Corporate Due Diligence and Reporting Requirements for Climate Change and Human Rights

In: International Community Law Review
Jacinta Studdert Clyde and Co. Sydney, NSW Australia

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Valencia Govender Clyde and Co. Sydney, NSW Australia

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Johann Spies Clyde and Co. Sydney, NSW Australia

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Marta Jarque Branguli Clyde and Co. London United Kingdom

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Sofia Nievas Clyde and Co. London United Kingdom

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Maria Fernanda Roca Silva Clyde and Co. London United Kingdom

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Wen Zhu Clyde and Co. Beijing Mainland China

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Pryderi Diebschlag Clyde and Co. Central Plaza, Wanchai Hong Kong

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Remi Sassine Clyde and Co. Paris France

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Wim Cilliers Clyde and Co. Cape Town South Africa

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Kate Swart Clyde and Co. Cape Town South Africa

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Milena Szuniewicz-Wenzel Clyde and Co. London United Kingdom

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Sarah Hill-Smith Clyde and Co. London United Kingdom

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Saskia Wolters Clyde and Co. London United Kingdom

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Catherine Wang Clyde and Co. London United Kingdom

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Human rights, climate and nature-related corporate due diligence and reporting requirements differ around the world. In this article, we examine the legal and regulatory landscape that businesses are faced with in the following eight jurisdictions: (i) Australia; (ii) Chile; (iii) Mainland China; (iv) Hong Kong; (v) Colombia; (vi) France; (vii) South Africa; and (viii) the United Kingdom. We also provide a snapshot of key climate and sustainability-related legal developments in these jurisdictions, including important climate litigation and new legislation. Our findings indicate that reporting standards and regulatory requirements are evolving in each jurisdiction, and they show that a further increase in climate-related litigation is anticipated across these jurisdictions.

1 Introduction1

As the global economy transitions towards a low carbon future, businesses are faced with a continually evolving regulatory and legal landscape. New sustainability and reporting requirements are being introduced around the world, but not all countries are at the same stage of their net zero journey. Accordingly, guidance and regulations differ greatly between jurisdictions.

In most countries, sustainability reporting is voluntary, but is soon becoming mandatory for companies of a certain size (for example, under the incoming EU directives discussed below). Many corporations are voluntarily adopting sustainability reporting to get ahead of the curve. Yet navigating these new requirements is difficult and marks a significant shift from established business practices. This is particularly so for global companies who may be impacted by several different reporting regimes and sustainability requirements at once.

In this article, we explore the legal, sustainability reporting and due diligence landscapes in 9 jurisdictions. The aim is to provide the reader with a representative and comparative analysis of legal and sustainability regimes across the globe. We also explore key climate- and sustainability-related legal developments in these jurisdictions, including important climate litigation and new legislation, to provide a snapshot of those countries’ progress in these areas.

At Clyde & Co we are committed to doing our bit and have set ambitious goals for reducing our various emissions on a global basis. In the same vein, we are committed to working with all our clients, not least those for whom reducing emissions is more challenging, because of the nature of the business, to assist in reaching emissions targets and managing the regulatory exposure.

2 Overview of the Study in Different Jurisdictions

2.1 Australia

2.1.1 What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence and Reporting Requirements Exist in Australia?

As the law stands currently, broad-based ESG reporting remains voluntary in Australia, though discrete obligations apply to certain entities, such as the reporting obligations under:

  • (i) the Modern Slavery Act 2018 (Cth) which requires annual reporting by entities based, or operating, in Australia, which have an annual consolidated revenue of more than $100 million; and

  • (ii) the National Greenhouse and Energy Reporting Act 2007 (Cth) which establishes a national reporting framework for greenhouse gas (GHG) emissions and energy consumption and imposes mandatory obligations on certain entities to report GHG emissions and energy usage. The Act requires reporting on scope 1 and 2 emissions by Australian corporate groups that emit 50,000 tonnes of carbon dioxide equivalent or more of GHG, produce 200 terajoules (TJ) or more of energy, or consume 200TJ or more of energy per financial year.

It is also widely accepted that Australian law requires any material exposure to climate change risks to be incorporated into various financial disclosures required by the Corporations Act 2001 (Cth) particularly in directors’ reports (s 299 and s 299A(1)), annual financial reports (s 295) and continuous disclosure obligations (s 674). In addition to these requirements, entities must also comply with the overriding prohibition against misleading and deceptive conduct, and a company and its directors face a risk of being found liable for misleading and deceptive conduct by not having had reasonable grounds to support the express and implied representations contained within its disclosures and statements, including, for example stated net zero commitments or other ESG commitments.

ASX-listed entities are also required (under Listing Rule 4.10.3) to publish an annual corporate governance statement disclosing the extent to which the entity has followed the ASX Corporate Governance Principles & Recommendations. These governance recommendations include the recommendations in relation to a listed entity’s management of ESG matters such as:

  • (i) having measurable objectives set by the board for achieving gender diversity in the composition of its board, senior executives and workforce generally, and the entity’s progress towards achieving those objectives;

  • (ii) reporting on the respective proportions of men and women on the board, in senior executive positions and across the workforce or ‘Gender Equality Indicators’ under the Workplace Gender Equality Act 2012 (Cth); and

  • (iii) reporting on the entity’s exposure to any material environmental or social risks and how it manages these risks, such material exposure being where there is a real possibility that environmental or social risks could materially impact the entity’s ability to create or preserve value for shareholders over the short, medium or longer term.

While it is not mandatory to comply with every recommendation, the corporate governance statement is required to disclose the entity’s reasons for non-compliance with any recommendation.

In addition to the above, ASIC has frequently referred to and has recommended the adoption of the Task Force on Climate-related Financial Disclosures (TCFD) disclosure regime by listed companies, and APRA has similarly indicated its support for that regime for regulated entities. Currently, adoption of the TCFD recommendations remains voluntary however, following the most recent elections, the new Government in Australia has made a number of statements indicating that they intend to introduce a mandatory disclosure regime for large Australian companies.

In line with the stated position on a mandatory climate change risk disclosure regime noted above, the recent establishment of the International Sustainability Standards Board (ISSB) and its release of its two draft sustainability standards addressing general sustainability and climate-related disclosure requirements, may result in legislative and regulatory changes that mandate large companies, including listed companies and financial institutions, to comply with these standards to the extent adopted in Australia.

Notwithstanding the fragmented obligations and often voluntary nature of ESG disclosure regimes in Australia, voluntary sustainability reporting is now a prominent feature of corporate reporting among the majority of regulated entities and ASX200 entities, including the following actions:

  • (i) Many of the aforementioned entities are making and disclosing commitments to achieve net zero emissions by or before 2050;

  • (ii) As noted above, and encouraged by ASIC and APRA, amongst other regulations, listed and regulated entities have increasingly adopted the TCFD framework to make climate risk disclosures;

  • (iii) Reconciliation action plans (RAPs) (a voluntary form of engagement with First Nations peoples) have increasingly been adopted, requiring organisations to commit to taking specific actions to drive the organisation’s contribution to reconciliation with First Nations peoples. The commitments are developed following a standardised framework and are accredited by an independent not-for-profit, Reconciliation Australia, which publishes accredited organisations’ RAPs on its website.

  • (iv) An increasing number of entities have taken to disclose actual or potential negative impacts of an organisation’s operations on human rights tend by reference to international guidelines, including the UN Guiding Principles on Business and Human Rights, the Global Reporting Initiative and/or the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises.

Corporate compliance with voluntary ESG regimes, and increasing levels of corporate due diligence and disclosure, have been accelerated in Australia in at least part by increasing levels of stakeholder engagement on these issues.

Australia has one of the largest amounts of climate change related litigation per capita globally. At the end of 2021, it was reported by the NSW Law Society that Australia was second only to the United States for the number of climate change cases since 1993, at 121 cases. This litigation takes a broad range of forms, including shareholder actions, challenges to Government projects, litigation against banks and superannuation funds, and greenwashing claims.

