Rise of ‘greenwashing’ lawsuits a big worry for business

While some eco-activists break the law, others are using it to their advantage, writes Chris Blackhurst. The rise of ‘greenwashing’ – the suing of companies over their climate change credentials – is a fast-growing field of litigation that should have big corps seriously concerned

Greenpeace campaigners outside the High Court to challenge the government’s decision to announce a new round of oil and gas licensing (Tom Gibbs/Greenpeace)

At the last count, there were more than 1,000 cases pending in the US courts. In Australia, the country with the next highest, there were almost 200. The UK and other jurisdictions are also notching up increasing instances of lawsuits in this area.

This is the new, fast-growing field of litigation: the climate crisis. Businesses need to wake up, and quick.

As governments prevaricate and stumble over setting meaningful climate targets, activists and campaigners are stepping up their efforts. Some are glueing themselves to roads and disrupting traffic and breaking the law, others are actually using the law to their advantage. In their sights are businesses that have allegedly failed to adhere to ESG policies and measures (Environmental, social, and corporate governance) that have become enshrined in regulation and statute.

It’s reminiscent of the legal battles that erupted over tobacco or Thalidomide or asbestos, except the scope is much bigger and the number of corporates caught in the net far greater. Every business needs to be aware of this new risk, and be prepared. Should they overstep a line on anything eco or climate-related, they should expect to be hearing from m’learned friends.

Case law in this area has been in existence for a while. What’s changed and is changing rapidly is that more countries are legislating to commit climate change to law. Once there was very little for those suing to rely upon to support their claim; now there is an abundance.

It’s clear that cases can be bracketed under different types. One category is climate damage – individuals and activists blaming polluting companies for harming the environment. Earlier this year, Indonesian activists brought a suit against Swiss cement group Holcim, over the pollution its production plants were causing in the region. People living in Pulau Pari were in danger of losing their homes due to rising sea levels, and they’ve sued, arguing the climate crisis exacerbated by the behaviour of Holcim is threatening their homes and livelihoods.

Last month, Greenpeace and ReCommon launched a lawsuit against energy group Eni for contributing to the climate crisis via its fossil fuel operation. In the US, 16 young people accused the state of Montana and its agencies of violating their right to a stable environment by embracing fossil fuels.

RWE, the German energy provider, was last year taken to court for climate-induced destruction. That action failed because of the complexity associated with attributing local consequences of climate change to a single company. But it’s precisely the sort of decision that will only serve to galvanise campaigners more and see them try again.

Another category is climate risk – individuals and activists focusing on the ongoing management of climate risk and the steps companies are taking to deal with the likely effects of the climate crisis in the future.

ClientEarth sued the Shell board under the UK Companies Act, maintaining that Shell’s failure to approve an energy transition strategy, in accordance with the 2015 Paris Agreement, amounted to a breach of a director’s legal duties. Last month, the case was dismissed but ClientEarth is now challenging that verdict.

A third type is “greenwashing” suits – individuals and activists argue a company or its products are less environmentally friendly than the company makes out. KLM was hit by this sort of claim, with Fossil Free, a climate activist group, saying its “Fly Responsibly” marketing campaign was false, since there is no eco-supportive way to fly.

Fifa, the international football body, was sued because it boasted the Qatar 2022 World Cup was the first “fully carbon neutral” event. Fifa said it offset 3.6 million tonnes of CO2 , but Carbon Market Watch said the true figure was less than half of that.

Delta Airlines is in trouble in the US for claiming it’s carbon-neutral. The complaint alleges that Delta was responsible for releasing additional carbon into the atmosphere and the advertising boast is fake.

Financial services are a particular target if a bank or investment company proudly declares its products are suitably “green”. DWS, the German asset manager, had to settle a court case after claiming its Climate Tech Fund excluded companies active in controversial sectors such as coal or military equipment, and it didn’t. In another legal action, BNY Mellon said its mutual funds had undergone an “ESG quality review” when not all of them had done so.

British International Investment – owned by the UK government – is under legal attack for investing in fossil fuel companies despite being set up specifically to provide funds for global development challenges, including the climate crisis.

According to Leighton Barnish, head of sustainability at strategic communications consultancy, Powerscourt: “Corporates are already facing a heightened level of scrutiny when it comes to their climate credentials, and this is only going to increase as the impact of climate change and related regulation intensify. Governments, NGOs and consumers are all going to be ramping up their scrutiny of the way corporates tackle the climate crisis and communicate their performance and targets.

“Staying on top of climate-related regulations could, and likely will be, the differentiating factor that sets businesses apart from their peers, or indeed damages their reputation entirely.”

It’s not going to be easy, as Rachel Barrett, the partner at Linklaters who leads the law firm’s ESG practice, says: “Climate-related disclosure is set to ramp up as new rules start to take effect in a bid to ensure investors and other stakeholders have quality, comparable and decision-useful information when allocating capital or choosing who they do business with. Fresh attempts to clamp down on greenwashing have prompted many businesses to have a long think about what claims they are making and whether they can back them up. New EU proposals on regulating green claims certainly focused minds on this, and there’s more regulation coming down the track.”

Whether or not a lawsuit is successful might only be secondary, versus the reputational damage done. A marker has been put down, and from now on the business is firmly in the crosshairs of regulators, investors, activists and media going forward. Can they survive this unwanted and unwavering attention? Businesses, companies, you’ve been warned.