Climate litigation becoming a corporate threat – Kennedys

UK insurers and their commercial clients should brace for a rising tide of climate-related litigation as directors and officers (D&O) are placed under greater scrutiny for their companies’ climate credentials.

Speaking during a webinar on the evolving climate litigation risk yesterday (27 February 2023), Alexandra Nurse, partner and member of the UK financial lines teams specialising in D&O claims at law firm Kennedys, warned that the number of climate change cases in the UK would only grow.

In a potentially pivotal case, climate action group ClientEarth has taken energy giant Shell to the UK’s High Court in an effort to dismiss members of its board over allegations that the directors had not acted with the necessary due care and attention in regard to climate-related responsibilities.

Nurse explained that directors and officers have a duty of care – under the Companies Act 2006 – to ensure that they act in the best interest of the company to deliver success and operate with due care and diligence.

Climate campaigners have argued that this commitment to due care and diligence extends to firms’ impacts on the climate.

Nurse added that while the numbers of climate related cases being heard were low, they were increasing and the High Court decision could cause a proliferation were it to rule in favour of ClientEarth.

Climate obligations

“ClientEarth has taken the action to lobby for change on the boards,” she explained. “They claim that the directors have failed in the duty of care, as the company has not met its obligations in line with the Paris Agreement.

The Paris Agreement, or Paris Climate Accords, is an international treaty on climate change adopted in 2015 that sets out goals for signatories aimed at mitigating global temperature rises.

Nurse continued: “Under the law, [ClientEarth] have had to bring this case on behalf of the company and while they have shareholders on board with the action, to do so they need permission from the High Court.”

While the court’s decision has yet to be handed down, Nurse said that if it allows the case to go ahead it may have serious consequences for the climate litigation landscape.

At present, Nurse said the current D&O cover is in a position to react to the small number of climate-related D&O cases.

However, Denise Eastlake, legal director at Kennedy’s, said a number of cases were being brought around the world against fossil fuel producing firms that sought to hold them liable for the damage that has been caused due to climate change.

She cited the case of German energy company RWE, which is being sued for 0.47% of the cost of urgent flood defences that need to be built around a Peruvian lake which is being filled by melting glacier ice.

She explained the 0.47% figure was the contribution that RWE had made to global emissions since the start of the industrial age, adding that there were growing numbers of scientists looking to define the exact contribution of individual companies to the world’s greenhouse gas emissions.

When asked whether householders in the UK who had seen their homes fall into the sea due to climate change could have a case against fossil fuel companies, she replied: “Almost certainly, they may well look to take action.

“Insurers with fossil fuel clients need to ensure that those clients understand their risks.

“If they understand the risks they can them look to mitigate them, but we are likely to see climate-related litigation become a major part of the legal landscape in the future.”