There has also been increasing use of statutory mechanisms available to shareholders by shareholder advocacy groups looking to influence corporate behaviour on ESG matters, including proposing and supporting resolutions which require companies to implement behaviour aligned with ESG objectives (e.g. producing and implementing plans to close coal assets in energy companies) and supporting the appointment or removal of directors in accordance with their support of ESG objectives.

Australia has also seen an increasing pressure on organisations from institutional investors and financiers, which are frequently applying ESG requirements and monitoring as part of their engagement. Generally, ESG factors are now standard considerations in broader investment and business strategies of financiers and specific borrower assessments. Australia’s major banks and other financiers use ESG risk frameworks and set targets for ESG investments, and now increasingly require borrowers to comply with these, even where the borrower is not seeking to use ESG as a means of improving its borrowing position. It is now common for financiers to have designated ESG teams that focus on implementing ESG-focused financings or monitoring ESG compliance within the organisation. Similarly, institutional investor industry groups are increasingly making recommendations to its members in respect of ESG requirements for investees.

2.1.2 Recent Developments in Domestic Case-Law/National Legal Proceedings

Over recent years, there has been an increase in litigation in Australia with a climate change focus. Below we identify some of the key trends in litigation and provide a brief review of some of the Court decisions. What are the Recent Trends in the Courts and What Are the Outcomes of Climate-Related Litigation?
a Companies and Boards Are under Pressure to Act

Companies are under growing pressure from investors (including individual shareholders and institutional investors), investor groups, consumers and the public to disclose and address the risk that may arise out of environmental, social and governance issues and in particular climate change.

Companies are being pursued because of their actions and also inactions on climate change risks including advice that they have given on climate change risks. Companies are being required to provide much greater transparency on the climate change risks and the assessment and management of those risks. Mark McVeigh v Retail Employees Superannuation Pty Limited NSD1333/2018 is an example of such climate activism and focused on the disclosure of climate risk. In this case the parties reached a settlement where the Australian pension fund agreed to incorporate climate change financial risks in its investments and implement a net-zero by 2050 carbon footprint goal.

In Abrahams v Commonwealth Bank of Australia NSD864/2021, two shareholders brought an action against the Commonwealth Bank of Australia (CBA) in the Federal Court seeking access to details of the bank’s alleged involvement in seven oil and gas projects which potentially infringed its Environmental and Social Framework and Environmental and Social Policy. These policies required the bank to carry out an assessment against its project in respect of their environmental social and economic impacts and whether they are consistent with the objectives of the Paris Agreement. On 4 November 2021 orders were made in favour of the Applicant (Abrahams) granting his legal team access to a wide range of documents including board room minutes, on a confidential basis, to assess the representations made by CBA. This matter is ongoing at the time of writing.

b Decision Makers Are Not Exempt from Action

Australia is increasingly seeing cases against state and federal governments (including regulators) to limit the prevalence and intensity of emission intensive projects due to impact on climate change. These cases predominantly rely on environment and planning law, as well as administrative and constitutional law.

In O’Donnell v Commonwealth FCA VID482/2020, a class action is being brought against the Australian government for failing to disclose the impacts of climate change to investors in sovereign bonds. The claim was made under section 12DA of the Australian Securities and Investments Commissions Act 2001 (Cth), which prohibits misleading and deceptive conduct in relation to financial services. This matter is ongoing.

In Bushfire Survivors v NSW EPA [2021] NSWLEC 92, the plaintiff was successful in its action against the NSW Environment Protection Authority (NSW EPA) for failing to perform its duties under the relevant legislative scheme and having adequate policies to deal with the consequences of climate change. The NSW EPA recently received mandamus orders that compelled it to introduce instruments to better protect the state from the effects of climate change.

There is increasing scrutiny by activists on consent authorities and their assessment of the climate change impacts of projects. In Sharma by her litigation representative Sister Marie Brigid Arthur v Minister for the Environment [2021] FCA 560, 8 young people filed a class action in the Federal Court to stop an extension to a coal project that would allow the colliery to extract an additional 33 million tonnes of coal and would in turn result in 100 million tonnes of carbon dioxide being emitted into the air when that coal is burned. The Court found that the Minister has a duty of care to the applicants to exercise her decision-making powers in a manner that does not cause the children harm. Although the Minster’s duty of care was established, the Court refused to grant the injunction sought. The Court’s decision was overturned on appeal.

In Gloucester Resources Limited v. Minister for Planning [2019] NSWLEC 7 the Land and Environment Court confirmed the refusal to grant an authorization to commission a cut coal mine in New South Wales which proposed to produce 21 million tonnes of coal over a period of 16 years. The Court held that the project was not in the public interest and in coming to this conclusion considered several factors including the climate change impacts of the mine’s direct and indirect greenhouse gas emissions.

We have also seen causes of action against decision makers based on human rights law. In Waratah Coal Pty Ltd v Youth Verdict Ltd (Queensland Land Court, MRA050-20 (ML70454) EPA051-20 (EPML00571313)) (Waratah Coal) an environmental group challenged the decision to grant a mining lease and rights to develop a coal mine based on the Human Rights Act 2019 (Qld) (Human Rights Act). The Human Rights Act provides that it is unlawful for a public entity to act or make a decision that is not compatible with human rights or that fails to give proper consideration to human rights. Youth Verdict alleges that the grant of the mining applications will contribute to climate change and thereby infringe a number of rights under the Human Rights Act. The case is on-going at the time of writing but is likely to be important as it may provide the precedent for future human rights-based climate change litigation in Australia.

c Scientific Basis and Communities

There is an increasing reliance by the judiciary on climate change attribution science to inform its decisions on findings of harm suffered by individuals or groups.

In a recent decision, Stockland Development Pty Limited v Sunshine Coast Regional Council & Ors [2022] QPEC 30, Stockland Development Pty Ltd lodged an unsuccessful appeal with Queensland’s Planning and Environment Court after the Sunshine Regional Council refused it consent to build a residential and business precinct on a former cane farm. Like in the Sharma decision, the Court relied on climate attribution science to demonstrate the increasing risk of harm to humans and the climate due to climate change and cautioned Stockland for relying upon high rainfall figures while failing to consider the drier than average periods occasioned by climate change.

There has also been a rise in claims by communities in relation to failures by government against the background of climate attribution science. For example, in Pabai and Guy Paul Kabai v. Commonwealth of Australia VID622/2021 representative proceedings are, at the time of writing, being brought on behalf of all Torres Strait Islander persons from 1985 onwards who have suffered loss or damage as a result of the government’s conduct in failing to mitigate and adapt to climate change and to reduce emissions. The applicants claim that the Commonwealth breached its duty to the Torres Strait Islanders by not setting carbon emissions reduction targets consistent with the best available science. The outcome is likely to be interesting, especially in light of the recent findings of the United Nations Human Rights Committee determined in an action brought by Torres Strait Islander representatives in which it was alleged that Australia failed to take mitigation and adaption measures against the effects of climate change. The Human Rights Committee found that Australia had infringed the rights of the Torres Strait people protected by the International Covenant on Civil and Political Rights.2

d Regulatory Scrutiny and Greenwashing

These cases should also be viewed in light of the position adopted by certain regulators in Australia (including Australian Securities & Investments Commission (ASIC), Australian Prudential Regulation Authority and the Australasian Centre for Corporate Responsibility (ACCR)).

There is increased regulatory scrutiny on corporate disclosures and directors’ duties and with it a shift by industry to report both in terms of mandatory and voluntary reporting frameworks in order to meet their obligations under various company laws. Many companies are adopting the TCFD reporting framework to ensure robust reporting. ASIC released a tranche of material last year which reiterates the need for listed companies to report to comply with their disclosure obligations and to also disclose useful information to investors. The most notable trend, likely because of the pressure on companies to disclose information, is increased regulatory interest in “greenwashing”.

ASIC specifically requires climate-related disclosures to be included in a company’s operating and financial review under section 299A(1)(c) of the Corporations Act 2001 (Cth) (Corporations Act) where climate risk is a material issue that affects the company’s achievement of its financial performance.

