Should company lawyers do more on climate risk?

A couple of months ago, nearly 3,500 European in-house lawyers were sent a survey asking a simple question: Do you expect your organisation to face legal risks because of climate change?

Almost 50 per cent of those who answered said they did, which was unfortunate, considering only about 15 per cent said their legal departments were well prepared to deal with such threats. Those numbers are instructive because the survey was carried out by the Dutch Association of In-House Counsel and the Dutch law firm Houthoff, and most of those questioned were Dutch.

The Netherlands has become a central battleground in a new class of lawsuits spreading round the world amid a rising sense of urgency about the need to tackle climate change. In 2015, a Dutch court ordered the government to speed up its efforts to cut carbon emissions in a historic ruling that has inspired environmental groups in other countries to pursue similar action.

“That’s a landmark decision and very significant because it has essentially opened up Europe as a forum for climate change litigation,” says Mark Clarke, a partner at White & Case, one of a growing number of international law firms focusing on climate change cases.

If in-house lawyers in a climate hotspot such as the Netherlands are not fully prepared for this shift, it seems unlikely that their counterparts in other countries are any readier. But some have had little choice.

At least 1,300 climate cases have been filed worldwide since 1986, mostly in the US, according to the Sabin Center for Climate Change Law at Columbia University in New York and other groups that track such litigation. The nature of these cases differs widely, as do their targets, but some of the most eye-catching are part of a new wave of climate liability lawsuits aimed at fossil fuel companies that legal scholars think have a larger chance of succeeding than past efforts.

General counsel’s role is key because they can either be a barrier to or an enabler of change

Unlike earlier cases in the US, these are not only being launched by individuals but by cities, counties and, as of last year, one state: Rhode Island. “State involvement was a game-changer in tobacco litigation,” says Joana Setzer, a research fellow at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics. Developments in climate science might also offer a better chance of establishing a link between climate change damage and a company’s liability.

Ms Setzer cautions there is still no guarantee any of these cases will succeed. But each one makes the risks of climate change more visible to shareholders, policymakers — and judges.

Caroline Cox, group general counsel at Anglo-Australian miner BHP, says lawsuits seeking damages from fossil fuel companies have failed to succeed so far because it has been hard to establish, for example, that any single company caused specific harm. But she adds: “I think that will evolve over time” (see interview below).

One Australian court decision suggests this evolution might come sooner than expected. In February, the land and environment court in New South Wales, the country’s most populated state, refused consent for a coal mine citing the project’s potential contribution to climate change as a reason. Ms Cox says although climate change was not the determining factor in the decision, it was still part of the ruling. “I think that will continue,” she says.

That raises an important point for traditionally conservative, risk-averse in-house company lawyers, says James Thornton, founder of ClientEarth, an environmental law firm that has scored a string of victories across Europe since its launch in 2007.

“The role of the general counsel really is key because they can either be a barrier to change the company needs to make, or they can be enablers of the change that the company should want to make,” he says.

At the moment, the number of in-house lawyers who are ready to abandon their conventional advisory role for a more active stance seems vanishingly small. Nearly 66 per cent of the lawyers questioned in the Dutch survey said their role in preparing their organisations for the impact of climate change was predominantly advisory. Only 7 per cent described themselves as a more proactive “pioneer”.

The question is whether that will change as climate change rises up the corporate agenda, where litigation is only one of the risks companies face. There is the physical risk of building, say, a power plant in a flood plain or insuring an office block in a wildfire zone. Then there is the so-called transition risk of dealing with rising public pressure to shift economies on to a low-carbon footing.

Limiting your thinking to ‘Is this legally OK?’ is just not enough

In 1997, there were only 72 climate laws and policies around the world, according to the Grantham research institute. Today there are at least 1,500 and more than 100 have been introduced since 2016, when the Paris Agreement came into effect. That list may grow as climate activists, investors and voters seize on the Paris accord, along with mounting scientific evidence of the need to cut emissions faster. In last month’s European Parliament elections, green parties secured a record number of seats.

For in-house company lawyers, climate change does not look like a concern that is likely to fade away any time soon.

Caroline Cox: rethinking BHP’s long-term plans

One in-house lawyer well aware of the risks of climate change, legal and otherwise, is Caroline Cox, group general counsel at BHP.

Climate activists have long targeted the Anglo-Australian mining company’s coal business, which is dominated by the coking coal used mainly for steelmaking, rather than the thermal coal used in power plants.

BHP was among the companies named in an investigation begun by the Commission on Human Rights of the Philippines in 2015, into whether fossil fuel groups have violated human rights by causing climate change.

The company formally severed ties with the World Coal Association last year, after Australian green groups urged it to quit industry lobby groups whose policies did not match the miner’s support for the Paris climate agreement.

Ms Cox says climate change is high on her team’s agenda because the company knows its long-term sustainability depends on support from investors, regulators and the broader society.

“We need the support of our communities in order to be successful,” she says.

That understanding has led to a shift in thinking on legal matters such as intellectual property rights, she adds, citing work BHP is doing with researchers on new technologies to capture and store carbon emissions.

“As a lawyer your starting position would be, ‘If we’re going to develop this kind of technology we want to protect it’,” she says. “But we are taking quite a different view because we want to contribute more broadly to ensuring that as an industry we’re impacting positively on the drive to reduce the impact of climate change.”

Recent official inquiries into Australia’s banking system underline the need for in-house lawyers to reconsider their role, Ms Cox says.

“Limiting your thinking to ‘Is this legally OK?’ is just not enough. You need to be thinking ‘Should I do this? Is this ethically OK? What is going to be the long-term ramifications of taking this step?’

“Lawyers, I think, are now starting to realise they need to take on that role.”