The effects of climate change continue to impact international and domestic organizations through regulation and litigation risk. This year saw many firsts with respect to legal liabilities surrounding climate action. Internationally, the ruling of the Hague District Court in Milieudefensie et al. v. Royal Dutch Shell plc was the first of its kind in mandating the responsibility of private corporations to set – and meet – climate change-related targets. Meanwhile, in Canada, there have been lawsuits against both public and private entities.
In this update, we focus on climate litigation against private companies seeking to lower greenhouse gas emissions, the justiciability of climate-change related claims in Canada, and the efforts of regulators in implementing mandatory climate-related disclosure.
Private companies challenged on emission reduction plans
In 2019, a group of seven Dutch NGOs and over 17,000 individual claimants, filed a suit against Royal Dutch Shell (“RDS”) in the Netherlands alleging RDS had an obligation flowing from a standard of care under the Dutch Civil Code to reduce its emissions. In May 2021, the Hague District Court determined that RDS had an “unwritten” obligation, pursuant to a standard of care in the Dutch Civil Code, to limit its contributions to the dangers of climate change. The Court held that RDS was required to reduce its CO2 emissions by 45% by the end of 2030. In making its determination, the Court found that the goals of the Paris Agreement – which include limiting the global temperate increase of this century to well below 2 degrees Celsius by reaching global net zero greenhouse gas emissions by 2050 – were relevant to the determination of RDS’s reduction obligation.
This case marks an important development in climate change litigation with respect to private, rather than government, entities. It is one of the first times that the effect of climate change on human rights has successfully been argued to require a private corporation to reduce its emissions, and the first time that a Court has ordered a private corporation to reduce its carbon emissions in accordance with the Paris Agreement.
The Dutch decision is under appeal and has no binding effect in Canada, however, its full implications remain to be seen. While the Supreme Court of Canada in Nevsun Resources v. Araya has recognized the role that international law can play in grounding tort claims against private parties, a major barrier to climate change litigation remains justiciability, meaning whether it is appropriate for a court to review the issue, and the extent to which courts can – or should – rule on matters of a public policy nature.
Court decisions in Canada concerning justiciability of climate-related cases have, so far, been conflicting. In the case of La Rose v. Canada (“La Rose”), a group of children and youth brought an action against the Canadian federal government alleging a breach of their rights rooted in section 7 and section 15 of the Canadian Charter of Rights and Freedoms. In October 2020, the Federal Court held that the claims were not justiciable because the nature of the plaintiffs’ claims were exceedingly broad and amounted to questioning Canadian government’s overall policy choices. The plaintiffs have appealed the ruling of the Federal Court.
By contrast, in November 2020, the Ontario Superior Court of Justice held in the case of Mathur v. Ontario (“Mathur”) that the issues of greenhouse gas emission reduction and the Ontario government’s replacing the Climate Change and Low-Carbon Economy Act with their own Cap and Trade Cancellation Act are reviewable by the courts. The Government of Ontario argued the plaintiff’s claim, that Ontario’s environmental plan will cause or contribute to future harm, could not be proven in court. The Court disagreed, finding that because the plaintiff’s claims relate to a specific government action – repealing the Climate Change and Low-Carbon Economy Act – and involve a Charter challenge, they are reviewable by the courts. In March 2021, Ontario Divisional Court dismissed the Government of Ontario’s application to appeal.
Ultimately, the number of climate change-related class action lawsuits has been rising steadily. While most of these lawsuits are against government entities, private companies are not immune from lawsuits regarding their alleged role in the climate crisis. Most recently, in August 2021, two railway companies were named as defendants in a potential class-action lawsuit in British Columbia filed by a resident of the Village of Lytton (“Lytton”). The lawsuit arises from fires in Lytton and claims negligence, public nuisance, and private nuisance on behalf of the defendants for continuing their train operations while Lytton was facing record-high temperatures. While this case is on-going, its outcome ought to be of interest to businesses conducting risk analyses concerning climate change and their operations.
At the same time, private companies have also taken legal action of their own against government entities. In September 2021, the Quebec government was sued by Utica Resources Inc. and its subsidiary, Gaspé Énergies Inc., for its plan to ban oil and gas production. The Quebec government has announced it will stop issuing permits for exploration or drilling. According to the plaintiffs, who hold 31 exploration licences in Quebec, the government has implemented a new legislative regime and made a series of decisions which it claims have effectively banned oil and gas exploration and production by private companies in Quebec. The plaintiffs argue these actions constitute a form of disguise expropriation for which they claim “several billion dollars” in damages. It remains to be seen whether the plaintiffs will be successful.
Developments in climate disclosure framework
Concurrently, several public companies have seen shareholders demand proposals with respect to disclosure of climate change-related targets aligned with the goals of the Paris Agreement. These climate change-related targets seek to address companies’ risks and opportunities over the medium and long-run. This shareholder activism trend can also be seen in instances of shareholders voting in favour of cutting Scope 3 emissions, increasing investments in renewables, and demanding corporations create targets for cutting emissions.
In response to growing shareholder activism, in March 2021 the Securities and Exchange Commission released a statement asking for public input from investors, registrants, and other market participants regarding climate change disclosure requirements. More recently, in September 2021, the SEC announced that its staff are developing a proposal for climate risk disclosure for the SEC’s consideration.
Further, in October 2021, Canada’s Securities Administrators published its proposed climate disclosure requirement for public comments. Under the proposed requirements, issuers would be required to make disclosures in regard to four key areas:
- Governance: an issuer board’s oversight of climate-related risks and opportunities, and management’s role in assessing and managing those risks and opportunities.
- Strategy: the short, medium, and long-term climate-related risks and opportunities that the issuer has identified, as well as – where such information is material — their impact on business, strategy and financial planning.
- Risk management: how an issuer identifies, assesses, and manages climate-related risks, along with how its identification, assessment, and management proceedings are integrated into its overall risk management strategy.
- Metrics and targets: where such information is material, the metrics and targets used by an issuer to assess and manage its climate-related risks and opportunities should be disclosed.
Considering the trend towards increased regulation on climate disclosure, we are likely to see an increase in climate-related litigation. A company may, for example, find itself subject to a shareholder action for failing to disclose material risk associated with climate change, such as potential disruptions to its supply chain alleged to have been caused by climate change-related events.
For more information about climate change in Canada or globally, or other environment-related matters, please contact Kelly Osaka and Christy Lee or another member of Dentons’ Environment and Natural Resources group. As the world’s largest law firm with 200 locations, Dentons leverages its deep local knowledge to track climate change litigation wherever it is happening in the world.
