In the hot seat: Climate change litigation risk in Australia

Synopsis

• Businesses face an increasing risk of climate change litigation over their climate change disclosures and emissions reductions policies. Asian companies investing in Australia need to understand these trends.
• Where a business overstates its environmental credentials or it incorrectly represents them, this is called “greenwashing.” This is a key area of litigation risk, which Australian regulators are currently monitoring.  
• Legal actions can also extend to alleged misleading disclosures regarding the business risks associated with climate change and to actions for breach of directors’ duties from failure to manage them.
• A key issue for businesses will be creating processes to ensure that representations made have been properly vetted for accuracy and that climate change policies truthfully reflect what the business is doing.

Article

Introduction

There's an increasing worldwide trend towards business being sued in “climate change litigation.” DLA Piper's “Business Guide to Climate Disputes” helps businesses in dealing with climate change related risks, especially litigation risk. The Guide looks at these issues sector by sector. 

This article takes a look at trends in Australia as it has the second largest number of climate cases globally. These trends are likely to emerge throughout Asia, and Asian companies investing in Australia also need to understand these trends.
  
Litigation against businesses 

Increasingly, businesses publish their environmental or climate change activities and commitments. Regulators are also requiring businesses to report on how they are managing climate change risks. In Australia, such publications are fertile ground for litigation. The most common action is for “misleading and deceptive” conduct in relation to representations about the business’s environmental activities/ credentials, including its credentials in relation to climate change.  Where a business overstates its environmental credentials or its incorrectly represents them, this is called “greenwashing.” Climate change litigation can also arise from alleged misleading disclosures regarding the business risks associated with climate change and for breach of directors’ duties from failure to manage climate change risks.

Activists can buy shares in a company they wish to target for alleged wrongdoing and then sue the company. For example, the Australasian Centre for Corporate Responsibility acquired shares in Santos and is now suing it, alleging the company’s statements in its annual general report about its response to  climate change were misleading.  In Abrahams v Commonwealth Bank of Australia (CBA), a CBA shareholder is seeking access to internal CBA documents about its financing of oil/ gas projects to examine if CBA is complying with its published environmental and social framework. 

In a landmark case in the Netherlands, a court imposed a duty of care on Shell in Friends of the Earth v Royal Dutch Shell, requiring it to reduce its CO² emissions by at least 45% by 2030. Such a duty of care was recently rejected in New Zealand’s courts in Smith v Fonterra Co-operative Group Ltd. There is no such duty in Australia, but it may not be long before such a duty based case is attempted here.

What should businesses be doing?

Given the focus on climate change representations by businesses as a source of litigation, a key issue will be creating processes to ensure that these representations are vetted to ensure accuracy. First, the business must audit the types of climate change disclosures/ representations it makes or intends to make, and who is responsible for creating them. Next it must create processes to vet and sign off on the accuracy of their wording. No doubt some representations will be about future aspirations – for these there needs to be relevant disclaimers or other cautionary wording. Further, internal climate change policies should be vetted to ensure that they reflect what the business is doing in reality.