The Future of Net-Zero Disputes: A Race Against the Clock?
Climate, Energy & Utilities Focus
Khushboo Shahdadpuri Senior Counsel,Dispute Resolution
Net Zero obligations have gained heightened emphasis in recent months as states face increased scrutiny over their commitments to combat climate change net zero. This urgency has accelerated in the face of clean energy technologies and global disruptions to oil and gas supplies. These global phenomena, alongside international, regional and state level commitments and increased initiatives from the public will result in several trends in disputes relating to climate-change.
Some of the key types of disputes we see in the net zero sphere include:
Public Action and Activism: International environmental organisations and advocacy groups serve as ‘watchdogs’ for greater compliance with environmental issues. Increased activism have caused a spike in climate-change litigation globally. These actions seek to hold states and corporations accountable for their contributions to greenhouse gas emissions, and to compel them to take more ambitious and effective measures to reduce their environmental impact and protect human rights. The main aim of such actions is to raise awareness and generate media attention around climate-change related issues.
Climate and Green Washing: These lawsuits address alleged false or misleading conduct and/or misrepresentations to consumers on green standards to adduce purchases or investments. These actions aim to expose and deter deceptive practices that exploit the growing demand for sustainable products and services, and to protect the integrity of environmental claims and labels.
Shareholder-Led Activism: Corporate litigation concerning directors’ fiduciary duties - particularly the duty to prioritize environmental issues in corporate decision-making (i.e., breach of duties to act in good faith and with reasonable care) have also made their way to the sphere of net-zero disputes. These actions seek to hold directors and officers liable for failing to disclose, manage and mitigate the financial and reputational risks of climate change, and to ensure that corporate strategies and policies align with the interests of shareholders and stakeholders.
Contractual Obligations: Net-zero disputes also encompass a wide range of contractual disputes arising from the value chain, the production and delivery of carbon credits, amongst many others. These disputes involve the interpretation and enforcement of contractual terms and conditions that relate to environmental performance, compliance and liability, such as force majeure, change of law, indemnity, warranty and termination clauses.
Green Financing: These are disputes surrounding investments centered on nascent and innovative technology such as greenhouse gas removal technologies (e.g. direct air capture and storage). These disputes involve the assessment and allocation of risks and rewards of green financing, such as the availability and adequacy of funding, the feasibility and scalability of technology, the regulatory and market uncertainties, and the environmental and social impacts.
Breach of International Treaties and Violation of Human Rights: These lawsuits relate to allege breaches of international law standards against states and semi-government entities, such as failures to comply with human rights obligations and environmental law under the Paris Agreement or the United Nations Guiding Principles on Business and Human Rights. These disputes involve the invocation and application of international norms and principles that aim to protect the rights and interests of individuals and communities affected by climate change, such as the right to life, health, water, food, and self-determination.
Criminal: Criminal actions against directors and shareholders for contributing to the negative impact of climate change and causing health hazards to indigenous and local communities affected are also part of net-zero disputes. These actions seek to impose criminal sanctions and penalties for acts or omissions that amount to environmental crimes, such as pollution, deforestation, illegal logging, and wildlife trafficking.
Just Transition: In recent years, a new category of net-zero disputes has made their way to the net-zero disputes space. These are disputes surrounding policies that do not distribute the benefits and burdens of transition policies equally amongst communities. In other words, such dispute question whether a net zero related strategy or policy is fair or inclusive. While such disputes do not question the legitimacy of the energy transition policy or regulation itself, they question whether the underlying regulation or guideline is being implemented fairly and in a manner that is all inclusive.
Sources of DataOne of the major issues facing net zero disputes is the inconsistency in data sources, methodologies and the ambiguous parameters around technical data needed to establish and substantiate the negative impact of climate-change. Unless and until there is a 'universally accepted methodology' for measuring climate change actions, it will be difficult to prove that stakeholders have not acted reasonably in addressing climate considerations. The weight to be attached to competing considerations is a commercial decision which judicial decision making powers are presently ill-equipped to take.
To counter this, these are committees and frameworks that have been set up to establish guidelines around corporate net-zero targets in line with climate science and data. These are aimed at setting out clear abatement (i.e. value chain emission reduction) requirements, clarifying that most companies are expected to align their near-term emissions reductions. However, there is still some steps to go before these guidelines are consolidated and will be able to offer globally accepted standards.
Evidentiary burden Causation remains an obstacle for potential plaintiffs to overcome when initiating climate chain related disputes. In addition, substantiating damages and quantifying loss continue to be problematic. The argument that has been frequently levied are that damages that are awarded are argued to be too speculative.
In addition, the difficulty in assessing adequate compensation is frequently influenced by internal political pressures and thresholds adopted by regional and international jurisprudence. In theory, these sums should be commensurate to the urgent expenditures for adaption and humanities aid to control the ‘risk event’.
However, quantifying damages and compensation for climate change related harm is not a straightforward exercise, as it involves various methodological and ethical challenges. These include selecting an appropriate discount rate, valuing non-market goods and services, the distribution of intergenerational and intragenerational equity, and the recognition of non-economic and intangible losses. Moreover, the availability and enforceability of remedies may depend on the jurisdiction, forum, and legal basis of the claim, as well as the solvency and cooperation of the defendants.
The Global Climate Litigation Report shows a rising trend in climate litigation. Given the steady rise in climate-change related litigation and complains in both international and regional courts, tribunals, quasi-judicial bodies and other committees from 884 in 2017 to 1,550 in 2020 and up to 2,180 most recently as of December 2022, it is safe to say that climate-change litigation is on the rise and will continue to increase as governments step up their commitments to combatting climate-change impact and to play an active role in safeguarding their citizens’ health and safety rights, amongst others.
Further, the rise of specialised tribunals and committees equipped with the necessary expertise in environmental disputes involving multi-disciplinary considerations when addressing complaints that impact environmental concerns and human rights, with quasi-judicial decision-making powers, will likely see an increase in positive judgments targeted at combatting climate-change impact.
As governments, semi-government entities, tribunals, quasi-judicial bodies and regulators push for transparency around emissions and environmental impact, the increased scrutiny over their environmental footprints has led to corporations to adhere to heightened standards for sustainability practices and conduct internal audits. State’s climate commitments and environmental governance will increasingly impact commercial decisions, especially with respect to construction projects across a number of sectors such as oil & gas, infrastructure, mining and power plants, amongst others. This trend is amplified as more countries commit to legally binding carbon reduction & net-zero targets to avoid lawsuits arising from pending and approved environmental related licenses and permits.
What this means for net zero disputes is the increasing need for a multi-disciplinary approach to resolving climate-change related disputes that takes into account global approaches and standards as well as we decisions that harmonise private rights with public benefits.
The perennial question remains: how fast is soon enough in before we see an increased number in judicial decisions holding states, private corporations and individuals responsible for action and in action affecting climate change in these states and private corporations accountable?
For further information,please contact Khushboo Shahdadpuri.
Published in December 2024