Companies need to be careful when making disclosures and commitments under this regime as they can give rise to liability risks where such commitments are considered misleading or deceptive under the Australian Consumer Law; Corporations Act and ASIC Act 2001 (Cth).

The Australian Competition & Consumer Commission has recently noted that the burden of proof is reversed for environmental claims that are forward-looking3 and that business should be particularly careful when making forward-looking statements about their response to climate change as the company making the claim “has to validate it and substantiate it, and if they are not in a position to do so there is a presumption of breach”.

Legal challenges on the basis of greenwashing have already begun. For example, in August 2021, the ACCR sued Australian oil and gas company Santos over its claims that it provides clean energy natural gas and has a plan for net zero emissions by 2040. ACCR raises 2 major claims:

  • (i) ACCR alleges that Santos’ claims that natural gas is “clean fuel” that provides “clean energy” misrepresents the true effect of natural gas on the climate, including the large releases of CO2 and methane during extraction and burning.

  • (ii) Santos’ claim that it has a clear and credible plan to achieve net zero emissions by 2040 is misleading. ACCR alleges that Santos plans to expand its natural gas operations and that its plan depends on undisclosed assumptions about the effectiveness of carbon capture and storage processes. ACCR alleges that these misrepresentations are in violation of Australian consumer protection and corporations’ laws.

The ACCR has since expanded its case to include alleged greenwashing in Santos’ 2020 investor day briefing and 2021 climate change report and has amended its pleadings to allege that the company’s representations that blue hydrogen is “clean or “zero emissions” constitutes misleading or deceptive.

Energy companies have been the recipients of infringement notices for making claims considered by ASIC to be unsubstantiated. In this regard, an ASX listed company, Black Mountain Energy Ltd, was issued with an infringement notice in the amount of $39,960 after it ASIC alleged that the company made 3 ASX announcements about the creation of a natural gas development with “net zero carbon emissions”.4 ASIC said the company had not progressed any specific works to achieve its net zero goal, nor allocated funding for such works. It had not developed a detailed plan to achieve its aim. It had not specifically modelled the likely CO2 emissions, or the likely cost in offsetting those emissions. Similarly, Tlou Energy Ltd was given a $53,280 infringement notice by ASIC for making announcements it said had no reasonable basis in relation to the company’s carbon neutral energy production and low emission gas-to-power projects.5

ASIC has also issued notices to investment companies for greenwashing claims. For example, a superannuation trustee, Diversa Trustees Ltd, was issued with an infringement notice of $13,320 as ASIC believed that it overstated the exclusions (aka investment screens) applying to its Cruelty Free Super (CFS) product, in statements on CFS’s website. CFS did apply investment screens, but they were more specific and limited than its website suggested. The screens did not exclude “polluting and carbon intensive activities” outside the context of destroying “valuable environments”. Nor did the screens exclude “financing or support of activities which cause environmental or social harm” other than predatory lending. The screens did not exclude companies based on a substantive review of corporate governance issues beyond those subject to “controversy”.6 ASIC also issued an infringement notice ($39,960) to an investment management company, Vanguard Investments Australia Ltd, for issuing Product Disclosure Statements (PDS) that overstated it claim not to invest in tobacco. The PDS noted an exclusion claiming a particular index fund “excludes securities involved in the production, manufacturing, or significant sales of tobacco”. The index fund only excluded manufacturers/producers of cigarettes and other tobacco products, but it did not exclude companies involved in the sale of tobacco products.7

2.1.3 What Do You Anticipate Happening Next?

Given the above, it is expected that:

  • (i) increasing numbers of organisations will adopt ESG diligence and disclosure regimes into their governance and risk frameworks and we will see an increasing number of ESG related disclosures, statements and commitment;

  • (ii) regulators will continue and increase their focus on ESG related matters, including pressuring particularly large, listed and regulated companies to develop governance and risk frameworks in respect of these matters and carefully reviewing those companies’ statements, commitments and marketing for potential greenwashing;

  • (iii) Australia will likely adopt mandatory disclosure regimes in respect of additional ESG related matters, including specifically adopting a mandatary climate change risk disclosure regime in line with the ISSB standards.

Moreover, as a result of the many established litigation funders operating in Australia, we expect there to be more actions exploring climate change related claims against Australian entities and their boards.

In the public entity environment, we may also see mass tort-based claims or securities class actions stemming from alleged inadequate climate transitions.

2.2 Chile

2.2.1 What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence and Reporting Requirements Exist in Chile?

The Climate Change Framework Law8 came into force on 13 June 2022. It mainly established the different levels of legal and policy instruments and plans to be implemented, on a national, regional and local level, in order for the country to reach its mitigation target by 2050.9 It also established additional reporting obligations for certain types of companies.

a Publicly Traded Companies

Publicly Traded Companies will have to provide, at least annually, to the Financial Market Commission and the general public, information referring to the environmental and climate change impacts of their activities, including the identification, evaluation and management of the risks related to these factors, together with the corresponding metrics.10

The investment policies of investment funds must mention as a minimum, the way in which their investment strategies, corporate governance, risk management, and investment and diversification decisions incorporate environmental factors, with a specific reference to environmental impacts and climate change.11

b Pension Fund Management Companies

Pension Fund Management companies must now include in the investment policies of each type of pension funds they manage, as a minimum, the way in which their investment strategies, corporate governance, risk management, and investment and diversification decisions incorporate environmental factors, with a specific reference to environmental impacts and climate change.12

Nevertheless, such reporting requirements are still to be further refined by the Chilean Financial Market Commission, which will issue a General Instruction (‘Norma de Carácter General’) detailing the frequency in which investment policies must be reviewed and updated. What Is the Impact of Corporate Due Diligence Requirements on Business Operations, Corporate Governance, Finance and Relationships with Supply or Value Chain Partners?

There is no real current impact on business operations and the impact on corporate governance has been identified above.There has, however, been recent commitment to climate change causes by the Chilean public financial authorities.

In December 2019, the Ministry of Finance, the Financial Market Commission, the Pensions Agency and the Central Bank of Chile declared their commitment to promote an adequate management of risks and opportunities associated with climate change, in order to maintain the development and stability of the financial system.13 Also in December 2019, the Financial Market Commission (CMF) and the Chilean Central Bank became members of the Central Banks and Supervisors Network for Greening the Financial System (NGFS), which aims to contribute to the exchange of experiences and best practices for proper environmental and climate risk management in the financial sector, and to support the transition towards a sustainable economy.14

On this basis, it is expected that additional climate related financial requirements will be put in place soon. What Remedies Exist for Breaches of Corporate Due Diligence & Reporting Requirements?

Remedies vary depending on the type of reporting company that is in breach.

a Publicly Traded Companies

If publicly traded companies fail to provide the required information in time, the Financial Market Commission may apply actions ranging from a reprimand to a revocation of a licence to operate.15 A fine can also be issued of up to 15,000 UF (382,000 GBP currently, approx.) or 30% of the value of the operations carried out in breach of the Law or double of the benefit obtained as a result of the irregular operation. A reprimand or fine may be applied to either the company itself, or its directors, managers, employees, external auditors or liquidators.

b Investment Funds

Lack of compliance with their investment policies may lead the Chilean Financial Market Commission to suspend the offering or commercialization of the fund until any non-compliance is corrected. If the lack of compliance persists, the Commission may order the liquidation of the relevant fund.16

c Pension Fund Management Companies

Lack of compliance with their investment policies can result in the application of sanctions ranging from reprimand to revocation of license to operate.17 A fine can also be issued of up to 15,000 UF (382,000 GBP currently, approx.) or 30% of the value of the operations carried out in breach of the Law.

