Recent judicial decisions in Australia and abroad have demonstrated that individuals are more prepared to take on the big players in respect of their carbon emissions; equally, Courts have been prepared to find that duties can be owed to individuals in respect of the carbon emissions produced from existing operations and proposed projects.

In the face of society’s evolving environmental conscience and the development in judicial attitudes, companies ought to carefully reflect on their emissions and reduction targets.  Otherwise they may find themselves defending climate change litigation that might previously have seemed novel, but may well become more common in the not too distant future.

In this article, we consider the state of climate litigation in Australia and overseas, and the ramifications which may arise for company directors and senior management as a result.

Climate litigation in Australia and around the world

International climate litigation against corporate and government defendants has fallen into three broad categories (although Australian litigation has predominately fallen within the first):

1. Challenges to decisions approving projects and developments;
2. Challenges to corporate decision-making and disclosures to the market; and
3. Litigation against companies responsible for significant emissions.

The local experience: Australia 

In the case of Sharma by her litigation representative Sister Marie Brigid Arthur v Minister for the Environment [2021] FCA 560 (Sharma), a group of school children brought a claim against the Federal Minister for the Environment seeking to prevent the approval of a local coal mine.  The Federal Court of Australia found that the Minister owed a duty to persons under 18 years of age to take reasonable care to avoid causing them harm from further carbon emissions when determining whether to approve the expansion of a coal mine, but the Court was not prepared to prevent the Minister from granting the approval (as there was no evidence that a decision in that respect was likely to be made). 

The Federal Government has indicated that it intends to appeal the Federal Court decision.  But, for the time being, one can expect heightened scrutiny of carbon emissions when approval applications are being assessed by government decision makers. Further, whatever the outcome of that appeal, the Court’s decision demonstrates both the preparedness of Australian citizens to take legal steps to protect the environment and of the judiciary to uphold those claims.  It should put corporate Australia on notice that any emissions intensive industries in which they operate or invest may increasingly face climate related legal challenges.  Other examples of legal action concerning the effects of climate change include:

• in 2019, a group of Torres Strait Islanders made a complaint to the United Nations Human Rights Committee against the Federal Government, claiming that its failure to act on climate change violated their fundamental human rights due to rising sea levels; and
• in 2020, environmental groups disputed approvals granted for a coal project in the Queensland Land Court on the basis that the approvals were in breach of the Human Rights Act 2019 (Qld), including the right to life, protection of children and cultural rights of Aboriginal and Torres Strait Islander peoples. 

This increase in climate litigation is likely to gain further momentum as a result of growing public dissatisfaction with government inaction on the issue of climate change and emissions reduction. Indeed, one of the children in Sharma noted that “after too many years of politicians turning a blind eye, [this ruling] will make it harder for them to continue to approve large-scale fossil fuel projects”.

Future litigation may go further still, not only prescribing matters that government decision makers need to consider when approving carbon intensive projects but, potentially, obstructing those approvals, or compelling government and private enterprise to actively pursue climate change mitigation and carbon reduction policies. Saying that, it is important to keep in mind that the nature of the Australian legal system is such that, at least in the short-term, it is unlikely that a court would find that a polluter is required to pay compensation for losses caused as a result of carbon emissions: as the impacts are largely indirect, diffuse and global, such that it would be difficult to establish that loss suffered was caused by any one particular party. Significantly, the Court in Sharma was not asked to decide whether any compensation would be paid in the event the approval allowing those emissions was granted.

The New Zealand experience

Across the Tasman, a legal proceeding commenced against seven companies across a range of industries (including dairy, mining, energy and resources) sought a reduction in the defendants’ carbon emissions on the basis that their contributions to climate change constituted public nuisance, negligence and a breach of duty causing damage to sites of cultural and spiritual significance and other customary resources (Smith v Fonterra Co-Operative Group Limited [2020] NZHC 419 (Fonterra)).  The High Court of New Zealand struck out the claims for public nuisance and negligence before they even got to trial on the basis that:

• the alleged harm suffered by Mr Smith was not the direct result of the defendants’ activities but rather the consequence of those defendants supplying either fuel or coal to third parties who then released greenhouse gases (that is, the defendants were being sued in respect of their Scope 3 emissions); and
• the damage claimed by Mr Smith was:
  • not a reasonably foreseeable consequence of the defendants’ activities, whose collective emissions were considered “miniscule in the context of the global greenhouse gas emissions which are causing climate change”; and
  • such an unlikely or distant result of the defendants’ emissions that it would not be fair to impose liability on them.

The New Zealand position reflects the likely result of bringing similar claims in Australia, which may be contrasted to the more rapidly developing position in Europe, where conglomerates in emissions intensive industries have been the subject of court orders compelling them to adopt more ambitious emissions reduction targets.

The European experience

In the much publicised case of Milieudefensie and others v Royal Dutch Shell (ECLI:NL:RBDHA:2021:5339) (Shell), the District Court of The Hague held that Royal Dutch Shell (RDS) has an obligation, arising from an “unwritten standard of care” owed by it under Dutch law, to mitigate adverse human rights impacts arising from climate change. As the head of a corporate group collectively responsible for 1% of the world’s carbon dioxide emissions and, as the policy-setting entity of that group, RDS was ordered to reduce the corporate group’s emissions by at least 45% by the end of 2030^[1] through stricter policy settings.  The Court’s scathing assessment of RDS’ policies thus far was that they “mainly [show] that the Shell group monitors developments in society and lets states and other parties play a pioneering role. In doing so, RDS disregards its individual responsibility, which requires RDS to actively effectuate its reduction obligation through the Shell group’s corporate policy”.

Key takeaways for Australian companies as to the risks posed by climate litigation

Whilst there are some structural impediments to climate change litigation in Australia, and whilst a court making a similar finding to Shell may be some time away, company directors should not assume this will remain the status quo.  Changes to corporate liability may well be achieved through legislation, rather than litigation. The Liability for Climate Change Damage (Make the Polluters Pay) Bill 2021 (Cth) (Make the Polluters Pay Bill) considered by the House of Representatives in May seeks to make emitters of greenhouse gases greater than 1 million tonnes in any 12 month period liable for climate change damage (with retrospective effect), giving victims, such as the 2019 – 2020 bushfire survivors, the right to bring an action against fossil fuel companies.

Notwithstanding that the Make the Polluters Pay Bill may not ultimately be passed (or may be heavily watered down if it is to be passed), the recent success of climate change litigation will only serve to encourage legal proceedings against government and industry bodies who are seen to be ignoring community expectations in respect of climate change.  Similar to any other litigation, climate related litigation carries with it the potential for a company to suffer significant reputational harm, including the likely publicity associated with being a defendant in such litigation, and, at an extreme, being subjected to scathing judicial criticism as faced by RDS in the Dutch District Court.

Although the immediate risk to corporate Australia is largely reputational, the prospect remains that new legislation will be introduced along the lines of the Make the Polluters Pay Bill, such that the emission of greenhouse gasses will attract liability. Companies that continue to operate on a “business as usual” basis leave themselves vulnerable to legislative reforms that will likely require them to respond quickly, in circumstances where such drastic operational changes cannot be implemented overnight.

Lastly, whilst no Australian court has, to date, considered whether directors’ duties require them to take into account climate change-related risk that may be relevant to the company's business, individuals in those positions should not be complacent. Directors should be aware of the risks of greenwashing allegations in relation to inadequate climate risk disclosure, which may sound in claims of misleading or deceptive conduct as part of shareholder class actions.