The warning came at a Clyde & Co seminar on the impact of climate change on directors & officers (D&O) cover as board members are called to answer for their decisions.
Suggestions that this type of litigation in the US will be reduced by the election of Donald Trump were rebutted. The lawyers felt that while federal regulation in the US could be affected by a more pro-business administration, private prosecutions by shareholders and activist groups would continue.
Clyde & Co partners Ned Kirk and James Cooper were joined on the panel by Alice Garton, a senior lawyer for ClientEarth, and Anthony Hobley, CEO of the Carbon Tracker Initiative. The panel members described three key types of litigation that will result from climate change:
• Companies failing to fully disclose how climate change affects their business
• Shareholders, pension fund members or investors suing investment and pension funds for investing in businesses adversely affected by climate change
• Companies contributing directly to pollution and climate change
Litigation is already under way in the United States against an energy firm for its failure to disclose the impact of climate change after it wrote down oil and gas assets in 2016. Other actions are being considered.
Ned Kirk said: “Regulators like the SEC have already issued guidance on climate change disclosure and are taking action against energy companies. They are also starting to look long and hard at sectors like mining, transportation and insurance.”
James Cooper said: “Underwriters need to ask themselves how they get to understand the climate change risks inherent in these businesses. They need to ask some searching questions about how companies are dealing with climate risks.”
He added: “President Trump’s election won’t stop this type of litigation. Private prosecutions will be used instead.”
During the seminar, the invited audience heard arguments that energy firms are spending billions of pounds on exploration that will increase their reserves but will be unprofitable unless energy prices reach very high levels. This is depleting shareholder value and could lead to litigation.
It was also suggested that energy companies can be very subjective in the choice of data they use to back up their business model. It was alleged, for example, that low estimates for the take-up of electric vehicles or adoption of renewable energy have been used.
Alice Garton explained that ClientEarth is a not-for-profit environmental law organisation of activist lawyers. It uses science, the law and policy to address environmental challenges. This January, the group was reported to be considering legal action against the UK government for failure to cut fossil fuel emissions. Its lawyers are also understood to be examining the detail of the plan to add a third runway to Heathrow Airport.
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