2.2.2 Recent Developments in Domestic Case-Law/National Legal Proceedings What Are the Recent Trends in the Courts?

At the time of writing, since 2016, there have been only seven climate related cases in Chile. Most of the cases relate to constitutional protection actions presented before Courts of Appeal, in order to halt current projects or bidding processes, mainly on the basis that previous environmental impact assessment(s) did not consider ‘climate change’ as a relevant factor to take into account for their approval, and thus must be reassessed. Such claims have also been brought before local ‘Environmental Courts’ (through specific ‘environmental reclamation actions’), with different outcomes. Finally, exceptionally, in only one of the cases, there is a direct request of permanent closure of a project (a thermoelectric power plant in Huasco) just on the basis that its emissions are affecting the health of residents and neighbours of the area.18, 19 What Are the Outcomes of Climate-Related Litigation? What Is the Court’s/Judge’s Approach?

Rulings have varied, and at the time of writing there are no settled criteria either in the ordinary courts (in charge of reviewing constitutional protection actions) or in the specialized Environmental Courts (in charge of reviewing specific environmental reclamation actions). With regards to the need to consider ‘climate change’ as a relevant factor when carrying out environmental impact assessments, Environmental Courts have given contradicting opinions.20 The Chilean Supreme Court has ruled that such a factor must be considered during the environmental impact assessment processes.21

2.2.3 What Do You Anticipate Happening Next? What Lessons Can Be Learnt?

It is likely that there will be an increase in climate related disputes (both of judicial and ‘administrative’ nature), especially on the grounds of new regulation currently being enacted in the country, including the recent Climate Change Framework Law, and legal and policy instruments / plans to be implemented in the coming years, at a national, regional and local level.

2.3 China

2.3.1 Mainland China What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence and Reporting Requirements Exist in Mainland China?

The Announcement on Enterprise Environmental Information Disclosure, issued by the former State Environmental Protection Administration in 2003, may be regarded as China’s first piece of legislation requiring corporates to disclose environmental information. A number of pieces of legislation addressing corporates’ environmental information disclosure were issued thereafter.22

More recently, the Reform Plan for the Law-based Disclosure Regime of Environmental Information (the “Reform Plan”) was issued in May 2021 and set out the general principles and goals for the disclosure of environment-related information with a macro perspective.23

On 8 February 2022, the Administrative Measures for Enterprise Environmental Information Disclosure (the “New Measures” – 《企业环境信息依法披露管理办法》), promulgated by the PRC Ministry of Ecology and Environment, came into effect.24

Taken together, the New Measures and the Reform Plan unify various legislation previously issued for the purposes of regulating the disclosure of corporate environmental information in China. They set out (among others) the scope and timeframe for corporates to disclose environment-related information and the legal consequences if any corporate fails to do so.25 What Is the Impact of Corporate Due Diligence Requirements on Business Operations, Corporate Governance, Finance and Relationships with Supply or Value Chain Partners?

The New Measures imposes disclosure obligations upon entities with large environmental impact and high public concern. According to Articles 7–10 of the New Measures,26 entities subject to compulsory disclosure of environment information include (among others):

  • (i) key pollutant dischargers;

  • (ii) enterprises that implement mandatory cleaner production audits;

  • (iii) listed companies and subsidiaries within the consolidated financial statements; and

  • (iv) enterprises that utilise public debt financing instruments and meet the prescribed circumstances.

The time limit to satisfy corporates’ disclosure requirements under the New Measures is tight. For example, pursuant to Article 17 of the New Measures, any temporary disclosure of environmental information must be submitted within five working days from the date of receipt of relevant legal documents.27

The New Measures also clarifies the scope of environmental information subject to disclosure. This includes, for example, corporates’ environmental management information, and carbon emission information. The content and scope of disclosure obligations depends on the type of the entity concerned (New Measures, Articles 11–16).28

The measures are expected to enhance allocation of environmental resources, promote corporates’ research and development on usage of clean energy, and supervise corporates’ implementation of environmental protection regime. They are also expected to help consolidate social consensus and encourage corporates to collaborate with others in the supply chain which have complied with environmental laws in China.29 What Remedies Exist for Breaches of Corporate Due Diligence & Reporting Requirements?

The New Measures impose higher fines on more types of acts in breach of corporates’ disclosure requirements than applied before their introduction.

According to the New Measures, following types of illegal acts, are subject to administrative penalties, such as rectification by order, public warning, and fines. They are:

  • (i) failure to disclose environmental information, or when the disclosed information is later found to be untrue or inaccurate;

  • (ii) disclosure of environmental information without meeting the requirements on form and content prescribed by the environment protection authorities;

  • (iii) failure to disclose environmental information within the time limit; and

  • (iv) failure to upload environmental information to the corporate environmental information disclosure system according to the law.30

If a corporate commits any illegal acts as set out above, the current fine for item (i) above ranges from RMB 10,000 to RMB 100,000; and for items (ii) to (iv) above, it can be up to RMB 50,000.31

According to a press report, in the fourth week of May 2022, 45 affiliated companies (related to 39 listed companies) in China received administrative penalty decisions relating to ecology and environmental issues, decisions ordering correction of illegal environmental acts, or untrustworthy scoring decisions on environmental impact assessment.32 Recent Developments in Domestic Case-Law/National Legal Proceedings What Are the Recent Trends in the Courts?

Chinese courts are dealing with an increasing number of environmental disputes. There was a total number of 11,300 cases involving over 11.7 billion yuan ($1.64 billion) of compensation for ecological and environmental damage in 2021.33

According to a press report dated 20 September 2022, over the past 10 years, a total of 1.965 million of environmental resource related cases were heard before the Chinese courts, including (among others) 244,000 criminal cases, 1.378 million civil cases, and 343,000 administrative cases.34

Notably, the Supreme People’s Court of China has set up trial courts specifically dealing with environmental resource disputes. 2,426 of specialised institutions or organizations have also been established across China in resolving climate-related disputes.35 What Are the Outcomes of Climate-Related Litigation? What Is the Court’s/Judge’s Approach?

Chinese courts have been treating climate-related litigation seriously. Severe punishment has been imposed upon crimes such as illegal discharge of wastewater, illegal dumping, and disposal of hazardous waste.36

Special reviews have been conducted on mineral mining contracts in ecologically protected areas. In turn, companies spending a considerable time and cost on mining exploration may not be granted a licence to actually mine the field, if the State decides to maintain the field as an ecological protection area.

Notably, on 13 January 2022, the Supreme People’s Court of China issued a judicial interpretation which clarifies the application of punitive damages in ecological and environmental infringement disputes (the “Judicial Interpretation”). According to the Judicial Interpretation, malicious wrongdoers in breach of environmental laws in China may be ordered to pay an amount of compensation exceeding the amount of actual loss.37 What Do You Anticipate Happening Next? What Lessons Can Be Learnt?

With the implementation of the New Measures, an increasing number of corporates run the risk of climate-related litigation, being ordered to pay compensation, and the consequent negative publicity which would follow a breach. Therefore, corporates operating in mainland China and/or subject to Chinese environmental laws should carefully assess the potential environmental impacts of their businesses.

Outside mainland China too, the Kenya coal power project case highlights the importance of Chinese investors in foreign countries taking environmental risks seriously. Late in 2020, Kenyan environmental and community workers won a lawsuit against the Kenyan government, by which the Kenyan government had to cancel a coal-fired power station project supported by three Chinese state-owned enterprises, since the power station was to be located at the old city of Lamu Island – a UNESCO World Heritage Site.38 Such cases suggest that Chinese companies investing in projects overseas may well find themselves increasingly at risk from measures designed to protect the environment in those countries.

2.3.2 Hong Kong What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence and Reporting Requirements Exist in Hong Kong?

There is no single regulation governing corporations’ due diligence or reporting requirements in Hong Kong.

The Environmental Impact Assessment Ordinance (the “EIAO”), which came into force 24 years ago, imposed a mandatory procedure for the assessment of environmental impacts and risks caused by a range of designated development projects, such as transport infrastructure, reclamation of land and industrial facilities. However, while the EIAO requires that consideration be given to the environmental consequences of a specific project, it does not address climate change, energy efficiency, human rights, noise or light pollution.

