Climate litigation in the UK and Europe

Climate litigation is a growing global trend impacting an increasing number of corporates and involving a range of actors all around the globe.

In its 2024 report on Climate Change Litigation, the Grantham Institute identifies at least 230 new climate cases filed around the world in 2023.  Although it notes that the number of cases grew less rapidly last year than previously, which may suggest a consolidation and concentration of strategic litigation efforts in areas anticipated to have the highest impact.

In Europe and the UK, climate litigation can take various forms:

Negligence and Breach of Duty of Care: Companies failing to prevent harm from their actions may face liability. 

Shareholder claims: Shareholders may try to bring claims for breach of fiduciary duty if a failure to report, inaccurate reporting, or not taking adequate action on material climate-related risks leads to financial losses or damages a company’s reputation.

Class Action claims: Similar to shareholder claims, class actions can be filed by groups of investors or consumers who have been affected by a company’s failure to accurately report its climate impact or not taking adequate action on climate-related issues.

Regulatory actions: Non-compliance with mandatory climate reporting requirements and environmental regulations can lead to regulatory actions. This could include fines, penalties, or enforcement actions by bodies like the FCA in the UK, as well as reputational loss.

Greenwashing litigation: Claims that a company has made false or misleading statements about the environmental benefits of a product or practice.

Human and Constitutional Rights claims: Some litigants argue that failure to mitigate the impact of climate change violates fundamental human rights.

Violation of environmental regulations: Increasing volumes of environmental regulation to address climate change and loss of nature expose corporates to claims for failure to comply with environmental laws.

Cases to date have focused on enforcing government climate commitments and challenging companies' climate mitigation policies. 

However, we are now seeing a proliferation in the type and quantity of climate litigation in the UK and Europe.  Companies in many different sectors face potential claims alleging: environmental damage, failure to act to meet net zero and nature positive targets, failure to address material climate- and nature-related risks, and improper management or disclosure of climate risks.

Company directors may personally face claims for breach of fiduciary duties to the company or its members if they do not assess climate- and nature-related risks and act to minimise those risks which are material, for example not taking actions to respond to climate change, or approving policies that contribute to increasing harmful emissions.

Greenwashing claims are on the rise in the UK and Europe with bodies such as the UK Advertising Standards Agency and the Competition Markets Authority taking more frequent action against corporates.

Climate liability claims in Europe and the UK

In Europe and the UK, proving causation presents a significant hurdle for claimants seeking to establish corporate liability for historic carbon emissions. To successfully claim damages , claimants will need to demonstrate a direct link between a company's actions and the resulting climate impact and loss. This difficulty is particularly pronounced when dealing with emissions that occurred decades ago.

However, developments in climate attribution science may change the landscape. If methods for establishing causal links between corporate activities and global climate change become widely accepted, it is expected to open the door to more claims. 

The "Polluter Pays" cases

As of June 2024, a snapshot report by the London School of Economics (LSE) indicates that there are approximately 30 "polluter pays" cases worldwide. These cases target corporations responsible for significant emissions and aim to hold them financially liable for climate-related damages. The outcome of these cases could set important precedents for future litigation.

The impact of litigation funding

The increasing availability of litigation funding and funders willingness to fund climate litigation is an important enabling factor, underpinning the rise in climate litigation globally. In the UK, litigation funding and proactive claimant law firms in the ESG and climate space are paving the way for more climate-related group action litigation.  

Nature-related Litigation

Insurers in the UK and Europe will also want to consider the development of nature-related claims, which have the potential to develop along similar lines as climate litigation.  With voluntary and mandatory reporting of nature-related financial risks under the Taskforce on Nature-related financial Disclosures (TNFD) and the European Corporate Sustainability Reporting Directive (CSRD), corporates in the UK and Europe may be required or may voluntarily assess, report and act on nature-related dependencies, impacts risks and opportunities, which can give rise to litigation risk. 

Climate litigation in the United States

In the United States, climate-related litigation is happening but not necessarily in the same ways as seen elsewhere in the world. Trends are evolving differently across US States lines, too. For example, state pension funds have recently faced lawsuits alleging violation of fiduciary duties when divesting from fossil fuel investments as plaintiffs focus on the significance of pecuniary returns.  Certain state legislation and policy directives prohibit consideration of “nonpecuniary” factors by public asset managers. In contrast, other states have promoted “ESG considerations” in fund management policies. 

Meanwhile, the National Association of Insurance Commissioners (NAIC) (the organization for insurance regulators of the fifty states, Washington D.C., and five U.S. territories) recently issued a statement interpreted as a neutral shift away from politically-sensitive debates: “The NAIC does not anticipate developing regulatory policy to require or prohibit insurance companies from adopting ESG policies that govern insurers’ underwriting, investing, or other business decisions.” Also this year, the SEC adopted final rules by a 3-to-2 vote to require certain climate-related disclosures for publicly listed companies, but immediately the rules were challenged in court around the country.  Given the breadth of that litigation, SEC has decided to stay implementation of the rules.

At the same time, insurers have been involved in litigation in certain state jurisdictions where plaintiffs allege through new tort theories that companies did not adequately disclose or warn of potential climate hazards related to the use of fossil fuel products. The growth of “green” and environment-related disclosures, reporting and marketing has also led to more class actions and regulatory enforcement risk as plaintiffs take aim at alleged misleading or fraudulent statements.

Implications for insurers

These trends give rise to a volatile risk landscape for insurers who will be closely considering their exposure, their appetite and their wordings, especially for liability lines and policies covering corporate defence costs, such as Directors and Officers insurance or Professional Indemnity insurance. 

New or increased climate risk can be addressed through wordings, exclusions, sub-limits and endorsements and we may begin to see greenhouse gas exclusions becoming more common across various policy lines and pollution exclusions (especially in liability lines) are likely to be closely scrutinised.

Looking ahead

As climate litigation evolves, insurers must stay informed, adapt their risk models, and engage in proactive strategies to adapt to the changing risks while continuing to offer risk management to the wider commercial economy.

Authored by Lydia Savill, Vanessa Wells, and Jordan Teti.