Simpson Grierson - Climate change litigation risk for corporate entities

3/06/2021·3 mins to read

Climate change litigation risk for corporate entities

A Dutch Court has recently ruled that Royal Dutch Shell (Shell), due to its global reach, is partially responsible for global climate change. The Court ordered Shell to reduce the carbon emissions that it is responsible for, including in its value chain.

This is a significant ruling. Up until now, for a range of reasons, large emitters have not been found liable in climate change cases. It is perhaps a signal for other "carbon majors" that legal links can be drawn between their actions and the effects of climate change.

We outline below a short summary of what has happened, the significance of the decision, and how it relates to Aotearoa New Zealand.

The Shell decision

The Dutch Court ruled that Shell, as a group, must cut its carbon emissions (including by making appropriate decisions in relation to the energy package offered to end-users) by 45% as against its 2019 levels by 2030. The Court found that Shell must reduce its emissions in order to meet its obligation to comply with a standard of care it owes to people in the Netherlands. There were three key drivers to this decision; the Dutch civil code, the size of Shell’s emissions (including by supply to end-users) and the clear link to climate change impacts, and the effect these emissions had on international human rights, including the right to life.

Significance of the decision

The Court’s ruling is significant for two reasons:

The ruling is the first time a major corporation has been ordered by a Court to take steps to meet specific emissions reductions. No doubt, it will feature prominently in future arguments of claimants in the more than 40 ongoing climate cases worldwide against carbon major companies.
To do that, it extends the developing new tort in the climate field, based on a government or emitter’s duty of care. Shell is in the same vein as Urgenda v The State of the Netherlands (Supreme Court of the Netherlands), and the Australian case of Sharma v Minister for the Environment (released a day after the Shell ruling). In Urgenda and Sharma the courts found their respective governments owed a public duty of care, imposing obligations to avoid harm caused by the future impacts of climate change. The Dutch ruling extends this duty of care to a corporate entity.

What does this mean to New Zealand?

The Shell decision will be welcomed by New Zealand climate change claimants. Recently, the High Court refused, in the case of Smith v Fonterra Co-Operative Group, to strike out a potential new common law claim against the corporate defendants, arguing that there is the potential for such a tortious duty to exist. Urgenda, Sharma, and now the Shell decision, all support the idea of a new tortious duty being better established.

Whether these decisions will increase the chances of success for a claim in negligence in New Zealand is unclear.In Smith, the Court struck out claims of negligence due to a lack of policy factors supporting a duty of care and a lack of connection between emissions and harm caused. The Sharma and the Shell decisions in the last week place more weight behind potential liability of carbon major emitters for their contributions to climate change.

Impact on litigation risk

We consider these decisions to further increase the risk of litigation being brought against New Zealand companies that might be targets for this type of litigation. Directors should be alert to the extent to which climate change litigation and the related reputational damage (whether the claim is successful or not) should feature on their risk registers and what steps should be taken to mitigate this.

However, whether these cases materially increased the chances of litigation succeeding in our Courts is unclear. The upcoming decision in Smith remains the most important decision on the horizon in New Zealand.

The other point of note in the Shell decision was the company's climate policies, or lack of follow-through on them. Shell was being held to account for its own commitments. Care should be taken by companies when describing their commitment to make emissions‑related changes. Shell’s own publications and policies were canvassed extensively in the Dutch Court and Shell was held to account partly based on its own recognition of international human rights. Companies must be aware that although they may express actions and policies as progressive, they may be measured by the courts against these targets and their real impact.As with any public representation, companies and their directors should be very clear about what they are committing to and ensure they have the resources to follow through.

Get in touch

With a growing trend of climate change litigation against both Governments and private entities, we are increasingly seeing actions in New Zealand. We can help you understand the arguments and assess the governance implications for your organisation. Get in touch with one of our expert contacts (pictured right) if you would like to discuss how best to prepare for the future.

This article is part one of an ongoing climate change series.