Instead, individual regulators impose their own requirements. In order to co-ordinate the management of climate and environmental risks to the financial sector, the Green and Sustainable Finance Cross-Agency Steering Group (the “Steering Group”) was established in May 2020. The Steering Group is co-chaired by the Hong Kong Monetary Authority (“HKMA”) and the Securities and Futures Commission (“SFC”), with membership comprising the Environment Bureau, the Financial Services and the Treasury Bureau, the Hong Kong Stock Exchanges and Clearing Limited (“HKEX”), the Insurance Authority and the Mandatory Provident Fund Schemes Authority. This has markedly increased the consistency of approaches between regulators.

By way of example only, the Hong Kong Stock Exchange’s requirements are set out in Appendix 27 to the Main Board Listing Rules (the “Listing Rules”) and Appendix 19 to the GEM Listing Rules.39 These provide an “Environmental, Social and Governance Reporting Guide”, which includes mandatory disclosure requirements in Part B, and “comply or explain” requirements in Part C (i.e. issuers are required to disclose, or otherwise explain why disclosure is not required).

In December 2021, the Hong Kong Monetary Authority (“HKMA”) introduced a new Climate Risk Management module, entitled “GS-1”, in its Supervisory Policy Manual for authorised financial institutions. Compliance is required by 30 December 2022. In conjunction with GS-1, the HKMA published a circular setting out “Sound practices supporting the transition to carbon neutrality”.

GS-1 provides guidance and requirements relating to governance, strategic planning, climate risk management and disclosures. It also clarifies that climate-related risks are covered by the Seventh Schedule to the existing Banking Ordinance (Cap. 155 of the laws of Hong Kong), i.e. Authorised Institutions must (i) maintain adequate accounting systems and systems of control, and (ii) conduct their business with integrity, prudence and professional competence and in a manner which is not detrimental to the interests of depositors or potential depositors, and these aspects do encompass climate-related risks.40

Similarly, on 20 August 2021 the SFC concluded a consultation on the Management and Disclosure of Climate-related risks by Fund Managers and amended the Fund Manager Code of Conduct to require Fund Managers41 managing collective investment schemes to take climate-related risks into consideration in their investment and risk management processes and make appropriate disclosures.42 What Is the Impact of Corporate Due Diligence Requirements on Business Operations, Corporate Governance, Finance and Relationships with Supply or Value Chain Partners?

Given the nature of the regulatory environment in Hong Kong, specific advice should be sought in each individual case. However, by way of example for listed companies, the Listing Rules require:

  • (i) Issuers to publish ESG reports on an annual basis; and

  • (ii) the Directors’ Report for each financial year to include, within its business review, a discussion of the Issuer’s environmental policies, its performance against those policies, compliance with relevant laws and regulations and an account of its relationships with employees, customers and suppliers.

In addition, the mandatory disclosure requirements include disclosure of:

  • (i) the board’s oversight of ESG issues, management approach and strategy, including risk evaluation processes, and conclusions from the Board about progress made (if any);

  • (ii) the processes in place to identify, and criteria for the selection of, material ESG factors;

  • (iii) information on the standards, methodologies, assumptions and/or calculation tools used for reporting emissions and energy consumption (if applicable);

  • (iv) any changes in the KPIs or assessment methodologies used; and

  • (v) the scope of the ESG report, and process used to determine that scope.

The “comply or explain provisions” require further evaluation and reporting on the policies in place, statistics and progress of key performance indicator’s (“KPI’s”) for the following categories:

  • (i) Environmental, including emissions, generation of waste, efficient use of resources (energy, water and packaging), and other impacts on the environment and climate change;

  • (ii) Social, including as employment (compensation, dismissal, working hours, rest periods, equal opportunities, diversity, anti-discrimination and specific KPIs for the workforce and turnover rate in terms of gender, age and geographical region), health and safety measures (fatalities, injuries and measures adopted, implemented and monitored), development and training activities, and measures in place to avoid child labour;

  • (iii) Operating practices, including environmental and social risks arising out of the supply chain management, product responsibility (healthy and safety, advertising, labelling and privacy matters) and anti-corruption cases, preventative measures and training; and

  • (iv) Community engagement.

Extensive internal due diligence will therefore be required in order to allow listed companies to identify risks, set KPIs and report on compliance. In order to assist issuers to comply with the above obligations, the HKEX published practical “Guidance on Climate Disclosures”, dated November 2021. How Does Corporate Due Diligence Ensure Accountability for Climate or Social Harms Throughout the Supply Chain?

As the focus is presently on ensuring corporate governance procedures and policies are in place, at present it is difficult to say that accountability is ensured throughout the supply chain. Further, compliance will ultimately be determined/investigated by each regulator independently and there is little data available to determine the resources available to them or the efficacy of such processes.

For example, while the Listing Rules require listed companies to have targets (KPIs) in place in order to allow ESG policies and management systems to be evaluated, such targets are set by the issuer themselves and are subject to materiality thresholds determined by the board, i.e. the board determines which ESG issues are sufficiently important to investors and stakeholders to warrant reporting, and the level of their associated KPIs.

Similarly, while Fund Managers of large funds with more than HK$8 billion under management are required to make reasonable efforts to disclose available Scope 1 and Scope 2 GHG emissions data, the SFC has recognised that this is a developing area and there are reliability issues around calculating GHG emissions. The SFC therefore applies a “reasonable and practical approach”, allowing Fund Managers to state their methodologies, limitations and any assumptions. What Remedies Exist for Breaches of Corporate Due Diligence & Reporting Requirements?

Each of the respective regulators may take enforcement action to ensure compliance with their rules. The consequences can be severe. By way of example, if a breach of the Listing Rules is identified, the Listing Committee of the HKEX may issue public or private criticism or censure, state publicly that in its opinion the involvement of an individual as a director or in senior management of the issuer may cause prejudice to the interests of investors, suspend trading or cancel the listing of the issuer’s securities, ban its professional advisors or order remedial action be taken within a specified period. In each such case the party who is subject to such proceedings has the right to a hearing. Recent Developments in Domestic Case-Law/National Legal Proceedings What Are the Recent Trends in the Courts?

Climate-related litigation of the type contemplated by this note is in its infancy in Hong Kong and there are yet to be any notable trends or developments in the courts. The Environmental Protection Department (the “EPD”) is, however, active in enforcing existing environmental legislation such as the Air Pollution Control Ordinance (Cap. 311 of the laws of Hong Kong), the Waste Disposal Ordinance (Cap. 354 of the laws of Hong Kong), the Water Pollution Control Ordinance (Cap. 358 of the laws of Hong Kong) and the Noise Control Ordinance (Cap. 400 of the laws of Hong Kong) amongst others. While the number of prosecutions brought by the EPD has remained reasonably consistent over recent years, the level of fines levied has consistently reduced, dropping from over HK$6 million in 2017 to under HK$2.5 million in 2021. Imprisonment and community service is also ordered for serious offences. What Do You Anticipate Happening Next? What Lessons Can Be Learnt?

Looking ahead, in December 2020 the Green and Sustainable Finance Cross-Agency Steering Group announced that climate-related disclosures aligned with the Task Force on Climate-Related Financial Disclosures (“TCFD”) and recommendations will become mandatory by 2025. The establishment of a local “green classification framework” is also being explored.

Most recently, the Hong Kong Monetary Authority (“HKMA”) launched a two-year plan to integrate climate risk considerations into its banking supervisory processes. This plan will update the broader “risk based” supervisory approach of the HKMA to require emphasis accorded to climate risk management, an assessment of the due diligence processes deployed by authorised institutions when launching green and sustainable product offerings in order to manage potential greenwashing risks, require climate risk stress testing to be conducted, and generally keep the regulatory framework under review.

It is expected that when fully implemented these disclosure requirements will adopt the standard developed by the International Sustainability Standards Board, and that there will be increased collaboration between the regulators, including HKEX, the SFC and the HKMA.

