Forward planning: how to mitigate climate litigation risk – and thrive in business

Greta Thunberg is leading the charge in the headline-hitting climate lawsuit filed against the Swedish state for taking insufficient action on climate change. The last few years have seen an exponential rise in climate litigation and it is not only governments that are under scrutiny – businesses across the globe are increasingly targets for legal action. With climate-related litigation forecast to rise even further, the latest expert report published by Risilience and global law firm Clyde & Co: ‘The rise of climate litigation: how to understand and minimise your legal risk’, is timely. Surveying the current legal landscape and its associated risk to business, Oliver Carpenter, Head of Environmental Risk Analytics at Risilience, and a co-author of the report, sets out three key actions companies can take to be ahead of the curve in identifying emerging exposures.

“See you in court,” tweeted climate activist Greta Thunberg, attacking the efficacy of her native country’s climate policies. Her sentiment attracted support from more than 600 young people in Sweden who marched alongside Thunberg to the Stockholm district court on Black Friday in November, 2022, to protest against a lack of climate action by the state.

Fast forward to January 2023 and media interest in climate action is high. At the World Economic Forum in Davos, Switzerland, Thunberg brought the media spotlight with her when she joined other leading activists to present a ‘cease and desist’ notice to oil and gas executives – and call out the United Arab Emirates for the controversial appointment of Sultan Ahmed al-Jaber, Chief Executive of the Abu Dhabi National Oil Company, to preside over the COP28 climate talks this year. Reports from Davos also highlighted the rise of climate litigation and brought warnings of more to come, particularly in Europe where the Corporate Sustainability Reporting Directive (CSRD) ramps-up pressure for companies to disclose details of their sustainability plans.

Sharp rise in climate litigation cases

The targeting of the Swedish state and oil execs by Greta Thunberg is not an isolated case but part of a growing trend for using the law as a tool to advance climate action. Potential targets are not restricted to governments – corporate businesses are in the sights of claimants committed to strengthening the global response to climate change. Cumulatively, climate cases more than doubled from 884 cases up to 2017 to 2,002 cases as of May 2022.

While most litigation to date has been aimed at governments and major energy players, in the near future all sectors and businesses will be vulnerable. This presents new and pressing challenges to business leaders. Activists are broadening the scope of companies they choose to target, including perceived emission facilitators such as banks, insurers, auditors and PR companies, exposing organisations of every kind.

Companies are also finding themselves at risk of action targeting greenwashing. Litigation is starting to encompass non-greenhouse-gas pollutants, including plastics, short-lived climate pollutants and action that harms biodiversity – the focus of COP15, the UN Biodiversity Conference held in Canada in December last year. French food company Danone is being taken to court by three environmental groups for not sufficiently dealing with its use of plastics and media, following developments, name and shame top ‘plastic polluters’. In addition, there is a greater focus on the liability of directors and officers, bringing increasing need for senior employees to demonstrate that climate-related risks have been considered in the organisation’s strategy.

How to mitigate risk

With the sharp rise in climate-related cases forecast to continue, being prepared – proactively understanding exposure and managing the risk – will be key to business success. Our recently published report: ‘The rise of climate litigation: how to understand and minimise your legal risk’, features real-life cases and three in-depth case studies to give business leaders a deeper understanding of current, climate-related litigation trends, and practical approaches for assessing and controlling the threat at a corporate level.

Monitor the climate litigation landscape

These include three immediate steps that can be taken by businesses of every size and sector to confidently face an uncertain future.

First and foremost – forewarned is forearmed: monitoring the fast-evolving landscape to better understand relevant precedents in corporate sectors allows emerging vulnerabilities for given business models to be identified. Major legal verdicts can be a lead indicator of what’s to come in the shape of imminent legislative and regulatory changes in a specific sector – a heads-up for astute organisations wanting to adapt ahead of their competitors.

Prepare by using scenario analysis

Secondly, scenario analysis provides a powerful tool for forward planning enabled by data-informed decision-making. While there is no crystal ball for business-critical predictions, the overall direction of travel is clear, and trends are emerging. Applying a range of scenarios to understand the different ways a company can be affected by climate-related litigation and – crucially – the potential financial impacts, enables a business to be better prepared. Scenario analysis can be revelatory and yield valuable business insights. This approach delivers additional benefits by enabling a company to sharpen legal crisis plans and ensure adequate insurance is in place.

Align business with a low-carbon future

Finally, having a proactive and authentic climate strategy lays strong foundations for growth. In short, the more aligned a company is to a low-carbon future, the lower its climate litigation risk. Developing credible net-zero plans and producing high-quality climate-related financial disclosure reports are integral to a medium and long-term strategy to assess a company’s vulnerabilities. The potential to be the target of litigation is a huge headache for business leaders, and the ensuing financial and reputational damage can be ruinous. The signs of what is to come are already loud and clear, and timely preparation will deliver dividends. Leaders failing to engage or take action could place their businesses behind better-prepared competitors and expose directors, officers and boards to costly court cases.

Not only that but businesses becoming entangled in the legal machine will be brought into the critical international spotlight shining bright on Greta Thunberg and the champions of climate action.