The state of corporate climate litigation

On July 27, the United Nations Environment Programme (UNEP), together with the Sabin Center for Climate Change Law at Columbia University, released its 2023 Global Climate Change Litigation Report (UNEP Report). UNEP’s Report indicates that, between July 2020 and December 2022, there were 630 climate change lawsuits filed globally, an average of 21 lawsuits per month. Although more than 70% of the climate change actions in the Sabin Center database were filed in the United States, Canada had the sixth most number of actions, behind only the United States, Australia, United Kingdom, European Union and Germany. In this blog, we identify climate litigation trends relevant to Canadian businesses.

Areas of corporate climate litigation

Environmental impact assessments

A growing number of cases are challenging project approvals made under environmental impact legislation such as Canada’s Impact Assessment Act (replacing the Canadian Environmental Assessment Act, 2012) or Ontario’s Environmental Assessment Act for failing to consider the effects of climate change.

An important question for energy development is whether regulators must consider the downstream effects of fossil fuel combustion, such as global warming, when conducting environmental reviews. In the United States, for example, in March 2022, a federal appellate court held that federal energy regulators had conducted an improper environmental assessment for a proposed natural gas pipeline because they had not quantified or considered the effects on climate change from end user’s consumption of the gas to be transported in the pipeline. By contrast, a majority of the English Court of Appeal recently upheld an environmental review on the construction of new oil wells which had not taken into account greenhouse gas emissions from the consumption of the oil to be pumped from the wells, deferring to the government’s judgment. However, a dissenting justice argued that the downstream effects of oil consumption, including greenhouse gas emissions, should have been considered.

In June 2023, Canada’s Federal Court considered a similar case involving the environment minister’s approval of an oil development off the coast of Newfoundland and Labrador. The Court found that the exclusion from the impact assessment of the greenhouse gas emissions resulting from the oil to be produced from the development was reasonable because “[i]t is not possible to determine how much of the downstream use, if any, will be within Canada,” and the Minister “would merely be speculating in considering the environmental effects of downstream GHG emissions”.

We expect increased scrutiny, and potentially more environmental assessment challenges, focused on the indirect and cumulative effects involving GHG emissions.

State liability for environmental policy changes

Policies intended to transition the economy away from fossil fuels have been adopted by governments around the world and some have been revised or revoked. Businesses that have made investments based on existing government policies have brought actions against governments for causing economic losses, or for causing other damages when policies or permits have been revoked.

In 2020, for example, two American businesses, Koch Industries, Inc. and Koch Supply & Trading, LP, lodged a $30 billion claim against Canada under the North American Free Trade Agreement (NAFTA) for damages resulting from Ontario’s cancellation of its cap-and-trade program. Meanwhile, two Canadian oil companies, TC Energy Corporation and TransCanada Pipelines Limited, which invested in the Keystone XL oil pipeline have claimed $15 billion in damages from the American government under NAFTA after the pipeline’s cancellation in 2019. In 2022, a Dutch court ruled that two energy companies, RWE and Uniper, could not claim compensation when the Dutch parliament passed a law prohibiting the use of coal for electrical generation after 2030.

Corporate duties to mitigate climate emissions

Another area of litigation identified in the UNEP Report are claims brought against businesses arguing that businesses have a duty to mitigate greenhouse gas emissions from their operations or the use of their products or services.

Most of these actions seek to hold companies liable for the impact of downstream use of their products or services. Tort claims are difficult to bring in common law jurisdictions because of the general principle that a duty of care cannot be owed to an unlimited class of plaintiffs. New Zealand’s Court of Appeal recently held that major fossil fuel producers could not be held directly liable for climate damage because “every person in New Zealand — indeed, in the world — is (to varying degrees) both responsible for causing the relevant harm, and the victim of that harm.”

