Over the years, the term “climate risk” has been used. rise in front, residing inside the world’s largest banks and investors. Today, it is part of the toolkit of many companies as they seek to understand the effects of climate change on their business and society.
United Nations Framework Convention on Climate Change – the people who organize the annual COP event – defines “Climatic Risks” in the form of those:
… created by a series of threats. Some are slow in their onset (such as droughts, or agricultural losses due to temperature changes and rainfall), while others are more sudden (such as tropical storms and floods).
It is time to update that definition to include the sudden, dramatic ups and downs between judges and juries.
It’s a Takeaway from the Landmark ruling Last week a three-judge panel in the Netherlands ordered Royal Dutch Shell to reduce its greenhouse gas emissions by 45 percent by the end of 2030 compared to 2019 levels. It’s a goal that moves the oil company faster than ever before. prudent or possible.
The implications of this court-ordered corporate climate target extend beyond the energy sector. As Scientific American famous: “For the first time in history, a court … ordered a private company, instead of the government, to curb its planet-warming pollution.”
The landmark decision shows that the fate of the world’s biggest polluters may no longer be in the hands of their executives, boards or investors. Rather, it may be in the hands of activists, litigants and their judicial aides.
At one level, the Dutch court’s decision was just another physical blow to Big Oil. And while the last week’s action against the shareholder ExxonMobil and beam The greater attention – and celebration – by climate activists may be carrying far more weight in the Shell case. At the very least, it serves as a five-alarm warning to companies both inside and outside the fossil-fuel industry that their net-zero-by-mid-century decarbonization commitments may not be enough.
In short: Shell was sued by seven environmental groups including Greenpeace and Friends of the Earth Netherlands, with 17,000 Dutch citizens named as co-plaintiffs. Together, they argued that the company violated human rights by extracting fossil fuels and that despite the company’s commitment to achieving net-zero emissions by 2050, it still agreed to limit the increase in temperature to less than 1.5 °C under the Paris Agreement. weakening the target.
call to work
There is a legal concept at issue called a “duty of care”. According to Investopedia, the term refers to:
A fiduciary responsibility held by the directors of the company that requires them to live up to a certain standard of care. This duty – which is both moral and legal – requires them to make decisions in good faith and in a reasonable prudent manner.
The Dutch court ruled that Shell had violated its duty of care, noting that climate change has consequences for human rights and the right to life, and that those interests trump corporate profits. “The court finds that the consequences of severe climate change are more important than Shell’s interests,” it noted.
The ruling said Shell is responsible for its own emissions as well as those of its suppliers and customers – Scope 3 in sustainability lingo – which comprised about 95 percent of the company’s total carbon footprint in 2020. This in itself is huge. This means that the greenhouse gas emissions for which companies are responsible do not end up at the factory gate.
While the ruling is legally binding only in the Netherlands, it is being investigated as a new area of litigation and may guide deliberations by judges elsewhere. Shell vowed to appeal, which could take years. Nevertheless, the decision is enforceable immediately.
it all happened a few days later a series of other historical events, including the International Energy Agency’s conclusion that in order to meet the goals of the 2015 Paris Agreement, investors must immediately stop funding new oil, gas and coal projects. It is not clear whether this finding may be included in the decision of the Dutch court.
flashing red light
its result? You don’t have to be a legal eagle to see growing potential. Fossil-fuel companies are likely to see a flashing red light about now. Meanwhile, the emissions-heavy sectors – aviation, cement, chemicals, mining, steel and others – may soon find themselves staring down barrels of legal rulings that require them to push their decarbonization targets beyond already net-zero targets. force to. set. Already, lawyers, investors and others are viewing Shell’s decision as an early defense of what could be an onslaught of litigation focused on climate change and human rights-related companies’ duty of care.
A quick data point: According to the US Climate Change Litigation Database, which monitors climate-related lawsuits and administrative proceedings, already has about 1,400 cases pending in the United States alone, as well as more than 400 non-US cases.
Most of those cases are not against companies, but some are citing everything from alleged misrepresentations about the company’s use of proxy costs of carbon (ExxonMobil) in a state lawsuit to hold fossil fuel companies liable for the effects of climate change that adversely affect state facilities, real property and other assets (beamin Rhode Island).
Even if states do nothing or do little, companies have a responsibility to respect human rights.
By the way, the Shell case wasn’t the only landmark climate decision last week. in Australia, a federal court ruled The government should ensure that children are not adversely affected by any decision to approve coal projects. The court observed that the environment minister has a duty to avoid actions that will harm young people in the future. The lawsuit was brought by eight teenagers accompanied by an octogenarian nun.
it’s hardly lonely inter-district litigation Claiming that climate change is stealing the future of the youth and the unborn. Will these recent decisions give impetus to those cases? And it’s not just the climate. Water scarcity, ecosystem collapse, sea level rise and many other climate-related disasters can become grounds for raising the “duty of care” of human rights litigation, even if a company is obeying the law of the land.
As a Dutch judge explained the Shell decision: “Companies other than states have an independent responsibility. Even if states do nothing or do only little, companies have a responsibility to respect human rights.” “
Investors are taking note. As they see the writing on the court’s wall, and the resulting financial liability companies are facing, there’s little doubt they’ll be picking up the pace of their own shareholder activism. If there was any question whether climate change should be treated as a major financial risk, those questions should be put to rest.
After all, as the Dutch court case made clear, society’s expectations of companies are rising faster than global temperatures. And the notion that companies can be responsible not only for their own operations but also for customers’ use of their products represents a new legal standard, one that will undoubtedly encourage both activists and investors and companies. But can increase pressure to increase its decarbonization. ambitions
It’s another pivotal moment for business and climate that will likely resonate for years.
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