Investor Confidence in Climate Litigation Grows

Climate cases at Shell, VW among examples of investors’ increased litigation use to tackle systemic risks. 

Climate litigation has continued to rise, according to research by the London School of Economics’ Grantham Research Institute on Climate Change and the Environment (GRI), which reflected an increase in the type of cases and jurisdictions, and anticipated growth in cases involving other environmental risks. 

The GRI’s fifth annual ‘Global Trends in Climate Change Litigation’ report found a total 2,341 climate change litigation cases had been filed, with 190 of those in the last 12 months. Around two-thirds (1,557) of cases have been filed since the Paris Agreement was established in 2015. 

Speaking at the report’s launch event, Sophie Marjanac, Accountable Corporations Lead at ClientEarth, said that institutional investors are “starting to get involved in climate change litigation”, noting that the trend was currently “quite small, but emerging”.  

“I think that institutional investors are becoming more comfortable with using legal strategies for systemic risk,” she added. 

Investor involvement a “trend to watch” 

ClientEarth filed a case with the UK High Court in February, arguing that oil and gas major Shell’s continued investment in fossil fuel projects was a breach of the directors’ duties to promote the best interests of the company.

The environmental law charity argued that Shell’s failure to adapt its business model, including ceasing new investments in oil and gas, would see short-term profits turn into significant losses over the long-term. 

The case was supported by investors with more than 12 million shares in Shell, including the UK’s largest pension fund, Nest.  

After being rejected by the court, ClientEarth requested an oral hearing in the case. Should the case eventually fail, experts still maintain that a case brought in a more amenable country, by a large asset owner against a company that had no net zero strategy, or had failed to implement such a strategy, could well have a different outcome.  

NGO Global Witness also filed a case against Shell in the US alleging that the firm had misled investors by overstating its investments in renewable energy, with only 1.5% being spent on solar and wind power rather than the 12% that the oil and gas giant claimed. 

Client Earth’s Marjanac underlined that institutional investment involvement in climate litigation is “certainly a trend to watch”, with there being “quite a lot of ESG-related litigation by institutions”, particularly in the US. 

Climate litigation on the rise 

Marjanac also highlighted the case of institutional investors taking action against auto manufacturer Volkswagen (VW) in Germany. The group of investors, including the Church of England Pensions Board (CoEPB), Denmark’s AkademikerPension and Swedish pension funds AP7, AP2, AP3, AP4, took the car manufacturer to court for allegedly withholding details on its climate lobbying.

The investors claimed that the German carmaker had refused repeated attempts to “reveal crucial information” on its corporate climate lobbying.

Laura Hillis, Director of Climate & Environment at the CoEPB, said that VW’s activities on climate lobbying and “insufficient emissions” reduction targets continue to hold it back from realising the ambition of a net zero future. 

The report also noted ClientEarth’s complaint against a BP advertising campaign filed in 2020 as an early indicator of a trend for companies to overstate their investments in renewables, which the GRI cites as a “major cause for concern”. 

Research published by the GRI last month highlighted a causal link between climate litigation and stock prices, with analysis of 108 climate change lawsuits against US and European-listed companies between 2005-21 highlighting that climate litigation filings or unfavourable court decisions reduced firm value by –0.41% on average. 

In March, the GRI also predicted that the EU’s ‘Fit for 55’ decarbonisation package – which encompasses a collection of measures aimed at keeping the EU on track to deliver on its 2030 climate target of 55% – will lead to a “growth in climate litigation cases”, particularly focusing on “challenges to government action or inaction”.  

ClientEarth has previously taken the UK government to court over its “inadequate” net zero strategy, with the UK High Court finding in favour of the environmental law charity. 

From climate to nature 

The filing by Global Witness against Shell is one of many examples of climate litigation cases being brought in the US. The report found that the US is far and away the country with the highest number of documented climate litigation cases (1,590 in total), followed by Australia with 130 cases, and the UK with 102. 

A total of 135 climate litigation cases were filed in the Global South, with such cases identified in Bulgaria, China, Finland, Romania, Russia, Thailand, and Turkey for the first time.  

According to the report, 55% of the 549 climate cases had direct judicial outcomes that “can be understood as favourable to climate action”, with such cases also having “significant indirect impacts on climate change decision-making beyond the courtroom”. 

The report anticipates there will an increase in litigation focused on biodiversity, with cases targeting the duties of governments and corporations to protect the ocean. It also expected rises in litigation surrounding extreme weather events “where climate change may not be the central focus”, as well as a growth international litigation between states.  

The adoption of the High Seas Treaty earlier this year saw the percentage of the ocean under protection protocols from national jurisdictions rise from only 1% to 39%, with the GRI forecasting future cases ocean-related climate impacts including ocean acidification and ocean-based carbon dioxide removal techniques.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2024 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap