Financials, beware the impact of climate change litigation
“Investments that until recently were considered low risk may become daring investments in the (near) future with a strong rise in climate-related litigation.” The observation comes from Edward Brans and Mathijs Peters, both attorneys-at-law at Dutch law firm Pels Rijcken & Droogleever Fortuijn. The pair on Tuesday published an article in the Cambridge International Law Journal over the emergence of a new reality for pension funds due to climate change litigation.
Brans, who is also a professor in sustainability and environmental liability at Utrecht University, and Peters reviewed last year’s settlement of the McVeigh vs. Retail Employees Superannuation Trust (REST) case. The lawsuit resulted in the $50bn Aussie pension fund being the first one to have ever committed to a net-zero carbon footprint target for 2050. McVeigh, a member of the fund since 2013, sued the pension fund before the Federal Court of Australia in 2018 on the ground of poor management and communication over climate-related risks regarding REST’s investments. The pension scheme was not following the recommendations of the Task Force on Climate Financial Disclosure (TCFD).
For the pair, the REST case “emphasises that it is expedient for the financial sector to address the imminent financial risks of climate change at an early stage, while also playing a pivotal role in climate change mitigation.” The authors of the paper assume that it “cannot be ruled out” that high carbon companies – being the largest CO2 emitters – “will be confronted with considerable liabilities in the (near) future due to successful climate change litigation cases.”
The pair cites the case of Dutch oil company Royal Dutch Shell brought before a district court in the Netherlands by non-governmental organisation Friends of the Earth Netherlands and other parties. They require from Shell to reduce its CO2 emissions by a net 45% by 2030, 72% by 2040, and 100% by 2050 compared to 2010. The court ruling is expected for May 2021.
“In view of the (potential) impact of this judicial ruling on business operations and liability risks of greenhouse gas emitters, the legal principles chosen by the court in the assessment of the claims of Friends of the Earth Netherlands et al. as well as the outcome of the proceedings are likely of significance to the financial sector,” Brans and Peters said.