Business Guide to Climate Disputes
Ambition on global efforts to address climate change was elevated at COP 26 in Glasgow. All state parties to the Paris Agreement have agreed to revisit and strengthen their current emissions reductions targets to 2030 (Nationally Determined Contributions) in 2022, which will be reviewed at a yearly ministerial roundtable on pre-2030 ambition starting at COP27 next year. The ‘Paris Rulebook’ was completed after six years of discussions, with important agreement on rules governing the international trade of emission reduction units under Article 6 of the Paris Agreement. In parallel to the official proceedings a raft of pledges were made on important topics such as phasing down out and reducing methane emissions, halting deforestation, US-China cooperation, zero emissions new car sales by 2040 (or earlier) and net-zero pledges from the financial services sector. However, ambition without action is meaningless and attention will now need to turn to implementation, monitoring, reporting and accountability.
Monitoring and accountability of corporate and government efforts to address climate change continues to drive an exponential increase in climate disputes. Traditionally, climate disputes have focused on litigation against governments and public authorities that seeks to push climate-positive policy objectives, for example, implementing domestic policies to reduce GHG emissions, or challenge climate-damaging public decisions like planning permission for large scale infrastructure projects in high emitting sectors. In recent years, litigation and wider non-judicial complaints against corporates have been increasing. While attention is often focused on “Carbon Majors” and decision making in energy-intensive sectors, wider business activities and industry sectors are now starting to see an increase in litigation, regulatory enforcement action and wider complaints, for example, to OECD National Contact Points and UN bodies. This trend will only increase as physical and transition risks increase.1 Climate science confirms that the physical risks associated with climate change are set to increase and certain physical impacts are already locked in.
In early August 2021, ‘AR6 Climate Change 2021: The Physical Science Basis’2 (IPCC Report), the first instalment of the sixth assessment report was published by Working Group I of the Intergovernmental Panel on Climate Change. It opens with ‘it is unequivocal that human influence has warmed the atmosphere, ocean and land’,3 and in its consideration of several possible climate futures, it states that under all scenarios ‘global surface temperature will continue to increase until at least the mid-century’ and ‘many changes in the climate system become larger in direct relation to increasing global warming’, including heatwaves, drought, cycles and reductions in Arctic snow and permafrost.4 Even with the ‘deep reductions in CO2 and other greenhouse gas emissions’ required to keep global warming within the range of 1.5°C to 2°C contemplated by the Paris Agreement,5 we should expect the effects of climate change to become increasingly disruptive for at least the next 20 years.
The 2021 IPCC Report, bolder than the previous assessment report published in 2014, underscores advances in both the physical science and the strength of agreement between the world’s scientists regarding human-induced climate change in the intervening period. It also underlines the reality that the coming decades will see significant shifts in economic activities as a result of the crystallsiation of physical risks and ratcheting up of transition risks (policy, legal, market and technology changes) to meet increasing commitments and ambition. Given the links between protecting biodiversity and nature-based solutions to address climate change, if agreement is reached on a global Paris-like agreement for biodiversity at the UN Biodiversity Conference (COP15) in 2022, the scale and pace of change required will be even greater.
The IPCC’s Working Group II has also now (February 2022) published a report, entitled “Climate Change 2022: Impacts, Adaptation and Vulnerability”. In a long and detailed report, backed by vast amounts of data points in which there is ever increasing confidence, its most striking feature is the scale of vulnerability of the world’s ecosystems and people to the impact of climate change. By way of illustration it notes that 3.3bn to 3.6bn people (i.e. 40%+ of the world’s population) live in contexts which are “highly vulnerable to climate change”5. Worse still, the report notes that “[c]urrent unsustainable development patterns are increasing exposure of ecosystems and people to climate hazards”. These comments are a stark reminder of the enormity of the threat posed, that the threat is of human as well as environmental tragedy of unparalleled scale, and that urgent action must be taken to address a problem which human behaviour continues to make worse.
The February 2022 IPCC report is clear that significant action, going beyond many of the targets focused by governments and major corporates will be required: “Near-term actions that limit global warming to close to 1.5C would substantially reduce projected losses and damages related to climate change in human systems and ecosystems, compared to higher warming levels, but cannot eliminate them all,” In a message to both the global business community and governments alike it also recognises that what is required is “[i]ntegrated, multi-sectoral solutions that address social inequities, differentiate responses based on climate risk and cut across systems [in order to] increase the feasibility and effectiveness of adaptation in multiple scenarios”.
For business then, in addition to decarbonizing operations and value chains to contribute to the long term response to climate change and avoid worst case climate scenarios, adapting to the risks and opportunities arising from climate change is critical to navigating the next two decades. For many businesses, this will mean considering the risk of climate disputes as strategic advocacy becomes more sophisticated, the value of loss and damage arising from climate change increases and systemic legal and policy shifts materialise. This guide is intended to support businesses in analyzing and incorporating climate risks into their strategy and risk management, by exploring the themes which arise from that litigation risk, and the types of disputes that can be expected to arise with increasing frequency.
Climate change has different impacts on different sectors. Accordingly, our guide is organized across nine sectors – Energy & Natural Resources; Infrastructure, Construction & Transport; Industrials; Insurance; Consumer Goods, Food & Retail; Life Sciences; Real Estate; Media, Sport & Entertainment; and Technology – and includes insight from sector experts across DLA Piper’s international offices.
This guide complements the climate action we are taking in our own business. We have committed to our own science-based targets which require us to halve our global business greenhouse gas emissions by 2030. We are also proudly supporting broader climate action through our pro bono work and other efforts, including as a founding member of the Net Zero Lawyers Alliance and through our appointment as the official legal services provider to the UK Government for COP26, the UN Climate Change Conference in Glasgow in November.
In pursuing our purpose of making business better, we are committed to helping our clients and communities to transition to and thrive in a more sustainable future. We hope this guide supports your business in planning for, and making, its climate transition
1 The final recommendations of the Task Force on Climate-related Financial Disclosures – the leading global framework for climate related financial disclosure, increasingly incorporated into corporate disclosure laws in a number of jurisdictions – divide climate-related risks into two principal categories: ‘physical risks’, being the direct physical impacts of climate change both acute and chronic, and ‘transition risks’, being impacts arising from ‘policy, legal, technology and market changes’ in response to those direct physical impacts. Task Force on Climate-Related Financial Disclosures (2017), Final Report Recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD Recommendations), pp. 5-6.
2 Intergovernmental Panel on Climate Change (2021), ‘Summary for Policymakers’ in Climate Change 2021 The Physical Science Basis (IPCC Report), Cambridge University Press: Cambridge, p. SPM-5.
3 IPCC Report 2021, pp. SPM-18-SPM-19.
4 IIPCC Report 2021, pp. SPM-17-SPM-18.
5 5 IIPCC Report 2022, pp. SPM-11-SPM-13.