Climate change class actions – cause for concern for businesses?

As part of our series looking at class actions, following the introduction of Scottish rules to allow multiple claims to be brought as one action under the group procedure rules, we have considered the risks for a range of sectors including life sciences, energyand food and drink. Now, we examine the risks for all of these sectors, and beyond, arising from class actions brought for environmental reasons. As public awareness and concern about the impact of climate change continues to grow, these high-profile class actions are coming before courts across the world more and more frequently and businesses should take steps now to mitigate against the risk of exposure to such actions.

Key features of environmental class actions

Climate change class actions can target a number of bodies and practices. They may be raised with a view to forcing or preventing a particular action (e.g. requiring measures to be taken to reduce carbon emissions) but can be raised to influence and increase pressure on policy making bodies to take positive steps.

Actions are often brought against governments or other public sector bodies by way of judicial review or on the basis of failure to comply with international treaties, notably the Paris Climate Agreement. Those bringing the action will typically seek an order from the court that the government is in breach of its obligations and remedies to prevent or mitigate the environmental damage. This could be an order preventing the government from going ahead with climate-damaging proposals or requiring it to disclose steps it is taking to achieve climate-related goals, such as reducing emissions. For example, the French Government found itself subject to an action in February 2021, which was brought by four environmental groups to force the government to address its failure to meet its obligations under the Paris Climate Agreement and related domestic laws. The court held that the government was not doing enough to meet greenhouse gas reduction targets and afforded it a period of two months to disclose further information about the measures it was taking to address this, at which point it would decide whether to make a further order.

However, it is not only public institutions that should be concerned about the risk of climate change class actions. A number of private companies have also found themselves in the spotlight in recent months, for failing to disclose information to shareholders relating to climate change risks and effects. Lack of compliance with reporting obligations, or indeed other climate measures, could also constitute a breach of directors' duties given the associated risks to a company's financial performance. Such claims have been raised in this respect in Australia against both the government and private companies. With the increasing need for corporate reporting on climate risks in the UK, it seems inevitable that shareholder class actions will soon become a feature of climate litigation in the UK too.

Another way private companies may be targeted by class actions is if they are "greenwashing", which occurs where organisations are said to have misrepresented or exaggerated the environmental credentials of their products or conduct. See our previous blog on this topic here.

Companies are particularly likely to face environmental or climate change actions by way of class action, as it is often large groups of individuals, such as shareholders or consumers, who are affected. They may not be inclined to raise such an action individually, but may be inclined do so in conjunction with others to share the cost and effort.

What are the risks to businesses?

There are clearly financial implications for businesses as a result of the increased threat of climate change class actions. Where in the past claims could have only been raised individually, and therefore would likely have been for lower value or not pursued, the ability of claimants to join together to bring them as a class action now opens the door to high value, complex claims that are much wider in scope (and therefore more expensive to defend).

Similarly, class action claims tend to generate much more press coverage than less publicised individual claims, carrying a greater risk of reputational damage. Particularly in the age of social media and climate-conscious consumers, companies should be very alive to the impact that a high-profile environmental class action could have on their brand.

Business should also be aware of the risk of parent company liability. UK courts may hear claims against UK-based parent companies and find them liable for the actions of their overseas subsidiaries. See our previous articles on the Vedantaand Okpabicases for further discussion of this principle.

What can businesses do to protect themselves?

As the class action rules in Scotland are still relatively new, the approach of the Scottish courts to such actions in the field of climate change remains to be seen. However, there are some key steps businesses can take now to help mitigate against any future risks of such actions arising:

• Ensure good governance structures are in place, particularly with regard to mandatory reporting on climate change risks. You should also provide training to staff on their responsibilities.
• Review publicly available documents and branding/marketing materials to ensure they are accurate and do not misrepresent environmental credentials.
• Have a dedicated action plan in place should a class action be raised against you, which covers PR and insurance considerations (for example, do your insurance policies cover class actions?).
• Engage lawyers as early as possible if a class action is anticipated/being threatened against you.
• Consider whether to lodge a caveat with the Scottish courts, which may give you early notification of a class action being raised against you, or renew an existing caveat. You can find out more about this in our recent blog.