Sustainability / Climate litigation

By Volker Heck and Stephanie Verena Prager

The status quo on climate

The 28^th Conference of the Parties of the UNFCCC (COP28) will be held in Dubai between 30 November and 12 December 2023. Interestingly, it will be chaired by the CEO of the country’s national state oil company ADNOC, Sultan Ahmed al-Jaber. On that basis alone, many NGOs believe the Dubai conference will produce no significant results in terms of achieving urgently needed climate progress.

The urgency of such progress is illustrated in calculations by the United Nations that reveal a huge gap between current figures and the target for 2030. Instead of the 45-percent reductions in CO₂ deemed necessary by 2030 (based on 2019 values), the reduction plans submitted by national governments add up only to a reduction of less than 1 percent. If current greenhouse gas trends continue, the calculations suggest that the remaining CO₂ budget for achieving the 1.5°C goal will have been exhausted by 2030.

Disillusionment among climate activists is therefore high, and their confidence in the effectiveness of the international negotiation process has run out. Many of them are therefore turning to climate litigation, which has proven effective in recent years, as may be seen from the judgment on the 2021 Climate Protection Act handed down by Germany’s Constitutional Court. Currently there are about 2,200 cases worldwide, about two thirds of them in the US (see in particular Sabin Center for Climate Change Law at Columbia Law School, NY, which maintains the best database on all current climate cases). But in Europe, too, judgments from the district court in The Hague against Shell or the litigation brought by a Peruvian farmer against energy provider RWE or those of Environmental Action Germany (Deutsche Umwelthilfe) and Greenpeace against the German automotive industry have already generated a lot of interest.

Climate judgment by the German Constitutional Court

The trailblazing judgment by the German Constitutional Court was evidence enough that companies should not underestimate the use of climate litigation as a tool. There are various reasons for this: An increasing number of courts are becoming prepared to accept climate change as grounds for litigation; and the arguments presented in a number of judgments so far, even if many are not yet in the final instance, show that existing law is certainly already adequate for handing down judgments. Roda Verheyen, for example, who also presented the case for the plaintiffs before the Constitutional Court, argues that all that is needed to achieve effective climate protection is to apply existing law “correctly”. Lastly, there has been huge progress in attribution research, in other words the area of climate science that establishes a connection between climate change and severe damage-causing events. Simply referring to complex realities in the climate system is therefore of decreasing use to those causing emissions.

Looking abroad: California

Two current developments in California are worth looking at here. Firstly, the state instituted a case against various major oil companies in September 2023 because they had not correctly categorised the risks of climate change in public for decades, despite knowing better. This case has the potential to further reinforce ongoing actions by the US Securities and Exchange Commission or other US state governments. The consequences involve huge compensation and penalty payments potentially running into the billions.

California, which on its own qualifies as the world’s fourth-largest economy, also set down in law in September 2023 that all companies active in the state must report their emissions in terms of Scopes 1-3 by 2027 at the latest. This demand has also been raised in numerous climate cases and deemed justified by the courts in individual cases. That means companies must include all emissions involved in procurement, in other words their own supply channels, and their own distribution channels – including consumption at the customers’ end. Such a far-reaching representation of emissions caused by business operators has not been established anywhere to date, and many companies have considered it too broad, even just with regard to the Supply Chain Act (Lieferkettengesetz).

Legal situation in Europe

It is essential to realise that until now, based on the relevant CSR requirements, only large-scale companies in Europe have been obliged to submit non-financial reports. This requirement will be extended to smaller-scale companies from 2024 and 2026. Because the scope of the requirements was actually designed for large-scale businesses, which have large reporting departments and the necessary experts and financial resources for reporting at that level, small and medium-size enterprises are at a disadvantage. And the existing regulations have already become so demanding that even large-scale businesses are reaching their limits. And these reporting obligations still fall well behind what has now been approved in California. It is not hard to imagine that the new Californian standards could also become the yardstick for non-financial reporting here in the medium term. A comparison with the automobile sector is apt: It was Californian requirements from the early 2000s that effectively tightened up the emission limits for internal combustion engines and subsequently became the international standard. Ultimately, it was (mismanaged) efforts to observe stringent Californian regulations that led to Germany’s “Diesel scandal”. And the end of combustion engines with effect from the 2030s, which now also applies in the EU, had its origin in California.

Conclusion and outlook

The climate remains on the agenda, even if international negotiation approach is proving less and less promising over time. Despite all remaining legal doubts in this regard, it will be the courts that will be able to force policy-makers to adopt a tougher approach. In parallel, companies will increasingly be obliged to expand their reporting activities.

The article was published under the title “Climate Litigation und die nicht-finanzielle Berichterstattung – Gerichte werden die Politik zu härterem Vorgehen in Sachen Klimaschutz zwingen“ in German in Restructuring Business, issue 03_2023, you can download the original article here.

Photo: iStock.com/Boy Wirat