brought against utilities giants and government bodies in response to their role in changing precipitation patterns, extreme weather, rising air temperatures, rising sea levels and shortage of fresh water, whereby litigants are seeking to hold those entities accountable for direct threats to the lives and livelihoods of individuals.[1] Those claimants are calling for better public policy to cap water usage and emission levels globally.[2] Increasingly, class actions are being brought by individuals or group of participants with similar interests, pleading public or private nuisance, negligence, breach of energy and water law, violation of constitutional rights, based on social and environmental problems and legal frameworks within those jurisdictions.[3]
Since the 2002 introduction of the continuous disclosure provisions of the Corporations Act 2001 (Cth), the Australian Prudential Regulation Authority (APRA) is pressuring Australian corporate entities to provide detailed reporting to their investors on how they are improving their identification and reporting of the risks climate change factors impacting their financial position and business operations.[4] More policies and best practices are being published around the importance of climate change and how each corporate entity plays a part to the national’s commitment to the Paris Agreement in reducing global climate change levels.[5] Individual citizens, investors and shareholder are also using the judicial avenue to support this target by suing companies that contravenes their obligations in providing adequate disclosures on the impact of climate change in its investments and plans to include such considerations before they make investments.
So far only two cases out of 66 shareholder class actions filed at the Federal Court are related to non-disclosure of information in relation to environment impacts in climate change. First, in 2017 a shareholder of the Commonwealth Bank of Australia claimed, the company in its 2016 Annual Report has failed to report on climate change risks in its investment into the coal mine project in Queensland.[6] While Section 1017C of the Corporations Act does not specifically mention climate change, it does mandate that companies ‘must comply with a request for information’ and make ‘reasonable efforts to comply with the request within 1 month’. [7] With such growing demand from the investors alike, CBA in its 2017 annual report stated that climate change poses a significant risk to the bank’s operations.[8] It also issued a policy statement detailing CBA’s plan and commitment to limit climate change in support of a ‘net zero emission economy by 2050’ through its lending policies.[9] CBA also aim to place a threshold test on all its lending portfolios, using recommendations provided by the global Taskforce on Climate-related Financial Disclosure (TCFD)[10]. The case was withdrawn by the plaintiff as the information required was adequately provided in addressing concerns in investments that may lead to global climate change.
Second, in July 2018, a plaintiff sued his super fund REST in Federal Court for not providing adequate disclosure of the amount of fossil fuel and risk exposures on his super fund investments, which invested in industries that contributes to climate change.[11] He also alleged REST breached its fiduciary duty by its non-disclosure. REST did not have plans or sustainable future consideration when making investment decisions on behalf of its investors. A claim in breach of ‘fiduciary duty’[12] as trustee of a superannuation fund was filed at the Federal Court of Australia against REST. As a concerned member, the plaintiff was entitled under s1017C of the Corporations Act to reasonably obtain information. The case is currently awaiting REST’s response. Such action could be joined by thousands of other Australians in a representative proceeding.
Turning to the international landscape, in 2016, Europe introduced mandatory climate change related reporting for more than 8000 listed companies.[13] The obligation of disclosure includes information on the use of ‘renewable and non-renewable energy, greenhouse gas emissions, water and land use, pollution and material usage, as well as climate change associated risks’ impacting its investments.[14] In the US, in response to its obligations under the United Nations Framework Convention on Climate Change, various reporting rules are imposed across 41 industries to report on its greenhouse gas emissions, by the Greenhouse Gas Reporting Program (GHGRP).[15] Since its publication, shareholders have been active in reviewing their investments in utilities companies to ensure they have been adequately informed as an investor.
These cases illustrates, policy makers are no longer voluntarily asking companies to disclose but are making laws that require companies to provide insightful climate-related financial risk disclosures to its lenders, insurers, investors and other stakeholders. As such, climate change litigation has proved to advance beneficial outcomes for addressing the wider climate change problem. Despite multiple practical hurdles to the filing an environment related claim, people around the world are arguing that there is a fundamental right to a stable climate that sustain life.
[1] Rebecca Gasper, Andrew Blohm and Matthias Ruth, ‘Social and economic impacts of climate change on the urban environment’, Current Opinion in Environmental Sustainability, Elsevier (at May 2011).
[2] Bradley G.Ridoutta and Stephan Pfister, ‘A revised approach to water footprinting to make transparent the impacts of consumption and production on global freshwater scarcity’ (2010) 20 (1) Elsevier Journal 113-120.
[3] David B Hunter, The Implications of Climate Change Litigation: Litigation for International Environmental Law-Making (Cambridge University Press, 2009) 357, 360.
[4]APRA, The weight of money: A business case for climate risk resilience (2017)<https://www.apra.gov.au/media-centre/speeches/weight-money-business-case-climate-risk-resilience>.
[5] Department of Environment and Energy, 2017 Review of Climate Change Policies (2017) Commonwealth of Australia <https://www.environment.gov.au/system/files/resources/18690271-59ac-43c8-aee1-92d930141f54/files/2017-review-of-climate-change-policies.pdf>
[6] Guy Abrahams v Commonwealth Bank of Australia [2013] ACTSC 128. Plaintiff alleged CBA contravened s292(1)(b), s295, s297, s298(1) and (1AA) and 299A(1) of the Corporations Act by failing to give a true and fair view of the financial position and performance of CBA in CBA’s Financial Report and in CBA’s Directors’ Annual Report for the 2016 financial year
[7] Corporations Act 2001 (Cth) s1017C(8).
[8] Commonwealth Bank of Australia, Annual Report 2017, <https://www.commbank.com.au/content/dam/commbank/about-us/shareholders/pdfs/annual-reports/annual_report_2017_14_aug_2017.pdf>.
[9] Commonwealth Bank of Australia, Climate Policy Position Statement <https://www.commbank.com.au/content/dam/commbank/assets/about/opportunity-initiatives/CBA-Climate-Policy-Position-Statement.pdf>.
[10] Australian Government Response to the Senate, Carbon risk: a burning issue (Discussion Paper, 2017) Economics Reference Committee; Task Force on Climate-Related Financial Disclosures, Final Report: Recommendations of the Task Force on Climate related Financial Disclosures (Report, 2017).
[11] McVeigh v. Retail Employees Superannuation Trust (Filing Number: NSD1333/2018).
[12] The New South Wales Court of Appeal has recently confirmed that the fiduciary duties owed by the trustee of a superannuation fund under Superannuation Industry Supervision Act 1993 (Cth) s52(2)(b) and (c) do not materially extend beyond the general law fiduciary duty to act in the best interests of fund members; Corporations Act 2001 (Cth) s 180(1) exercise their powers and discharge their duties with care and diligence;
[13] European Parliament, Commission Staff Working Document Impact Assessment Report: Damages Actions for Breach of the EU Antitrust Rules (2013) Notes, European Competition Law Annual (2011) 421-510 <https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1542248538906&uri=CELEX:52018SC0264>
[14] EY Global Tax Alert, EU publishes Directive on new mandatory transparency rules for intermediaries and taxpayers (5 June 2018) <https://www.ey.com/gl/en/services/tax/international-tax/alert--eupublishes-directive-on-new-mandatory-transparency-rules-forintermediaries-and-taxpayers>
[15] Howard Kenison and Katherine Roek, EPA’s Evolving Regulation of Greenhouse Gases (2011) 40 (10) Colorado Lawyer 53-60 <http://www.epa.gov/ghgreporting/documents/pdf/2009/factsheet.pdf>