Looking to the Horizon – The Pitfalls on the Path to Net Zero
Climate Change-Related Disputes
If it is not already upon us, a ‘perfect storm’ is developing on the horizon, bringing a wave of climate change-related disputes, super-charged by the £2Bn of cash held by the UK’s litigation funders, and compounded by recent legal judgments, developments in the UK’s class action regime and changes in attitudes across society.
Most nations around the world have made some form of commitment to reduce carbon dioxide emissions. The reality, highlighted in a recent report by the International Energy Agency (IEA), ‘Net Zero by 2050 – A Roadmap for the Global Energy Sector’ (May 2021), is that there either needs to be a vastly increased divestment from carbon fuels around the world and reinvestment in clean-energy sources (which means R&D and increased focus on, and investment in, innovation) or those nations will not meet their climate change goals.
The IEA report states that energy groups need to stop all new oil and gas exploration projects from this year if global warming is to be kept in check.
Investors Prepared for Climate Activism
FTI Consulting has researched 250 global institutional investors1 representing over $10 trillion in assets under management. More than one-third (41%) of respondents expect Environmental, Social and Governance ‘ESG’ related disclosures and regulation to bring about claims backed by litigation funding. This sentiment is expressed more strongly by investors in North America (48%) compared to investors in Europe (29%).
Walking the Walk
The litigation risk, in part, revolves around the tension and inconsistencies between actions and statements (or disclosures) also known as ‘greenwashing’ and impacts governments, as well as corporates, and not just those working in the extractive sectors. While most climate change-related litigation has been in the US, we are seeing activity in the EU as well.
Recent notable cases in the EU include legal action taken against the Belgian Central Bank by climate activists who allege that the bank is directing funding to sectors that are causing the climate crisis, and has thereby breached environmental and human rights laws. In the UK, a group of climate activists have launched a legal action intended to challenge the UK government’s support for maximising the economic recovery from the North Sea oil and gas production.