Litigation proves limited in curbing Big Oil emissions
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In May 2021, a Dutch court ruled that Shell must reduce its carbon emissions in line with the Paris accord. It was the first time that a judge, anywhere, had ruled that the climate treaty created obligations for individual companies, even in the absence of specific domestic laws.
“The court clearly says that you can’t wait for society to change: as a big polluter, you also have a responsibility in stopping dangerous climate change,” insists Sjoukje van Oosterhout, lead researcher at Milieudefensie, the Dutch branch of campaign group Friends of the Earth, which brought the case.
Yet, more than two years on, Shell is moving further away from the pathway that the court mandated: namely, of reducing emissions by at least 45 per cent by 2030. Wael Sawan, the oil company’s chief, has promised to maintain oil output while cutting investments in renewables. “We see no movement whatsoever in terms of trying to comply with the verdict,” says van Oosterhout.
Shell continues to argue that emissions cuts should be decided by governments, rather than courts. Its next step is an appeal, due to be heard in April 2024. But, even if it loses again, it may opt to comply with the judgment simply by selling an oil refinery or its oil-trading business — which would cut its own emissions but do little for the climate.
In this way, the case highlights the difficulties in using climate litigation to change Big Oil behaviour. As of May, 2,365 climate-related cases had been filed in countries from the US to Russia, notes the Sabin Center for Climate Change Law, a research institute. However, several oil majors have doubled down on fossil fuels, seeking to benefit from high prices following Russia’s invasion of Ukraine.
Franck Gbaguidi, an analyst at Eurasia Group, a political risk consultancy, says investors are yet to see the litigation as a systemic risk — tending to take a “siloed” view of each case, instead of “connecting the dots” between them.
A working paper by the UK’s Grantham Research Institute found that company share prices did underperform after cases were filed, but only by small amounts. Climate litigation “is not coming up in conversations”, says Oswald Clint, an oil and gas analyst at research company Bernstein.
Several factors might explain the lack of investor concern. The effects of novel litigation are hard to capture in analysts’ financial models. Court case outcomes are highly uncertain — an attempt to hold Shell’s directors liable for climate inaction in England failed this year, with the plaintiff, the charity ClientEarth, refused permission to appeal.
This article is part of an FT special report on Managing Climate Change
Cases can also drag on for many years, which may lead some chief executives, board directors and investors to believe they will be unaffected. “There is short-termism,” says Gbaguidi.
Frank Elderson, a member of the European Central Bank’s executive board, suggested in September that companies may have a “false sense of security” about their legal position. The Shell case in the Netherlands, he added, could oblige all companies in the country to align with the Paris accord.
“You ought to be very frightened if you’re a CEO,” reckons former Unilever chief executive Paul Polman, who has supported some climate litigation. By ignoring the legal risks, boards are “playing with fire”, he believes.
And this is not the only way in which climate litigation targets Big Oil. While Milieudefensie’s case against Shell was aimed at the company’s future emissions, many US climate lawsuits demand damages for past behaviour. Among the biggest is California’s case against ExxonMobil and other oil majors, filed in September.
“The reputation of Exxon in particular is they fight everything to the death,” says Richard Wiles, president of the Center for Climate Integrity, a Washington-based consultancy. “I would expect the majors to battle for as long as they can,” he says. “That may not be as long as they want.”
The damages claims are based on leaked documents, which show company awareness of climate risks. A 1978 Exxon memo summarised the scientific consensus as “man has a time window of five to 10 years” before tough decisions about energy strategies were critical.
“If you really add up what the impacts are of climate change, and hold companies responsible for their fair share of that, it’s into the trillions of dollars,” says Wiles. “That’s not even considering potential fines under consumer fraud statutes or treble damages under racketeering statutes, which could add hundreds of billions of dollars.”
The US oil industry has attacked the cases as part of a co-ordinated campaign. For years, it has fought to transfer them from state to federal courts. But, this year, the Supreme Court has, in effect, ended those attempts. Two key cases, one brought by Massachusetts, the other by Honolulu, could proceed to trial by 2025.
Still, some environmentalists worry that litigation cannot drive change quickly enough. “There’s a lot of appetite from philanthropists [to fund litigation],” says Will McCallum, co-executive director of campaign group Greenpeace UK. Yet, given emissions cuts are needed in the next decade, “often litigation isn’t going to be your friend because of the time it takes”. Greenpeace UK sees it as just one tool alongside political lobbying and public campaigns.
Wiles adds that legal cases can produce funds for climate adaptation and help shape the public debate. “This is just the beginning of litigation against these companies,” he says. “You can imagine all sorts of additional claims that might involve insurance companies, suits against directors, wrongful death claims, all sorts of things.”
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