Commentary

Environmental Court Cases on the Rise

Investors should keep a close eye on the evolving litigation and arbitration landscape, says Alexandre Vagenheim, Senior Legal Officer, Jus Mundi.

The number of litigation-arbitration climate change related cases is on the rise. So much so that it is important that everyone involved in ESG investing knows about this evolving field and its background, as it will be critical knowledge for protecting investors’ interests.

The growth of cases is nowhere more apparent than in those against governments. This is due to a growing body of global cases demonstrating that national courts are willing to hold governments accountable.

In 2017, there were 884 cases brought in 24 countries. As of 1 July 2020, the number of cases had nearly doubled, with at least 1,550 climate change cases filed in 38 countries, according to the UNEP Global Climate Litigation Report. As of January 2022, 1,853 cases have been reported.

Climate change is inherently unequal: its impacts – such as droughts, heatwaves flooding, and rising seas – are felt most in those countries least responsible. This clearly becomes a human rights issue, and robust international efforts are needed to ensure peoples’ futures are protected.

When governments do not act, litigation is increasingly used to hold them accountable.

Several international legal standards developed by the Council of Europe have successfully been invoked, most notably based on the European Convention on Human Rights. Indeed, the European Court of Human Rights has so far ruled on some 300 environment-related cases, applying concepts such as the right to life, free speech, and family life to a wide range of issues including pollution, man-made or natural disasters, and access to environmental information.

The European Court of Human Rights made headlines in 2020 when it communicated about its first climate change case. The application was brought by six Portuguese children against 33 Member States of the Council of Europe. This case was seen as innovative because it was brought against all 27 EU countries, plus Norway, Russia, Switzerland, Turkey, the UK, and Ukraine, and alleges that the contribution by each to global greenhouse gas (GHG) emissions means that they share responsibility for the existing and impending harms caused by global warming and climate change.

Investor-state arbitration

It is not just government cases which are being heard in growing numbers; disputes related to environmental matters are also increasingly frequent in the context of investor-state arbitration and their numbers are also likely to grow massively in years to come.

Sustainable development requires structural economic changes, which can only be implemented through investment in energy production, transport, manufacturing, and resource extraction. Private foreign investors are resorting to international arbitration as a dispute settlement mechanism to protect their investments against host state conduct. Jus Mundi has collected and reported on more than 70 environmental related investor-state arbitrations in the last decade alone.

Claims brought by investors have mainly been against developing countries, after having seen their investments lost, values decreased or projects brought to a standstill because of environmental permit denials, delays or because the necessary environmental licenses were lacking.

Recent examples involve legal reforms, changes in policies or project cancellations based on policy decisions, on human rights obligations (e.g. the right to water), or as a means of local/indigenous community protection.

Western states too are being brought before investment tribunals, as they try to implement environmental policies. France, for example, has recently been sued before an international investment arbitration tribunal by Russian investors pursuing a US$4.6 billion treaty claim over a controversial gold mining project in Guyana that France halted on environment grounds.

In February 2021, in ‘L’affaire du siècle’ (‘The case of the Century’), the Administrative Court of Paris found the French state guilty of failing to meet the GHG emission reduction target set, and ordered France to comply with it in order to achieve 40% reduction by 2030.

Italy is about to hear its first climate-related case. In June, more than 200 claimants filed a lawsuit against the Italian state called Il Giudizio Universale (‘The Last Judgment’) seeking a ruling ordering Italy to achieve a reduction of 92% in GHG emission by 2030. With these court-ordered GHG emission reductions, disputes are likely to rise sharply in the coming years.

Commercial arbitration between private companies is increasingly seen to be well suited to deal with climate-change disputes.

In 2019, an International Chamber of Commerce (ICC) task force published a report on resolving climate change-related disputes through arbitration. The report examined the role for arbitration in the resolution of international disputes related to climate change. Climate policy has already given rise to investor claims, but as climate change becomes an increasingly pressing item on the global agenda, we can expect to see more cases of this nature in future investor-state arbitrations and purely commercial arbitration.

A changing landscape

Across Europe, the landscape for multinational companies’ liability is changing. National and EU legislators are increasing their focus on ESG issues. Several regulatory initiatives at the EU level aim to steer the attention of companies, including multinationals, towards the long-term sustainability of their businesses and their wider impact on stakeholders.

In a ground-breaking judgment delivered on 26 May, 2021, The Hague District Court ordered Royal Dutch Shell to reduce its worldwide CO2 emissions by 45% by 2030 (compared to 2019 levels). This case may have far-reaching consequences as a precedent for other European courts that are considering claims from foreign claimants with respect to damage by companies occurring abroad.

The years following COP26 will see a proliferation of international and domestic climate change and sustainability policy and regulation to which there will also be a corresponding increase in the number of related disputes globally.

There is no doubt that investor-state arbitration will continue to play its role when it comes to balancing the need for investors to enforce their rights and for host states to adapt projects to sustainable development objectives in a new ‘green era’. Lawyers and fund managers alike should keep a close eye on this evolving litigation and arbitration landscape, as it will be critical knowledge for protecting investors’ interests.

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