As always, Hong Kong will pay close attention to developments in other common law jurisdictions, most notably the United Kingdom, Australia and Singapore.

2.4 Colombia

2.4.1 What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence and Reporting Requirements Exist in Colombia?

Colombia is a Non-Annex I party to UNFCCC. It ratified the Paris Agreement on July 2018 and the Kyoto Protocol on November 2001. In December 2020, Colombia released its revised Nationally Determined Contributions (NDC) under the UNFCCC framework, pledging to reduce greenhouse gas emissions by 51% in 2030 and to work towards achieving carbon neutrality by 2050. Colombia also committed to reducing black carbon by 40% compared to 2014 levels, becoming the third country to set a specific emissions reduction commitment for this pollutant in their NDC. Colombia’s NDC is considered one of the most ambitious in the Latin America and Caribbean region thus far.

In terms of national measures, Ley de Acción Climática – Law 2169 (2022) enshrined Colombia’s NDC and net zero targets in law. It implements several measures with the aim of achieving net zero by 2050, according to commitments undertaken in the Paris Agreement.

There are a variety of due diligence and reporting obligations. Compulsory reporting obligations apply to direct and indirect GHGs emissions and the information and documentation required to elaborate inventories on GEI (section 16 of the Ley de Acción Climática). The scope of the reporting obligation and subjects will be established by the Ministry of Environment and Sustainable Development considering, among other factors, the level of GHGs emissions and the size of the enterprises. This obligation will come into force once this regulation is in place.

The law also states that the Ministry of Environment and Sustainable Development shall promote an increased participation of the private sector on the management of climate change (section 15.4) and that all mitigation measures adopted in the law are not exclusive of others that public bodies involved may adopt, including the involvement of the private sector (section 14). The law also provides for future sectorial measures to be implemented by 2025 or 2030 to meet the goals submitted in Colombia’s NDC. What Is the Impact of Corporate Due Diligence Requirements on Business Operations, Corporate Governance, Finance and Relationships with Supply or Value Chain Partners?

For corporate governance, no obligations are in place. However, voluntary measures have been developed. Based on survey results from 2019, more than 20 institutional investors in the country have implemented in their business strategies some measure that addresses climate change.43

There are a number of impacts within the financial sector. The Ministry of Finance and Public Credit, the body in charge of defining, formulating and executing the economic policy of Colombia, created in 2016 the tax to carbon (Law 1819 of 2016), subscribed in 2019 to the Coalition of Finance Ministers for Climate Action and participates in the Intersectoral Commission for Climate Change (CICC) of the National Climate Change System (SISCLIMA), created by Decree 298 of 2016.

The Banco de la República, which performs the function of central bank, and Colombian Financial Superintendency (“SFC” for its Spanish acronym), the regulatory and supervisory body in financial matters, subscribed to the NGFS in 2019, with the aim of identifying best practices at the international level, in terms of supervision, financial regulation, research, economic and monetary policy, in order to address climate change.

In 2020 SFC published instructions related to the issuance of green bonds in the stock market, along with a guide of good practices, which can be adopted voluntarily by issuers, in order to promote green bond market integrity in Colombia and generate high standards of disclosure, transparency and reporting. These measures are framed in the four principles of green bonds of the International Capital Markets Association (ICMA). What Remedies Exist for Breaches of Corporate Due Diligence & Reporting Requirements?

There are no remedies for breaches of corporate due diligence & reporting requirements at the time of writing. We might see new policies and measures related with climate change in the near future, possibly imposing further obligations on private companies. In August 2022 a new president took office (Gustavo Petro) who claims to have climate change at the top of his political agenda. He pledged to protect forests, reduce emissions from deforestation, make a sustainable energy transition away from oil investment and stop fracking. During his inaugural speech, he mentioned the importance of Colombia moving to a low-carbon economy and strongly committed to a low-carbon transition conditional on international cooperation.

2.4.2 Recent Developments in Domestic Case-Law/National Legal Proceedings What Are the Recent Trends in the Courts?

Since 2016, there have been only six climate related cases in Colombia. Most of them relate to either constitutional claims aiming to: (i) halt potentially impactful projects or bidding processes, on the basis that their execution would affect the environment, and, thus, fundamental rights to water, health and food sovereignty, among others; or (ii) obtain the recognition of specific natural resources and areas as ‘subjects of rights’.44 What Are the Outcomes of Climate-Related Litigation? What Is the Court’s/Judge’s Approach?

Rulings have been varied, but, in general the courts have recognized ‘climate change’ as a relevant factor to be considered when environmental impact assessments of projects are carried out (see Decision SU-698/17 of November 28, 2017 and Combeima River case of September 14, 2020).

In addition, the courts have recognized specific natural resources and areas, like the Atrato River or the Colombian Amazon, as ‘subjects of rights’ and, thus, subject of protection (see Atrato River Decision T-622/16 of November 10, 2016 and Future Generations v. Ministry of the Environment and Others). Additionally, in Decision T-218/17 of April 19, 2017, the Colombian Constitutional Court established that claimants had legitimate interests in demanding the government’s protection of their fundamental and human rights, especially the right to water and adequate water supply, and that such duties were intensified by the decrease in natural water reservoirs due to climate change, among other causes.

2.4.3 What Do You Anticipate Happening Next? What Lessons Can Be Learnt?

Considering the courts’ latest criteria, there will be a continuation of cases and claims aiming to obtain the recognition of express rights in favour of specific natural resources and areas (on the basis of what was decided on Atrato River Decision T-622/16 of November 10, 2016 and Future Generations v. Ministry of the Environment and Others).

2.5 France

2.5.1 What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence snd Reporting Requirements Exist in France?
a Duty of Vigilance Act dated 27 March 2017 (Loi de Vigilance)45

The provisions of the Duty of Vigilance Act are included in articles L. 225-102-4 and L. 225-102-5 of the French Commercial Code (Commercial Code).

The Duty of Vigilance Act requires all large French companies with over 5,000 employees in France or over 10,000 worldwide to undertake due diligence with regard to: (i) their activities; (ii) the activities of their subsidiaries and the companies under their control; and (iii) the activities of all their subcontractors and suppliers with which they have an established commercial relationship, provided these activities are related to their commercial relationship.46

The Duty of Vigilance Act has a two-fold structure by:

  • (i) enshrining the duty of vigilance which seeks to prevent (risks of) violations of fundamental rights to health, personal safety and the environment, resulting from the companies’ activities; and

  • (ii) providing a redress and liability mechanism applicable to companies which breach their duty of vigilance.47

According to Article L. 225-102-4, I, paragraph 3 of the Commercial Code, the duty of vigilance covers serious violations of human rights and fundamental freedoms, health and safety, and the environment. The Duty of Vigilance Act requires companies to only prevent and/or mitigate the “severe violations” caused to the previously mentioned human rights, and does not require companies to prevent and/or mitigate all potential impacts resulting from their activities.48

The Duty of Vigilance Act requires companies to take “reasonable vigilance measures”.49 The standard applicable to the criteria of the “reasonable vigilance measures” varies depending on the seriousness of the risk, its nature, the maturity level of the companies and the tools at their disposal.

