This article was written by Daisy Mallett, Will Heath, Sati Nagra and Lauren Taylor.
The COVID-19 pandemic has disrupted almost every aspect of society, including the business risks associated with climate change.
A fresh understanding of climate risk
The COVID-19 pandemic has disrupted almost every aspect of society, including the business risks associated with climate change. By presenting a preview of the economic and social shocks caused by global disaster, the pandemic has provided new insights into how severe the impact of climate shocks will be with continued global warming. With a world in lockdown, we have witnessed some of the biggest falls in global fossil fuel demand this century1 and experienced just how deeply interconnected global economies are – relying upon each other and being impacted by events elsewhere.
Recent political, legislative and legal developments are increasing the pressure on governments and large businesses to act. The recent election of President-elect Joe Biden in the United States is driving renewed public interest on the issue of climate change policy and targets globally. Australia has recently seen fresh debate around climate policy with the long-awaited introduction of the Climate Change (National Framework for Adaptation and Mitigation) Bill 2020 (Climate Change Bill) into Federal Parliament by Independent MP Zali Steggall. The appetite for climate change litigation remains strong despite global attention diverting to the emergency response to the pandemic.
Where businesses do not reassess, disclose and act on revised understandings of climate change risk, they may be susceptible to climate change litigation, which is increasingly being used to catalyse climate action by governments and large businesses.
Climate change litigation trends
Climate change litigation continues to be widespread, with cases being filed across six continents in the last eighteen months.2 As we have noted previously, Australia continues to be a global destination for climate change litigation, being the second most active jurisdiction for such litigation after the United States.3
Several landmark climate change cases have been issued across Australia in recent months, all of which have been brought by activists against government or government decision-making to compel action on climate change, including:
- April 2020: bushfire survivors in New South Wales (NSW) launched proceedings to compel the NSW Environmental Protection Authority to develop policies to regulate the State’s greenhouse gas emissions,4
- May 2020: a youth advocacy group in Queensland launched Australia’s first human rights based challenge to a mining project to object to Waratah Coal’s Galilee Coal Project,5
- July 2020: in a world first, a university student from Victoria sued the Australian Government for failing to disclose material climate change risks in sovereign bonds,6 and
- September 2020: a group of teenagers from across Australia brought an action via their litigation guardian to prevent the Australian Government from approving Whitehaven Coal’s Vickery Extension Project in NSW.7
Climate change litigation is not solely aimed at forcing action from government, as corporations have also been subject to suits. Global trends over the last year indicate a growing focus on litigation against fossil fuel companies and the financial sector.8
In Australia, the latest litigation focusing on fossil fuel companies has largely targeted government decision-making on approving coal mine expansions or projects.9 Cases focusing on the financial sector include a complaint filed by bushfire survivors with the Australian National Contact Point for Responsible Business Conduct alleging a breach by ANZ Bank of the OECD Guidelines for Multinational Enterprises,10 and a landmark case brought by a university student against his superannuation fund, Retail Employees Superannuation Pty Ltd (Rest), which we discuss further.
McVeigh v Rest
The latest development in Australian climate change litigation is the settlement in McVeigh v Rest. 11 The litigation was brought by a university student against his superannuation fund, Rest, alleging a breach of corporate law and trustee obligations to adequately disclose climate risk in its investments. The case settled this month, with Rest releasing a media statement detailing that
“climate change is a material, direct and current financial risk to the superannuation fund”
and committing to specific initiatives to manage and address the financial risks of climate change on behalf of its members.12
Although litigation to date has been focused on claims against companies, litigants and indeed regulators could equally seek to take action against directors and officers on the basis of specific obligations (e.g. continuous disclosure) and/ or general obligations (e.g. the statutory duty to act with reasonable care and diligence, as we have noted previously).
The COVID-19 pandemic has exposed deep economic and social vulnerabilities to disaster, and shifted global perceptions of climate change risk. The pressure to act on revised understandings of climate change risk is increasing in light of recent political, legislative and legal developments. Businesses should ensure that they properly assess their climate change risks and disclose that risk where necessary. In the coming months we expect to see:
- increased climate change litigation globally, as climate change proponents try to prioritise the climate change agenda and as climate related natural disasters continue to arise (e.g. the recent wildfires in North America). Joe Biden’s recent win in the US election will likely fuel that momentum in light of the most progressive pledges on climate change in US history, which include rejoining the Paris Agreement. To the extent that government and business action conflicts with a ‘sustainable’ and ‘green’ recovery from the pandemic, that action will be susceptible to climate change litigation.
- increased Australian climate change litigation. Australia is a particularly fertile testing ground for public interest litigation on climate change, given its sophisticated and independent legal institutions, a government policy supporting carbon heavy industry, and the severe climate change impacts in the region. The recent recommendations of the Royal Commission into National Natural Disaster Arrangements13 may spur further activist litigation, while the Climate Change Bill, which is currently before the Federal Standing Committee on the Environment and Energy, will likely inform Australian climate change litigation if passed.
- renewed focus by investment funds, including superannuation funds, as well as investment managers and advisers on the scope of their obligations to identify, mitigate and disclose the financial risks of climate change within their asset portfolios.
- increased likelihood of climate change litigation to the extent that government aid packages support carbon heavy industries, or where the response to the pandemic is to reduce the effect of environmental regulations, or where there is a perceived inconsistency between business discourse on climate change and action.
- increasingly creative linkages between the COVID-19 health emergency and the climate change emergency, with a renewed focus on rights to a safe, clean, healthy and sustainable environment.14
1 IEA, Global Energy Review 2020, (2020)
2 Between May 2019 – May 2020 climate change litigation was brought across six continents. Setzer J and Byrnes R, Global trends in climate change litigation: 2020 snapshot, Grantham Research Institute on Climate Change and the Environment and Centre for Climate Change Economics and Policy, London School of Economics and Political Science (2020) 1.
3 Ibid 4.
4 Bushfire Survivors for Climate Action Incorporated v Environment Protection Authority (New South Wales Land and Environment Court, 2020/00106678).
5 Youth Verdict and Bimblebox Alliance have both filed objections with the Queensland Land Court.
6 Kathleen O’Donnell v Commonwealth of Australia & Ors (Federal Court, VID482/2020).
7 Sharma & Ors v Minister for Environment (Commonwealth) (Federal Court, VID607/2020).
8 Setzer J and Byrnes R (n 2).
9 See, eg, objections by Youth Verdict and Bimblebox Alliance against Waratah Coal’s Galilee Coal Project (n 5); Sharma & Ors v Minister for Environment (Commonwealth) (Federal Court, VID607/2020) (n 7).
10 Friends of the Earth Australia & Ors v Australia and New Zealand Banking Group (Complaint to the Australian National Contact Point, 30 January 2020).
11 McVeigh v Retail Employees Superannuation Pty Ltd (Federal Court, NSD1333/2018).
12 Rest, ‘Rest reaches settlement with Mark McVeigh’ (media statement, 2 November 2020)
13 Royal Commission into National Natural Disaster Arrangements, Report (28 October 2020)
14 See, eg, David R Boyd, Special Rapporteur, Report of the Special Rapporteur on the issue of human rights obligations relating to the enjoyment of a safe, clean, healthy and sustainable environment, UN Doc A/HRC/43/53 (30 December 2019); John H Knox, Special Rapporteur, Human rights obligations relating to the enjoyment of a safe, clean, healthy and sustainable environment, UN Doc A/73/188 (19 July 2018).