However, this has not stopped governments from around the world from filing claims against businesses. For example, in 2018, Rhode Island’s Attorney General filed a lawsuit in the state court against 21 fossil fuel companies, including Chevron Corporation, Exxon Mobil, BP, and other major oil producers, alleging that the companies were directly responsible for releasing hundreds of gigatons of carbon dioxide emissions into the atmosphere between 1965 and 2015. Modelled after the big tobacco and opioid litigation, several other American states and municipalities have followed suit, and as of May 2023, 40 states and municipalities had commenced lawsuits against energy companies over their alleged contribution to the climate crisis. Five of the lawsuits went up on appeal to the U.. Supreme Court regarding jurisdictional issues, and in April 2023, the US Supreme Court declined to intervene, allowing the cases to move ahead.

Civil law jurisdictions do not have the same challenges. In 2021, a Dutch court ordered Shell to reduce its carbon emissions by 45% from 2019 levels, citing “an unwritten standard of care” in the Dutch Civil Code that takes into account “the widespread international consensus that human rights offer protection against the impacts of dangerous climate change and that companies must respect human rights.” However, a similar French action was dismissed in July 2023 for procedural reasons. The Court found that the plaintiffs had brought their claim under an improper provision of the French Civil Code to avoid notice requirements, and claims brought by municipalities for climate damage worldwide were too broad, as they only had standing to bring claims for damages in their own jurisdiction. Other cases along the same lines against oil and gas producers in Germany and Italy have yet to be decided.

In an English case we reported on in March, activist shareholders took a different approach by seeking permission to sue Shell’s corporate board for allegedly failing to take sufficient actions to mitigate greenhouse gas emissions. However, they were unsuccessful.

Corporate liability for climate disclosures – 'Greenwashing'

Regulators have been increasingly active in tackling 'greenwashing' and bringing regulatory actions against businesses that allegedly make false claims about the environmental sustainability of a company’s operations or investments.

Claims have been brought to require companies to provide documents that would evidence (or not) the accuracy of their climate-related disclosures. In 2021, for example, an Australian court required a bank to turn over some documents to shareholders to prove that its investments followed the bank’s environmental and social policies.

In other cases, claimants have alleged that corporations misled investors by making false environmental promises. In an Ontario class action, Volkswagen was ordered to pay car buyers and lessors a combined $2.1 billion in damages for misrepresenting vehicles as being “green”. In another English case, pensioners unsuccessfully argued that their pension fund managers had violated their fiduciary duties by failing to divest from fossil fuel-based investments, contradicting the fund’s stated climate policies.

A number of cases have also recently been filed against airlines around the world over their carbon neutrality claims and use and reliability of carbon offsets. In May 2023, consumers filed a class action lawsuit against Delta Air Lines in California, claiming the airline misrepresented its environmental impact marketing itself as “the world’s first carbon-neutral airline”. Similar cases have been filed across Europe and in Australia, including a claim that was filed in June 2023, by a consumer protection group, the Bureau Européen des Unions de Consommateurs (BEUC), against 17 European airlines. BEUC’s complaint alleges that the airlines engaged in greenwashing and misleading practices by falsely suggesting air travel could be “sustainable”, “responsible”, and “green”; encouraging consumers to pay premiums for carbon offsetting when the benefits of offsetting are uncertain; and charging consumers more to contribute to the development of “sustainable aviation fuels”. 

Unsurprisingly, regulators are increasingly concerned with greenwashing. The Canadian Securities Administrators have issued guidance to investment funds about ESG reporting, noting the risk of greenwashing. The U.S. Securities and Exchange Commission has brought enforcement actions against several ESG-related enforcement actions, most recently settling with Goldman Sachs for $4 million after it failed to adopt or adhere to ESG investment policies consistent with the firm’s branding and marketing efforts. In January 2022, Canada’s Competition Bureau settled with Keurig for $3 million over making false or misleading representations about the environmental friendliness of its drink pods. Greenpeace has filed two complaints with the Competition Bureau for greenwashing—against Shell Canada and a trade organization of oil and gas producers—which are currently under investigation.

Implications for the future

Climate change and environmental litigation is rapidly evolving around the world as activists pursue legal arguments to hold companies accountable for the effects of climate change.

As the consequences of climate change on the environment have become more dramatic, so too have the number and variety of claims that have been made against companies. Several of the international trends in climate-related litigation discussed above have already come to Canada, and the others may soon follow.