The Duty of Vigilance Act requires companies to develop a vigilance plan in consultation with stakeholders and trade unions. The vigilance plan must (i) identify, analyse and map the risks arising from the company’s activity which are likely to affect human rights and the environment; and (ii) include appropriate measures to mitigate these risks.50

More specifically, the plan should include the following measures:

  • (i) risk mapping to identify, analyse and prioritise risks;

  • (ii) procedures to regularly assess the situation of the company’s subsidiaries, subcontractors or suppliers with whom there is an established commercial relationship, pursuant to the risk mapping measure provided in (i);

  • (iii) appropriate actions to mitigate risks or prevent serious harms: this is the core of the vigilance plan;

  • (iv) a mechanism to alert and collect reports on the existence or occurrence of risks. This mechanism is established with the trade unions of the company. It must assure protection to whistle-blowers (e.g. anonymity and non-reprisal) and must be accessible to people outside the company who could be affected by the company’s activities, including people with knowledge of risks and/or people who are representing the interests of the people affected and/or people who are representing environmental interests; and

  • (v) a system to monitor the measures implemented and evaluate their effectiveness.51

The vigilance plan must be published yearly and be publicly available to enable stakeholders to participate in the development of the plan, to review its implementation and to be informed of the risks related to a company’s activities.52

If a company that the Duty of Vigilance Act applies to, fails to publish or implement a vigilance plan, the following consequences may arise:53

  • (i) the company may be subject to court ordered injunctions or periodic penalty payments;54 and

  • (ii) the parent company may be held liable if damages occur as a result of their failure to properly implement an adequate plan, provided a (i) fault, (ii) damage and (iii) causal link between (i) and (ii) is proven.55

The victim of the wrongful act, who has an interest in bringing a legal action, may do so. The legal action cannot be brought by a third party acting on behalf of the victim.56 An association can support or organise the victim’s legal action, it cannot however initiate or join the legal action. The mechanism excludes class actions.

The Paris judicial court (tribunal judiciaire de Paris) has jurisdiction to hear cases brought on the basis of the Duty of Vigilance Act. The court may order the publication, dissemination, posting of its decision or an extract of it.57

b The Non-Financial Reporting Directive 2014/95/EU of 22 October 2014 (NFRD)

The NFRD has been transposed in France by Order No. 2017-1180 of 19 July 2017. This Order requires certain large companies to publish a non-financial performance statement in their annual report, which contains, in particular, information on the way they take into account the social and environmental consequences of their activities.

This reporting obligation will be extended to all listed companies and major unlisted companies after 2024, when the NFRD should be replaced by the Corporate Sustainability Reporting Directive.58

c The PACTE Law No. 2019-486 of 22 May 2019

The PACTE Law requires with regard to corporate due diligence that all companies to be managed in such a way that the social and environmental issues related to their activities are taken into account.59 At the date of writing, no express sanctions are provided.

d Law No. 2021-1104 of 22 August 2021 on the fight on climate change and resilience (Climate and Resilience Law)

The Climate and Resilience Law provides, inter alia, for a special duty of care regarding imported deforestation, which will enter into force on 1 January 2024.60

It will include two paragraphs under article L. 225-102-4, I of the Commercial Code, which provide that companies producing or marketing products from agriculture or forestry, the vigilance plan required under the Duty of Vigilance Act must include reasonable measures to identify risks and prevent deforestation associated with the production and transport of imported goods and services to France.61

Further, the Climate and Resilience Law increases the consultative powers of social and economic committees in companies. Indeed, in companies with at least 50 employees, the social and economic committees must be informed of and take into account the environmental consequences of a company’s decision on the management, economic and financial development, the organisation of work, vocational training and production techniques.62

e Proposed EU Directive on Corporate Sustainability Due Diligence

In February 2022, the European Commission adopted a proposal for a Directive on Corporate Sustainability Due Diligence (Proposed Directive).63 The Proposed Directive sets out a corporate due diligence duty to ‘identify, prevent, bring to an end, mitigate and account for adverse human rights and environmental impacts in the company’s own operations, its subsidiaries and their value chains’.64 This duty is inspired by the 2017 Duty of Vigilance Act discussed above. The Proposed Directive broadens the scope of applicability of the duty of vigilance. Indeed, according to the Proposed Directive, the duty of corporate due diligence will apply to the following groups of companies:

  • (i) Large EU limited liability companies:

    1. Group 1: EU companies employing more than 500 people and with a net turnover of more than €150 million worldwide;

    2. Group 2: EU companies operating in defined high-impact sectors which do not meet the above thresholds but employ more than 250 people and have a net turnover of €40 million or more worldwide

  • (ii) Non-EU companies active in the EU with turnovers generated in the EU that are aligned with the turnover threshold of either Group 1 or Group 2 above.

The Proposed Directive will require companies that fall within this scope to (i) integrate due diligence into their policies; (ii) identify potential or actual adverse environmental and human rights impacts; (iii) prevent or mitigate the potential impacts identified, and/or bring to an end or minimise the actual impacts identified; (iv) establish and maintain a complaints procedure; (v) monitor the effectiveness of their due diligence policy; and (vi) measure and publicly communicate on due diligence.65

The Proposed Directive also provides for the creation of independent national authorities which would verify companies’ compliance with their duty of corporate due diligence. These authorities should have adequate resources, infrastructure, expertise and facilities. They would be granted large powers of investigation and sanction.

Further, Member States would be free to determine the applicable sanctions in case of a company’s failure to comply with the requirements of the Directive. Examples provided in the Proposed Directive include fines calculated on the basis of the company’s turnover, exclusion from public contracts or exclusion from state aid rights.

At the date of writing, the Directive remains in draft.

f Corporate Sustainability Reporting Directive (CSRD)

In parallel with the Proposed Directive discussed above, the European Commission developed the CSRD to replace the NFRD. The CSRD was recently adopted by the European Parliament in November 2022 and will be phased in from 1 January 2024.66

The CSRD has amended and updated the NFRD by expanding the scope of companies which are covered by the reporting requirements and the information to be reported by these companies. The CSRD will apply to the following types of companies:

  • (i) Large Companies that are incorporated in the EU, including EU-incorporated subsidiaries of non-EU companies. Companies will be considered a ‘Large Companies’ if they meet any two of the following criteria:

    1. A net turnover of over €40 million; and/or

    2. More than 250 employees; and/or

    3. Balance sheet total assets of over €20 million.

  • (ii) Parent companies that are incorporated in the EU, if the corporate group collectively meets the ‘Large Company’ requirement set out previously.

  • (iii) Companies not incorporated in the EU if they meet the following criteria:

    1. The non-EU incorporated business has a net turnover in the EU of over €150 million per annum for two consecutive financial years; and

    2. The non-EU incorporated business has either (i) a branch in the EU generating a net turnover of at least €40 million; or (ii) a subsidiary in the EU that meets at least two of the ‘Large Company’ requirements.

  • (iii) Companies listed on an EU-regulated market.67

  • (iv) Captive insurance and reinsurance undertakings, as well as small and non-complex financial institutions.68

The CSRD requires companies to report simultaneously on sustainability matters that are (i) financially material in influencing business value and (ii) material to the market, the environment, and people. In other words, the companies must detail both their impact on the environment and the climate-related risks they face, i.e. how sustainability matters may impact their position, performance and development. This is known as the ‘double materiality’ principle.69

Companies subject to the CSRD will have to report according to the European Sustainability Reporting Standards (ESRS) once these are finalised. Further, these companies will have to have an audit of the sustainability information they report.70

2.5.2 Recent Developments in Domestic Case-Law/National Legal Proceedings What Are the Recent Trends in the Courts?
a On the Basis of the Duty of Vigilance Act

To date, the first court decisions rendered on the basis of the Duty of Vigilance Act have only dealt with jurisdictional issues. Several notices based on Article L. 225-102-4, II of the Commercial Code have been issued. Indeed, between 19 June and 1 October 2019, five notices were issued to the following companies registered in France: Total, Teleperformance, EDF and XPO Logistics Europe. Two of these notices led to referral to the courts:

  • (i) On 23 October 2019, a case against TotalEnergies (TTEF.PA) was brought by six French and Ugandan activist groups at the Tribunal de Grande Instance de Nanterre (now the Tribunal Judiciaire – Judicial Court). They requested that the Court ordered Total to conform with the Duty of Vigilance Act and include the environmental and human rights implications of their mining project in Uganda in their vigilance plan. The court declined jurisdiction on 30 January 2020, stating that the commercial court had jurisdiction to hear this case.71

  • (ii) On 28 January 2020, a coalition of NGOs filed a complaint asking a Nanterre court to order Total to recognize the risks generated by its business activities and make it conduct consistent with the goal of limiting global warming to 1.5°C. A judge ruled in February 2021 that a judicial tribunal should have jurisdiction and hear the case, rejecting Total’s claims that the court did not have judication.72

In 2022, three companies were issued with a notice for their activities in Russia:

  • (i) Non-Governmental Organizations (NGOs) Greenpeace France and Friends of the Earth France issued notices to Total in March 2022. The NGOs allege that, by maintaining (i) investments in various oil and gas projects in Russia and (ii) business relationships with Novatek, a Russian gas company, Total is contributing to finance the war and related serious human rights violations.73

  • (ii) NGO Greenpeace France issued a notice to Orano and EDF on 22 March 2022. The NGO alleges that the companies’ business relations with Rosatom, a Russian state-owned nuclear company, contributes to human rights violations committed by Russia.74

On 2 March 2022, three environmental associations filed a deceptive trade practices’ lawsuit against Total before the Paris Judicial Court, alleging that the company’s advertisements promoted false information to consumers about its carbon neutrality.75

On 26 October 2022, three NGOs issued a notice to BNP Paribas under Article L. 225-102-4, II of the Commercial Code. The NGOs demand an exhaustive carbon assessment of the bank, including on the emissions induced by its finance of fossil fuel projects.76 On 23 February 2023, the NGOs started legal proceedings against BNP Paribas before the Paris Judicial Court. They claimed that BNP Paribas breached its duty of vigilance by failing to provide a plan which identifies, mitigates and prevents environmental and human rights risks arising from its activities, and demanded that BNP Paribas stop financing the fossil fuel industry and adopt an oil and gas exit plan.

On 24 January 2023, in response to the NGOs’ claims, BNP Paribas announced that it has (i) stopped oil project financing since 2016; (ii) committed to reduce outstanding financing for oil extraction and production by 25% by 2025; (iii) committed to reduce outstanding financing for oil extraction and production to less than 1 billion euros by 2030, which represents a decrease of more than 80% compared to the current balance of 5 billion euros, and (iv) committed to reduce outstanding gas extraction and production by more than 30% by 2030.77 The NGOs did not consider BNP Paribas’ commitments to be sufficient to meet the 1.5°C target under the Paris Agreement. Therefore, in a press release of 23 February 2023, the NGOs dismissed BNP Paribas’ response and communicated the requests formulated in their legal action brought against BNP Paribas. They requested:

  • (i) a clear and regularly updated plan which presents, analyses and prioritises the serious risks which might result from BNP Paribas’ activities in the fossil fuel sector;

  • (ii) a quantification of the impact of its activities on the risks identified, including an exhaustive account of the greenhouse gas emissions;

  • (iii) appropriate measures to prevent serious harm and to mitigate risks, in line with BNP Paribas’ commitment to comply with the Paris Agreement objective to limit global warming to a 1.5°C increase and to reach carbon neutrality by 2050;

  • (iv) a mechanism to regularly monitor the measures implemented on the basis of the plan and assess the effectiveness of these measures; and

  • (v) the establishment of an appropriate alert and reporting mechanism.78

Other big companies have also recently been subject of formal notices made on the basis of the Duty of Vigilance Act, including Danone, Casino and Suez.79

Further, even more recently, the first decision in application of the Duty of Vigilance Act was rendered by the Paris Judicial Court ruling in interim proceedings.80 In this case, three associations brought a claim against Total Energies, requesting the court to order Total Energies to establish and implement a due diligence plan by suspending its work on the Tilenga and Eacop projects, which are oil exploration projects in Uganda. The court rejected the associations’ claims. It first noted that, in the context of interim proceedings in application of the Duty of Vigilance Act, the court has jurisdiction to issue an injunction if a company has either completely failed to establish a due diligence plan, or if the plan is overly brief and limited, or if the plan is manifestly illegal. However, the court cannot assess the reasonableness of the plan if such assessment requires an in-depth examination of the facts of the case, as such an assessment would fall within the jurisdiction of the court ruling on the merits.

The court then held that the associations had failed to give prior notice to the company, as they are required to under the Duty of Vigilance Act. They had given prior notice to Total Energies in 2019 regarding a plan established by Total Energies at the time. However, their current legal action was based on a different plan published by Total Energies in 2021 and regarding which the associations had not given prior notice. Therefore, their current legal action was based on different grounds than those raised in its 2019 notice. The court also held that Total Energies’ plan is sufficiently detailed. Total Energies had submitted several exhibits in the proceedings concerning specific operations of significant complexity, which are the subject of the vigilance plan at issue.

In the absence of a precise standard of vigilance set by the law, the claims made against Total Energies exceeded the jurisdiction of the Court ruling in the context of interim proceedings; and the plan was held to not be manifestly unlawful. Consequently, for these reasons, the court held that the associations’ claims were inadmissible and dismissed them.

All the above targeted companies had published a vigilance plan by 2019. These plans were all deemed unsatisfactory by the claimants in the cases and the stakeholders were not sufficiently consulted before establishing these plans, as required by the Duty of Vigilance Act.81 All of these notices illustrate the diversity of (i) the claimants, which include associations, trade unions and local authorities; and (ii) the allegations, which include violations of human rights, rights of local communities and indigenous peoples, workers’ rights, the environment and biodiversity and inaction on climate change.

b Other Legal Bases

The Conseil d’État, which is the highest administrative jurisdiction in France, has rendered two important judgments.

The first was in the case Commune de Grande Synthe, on 19 November 2020 and 1 July 2021 (Nos. 427301).82 The action was brought by the commune Grande Synthe and certain associations against the French government’s refusal to take additional measures to meet the target of reducing greenhouse gas emissions (GHG) by 40% by 2030 set out in the Paris Agreement.

In its first decision of 19 November 2020, the Conseil d’État considered that it did not have at its disposal sufficient elements to assess the compatibility between the GHG reduction target and the government’s refusal to take any additional measures. The Conseil d’État therefore ordered a three-month additional investigation.

In its second decision of 1 July 2021, the Conseil d’État enjoined the government to take all necessary measures to enable France to comply with the GHG emission target to which it had committed in the Paris Agreement. Three key points can be observed from the second decision:

  • (i) the Conseil d’État stated that the international law instruments on climate change83 must be considered as genuine commitments entered into by France;

  • (ii) the Conseil d’État recognised the binding nature of the instruments on carbon targets and carbon budgets; and

  • (iii) the Conseil d’État ruled on France’s failure to comply with the GHG emission targets for a past period, i.e. from 2015 to 2018.

The second was in the case L’affaire du siècle, on 14 October 2021 (No. 441415).84 The action was brought to seek compensation for the French government’s failure to act in response to the environmental damage caused by an increase of GHG emissions from 2015 to 2018. Among other things, the applicant organisations relied on Articles 2 and 8 of the European Convention on Human Rights (ECHR)85 and the French Charter of the Environment,86 as well as the “right to a preserved climate system”.

The Conseil d’État found that there were insufficient actions from the State during that period and ruled that the State is responsible for a failure to act. As a result of such failure, the State failed to meet the targets of the first carbon budget (2015–2018), which led to an aggravation of the environmental damage. As a result, the Conseil d’État ordered the State to pay a symbolic amount of one euro each to the four NGOs who brought the action.

2.5.3 What Do You Anticipate Happening Next? What Lessons Can Be Learnt?

Regarding the Duty of Vigilance Act in specific, more French litigation cases can be expected.

It is also likely that liability claims will be made by socially responsible institutional investors. Indeed, if a company voluntarily and publicly made certain commitments, on the basis of which an investment was made, and the company fails to comply with its commitments, the investor may suffer financial damages and be compelled to sell its investment at a discounted price. It should be noted that, in such a case, investors are only compensated for the loss of opportunity to invest the capital in another investment or to give up the one already made.87

Regarding environmental issues more generally, judgments have already been rendered and new litigation cases can be expected in the near future.

Furthermore, arbitration cases can also be expected. Indeed, given the increasing legal obligation imposed on certain companies to protect the environment, arbitral tribunals will likely hear cases concerning companies’ alleged failures to protect the environment.

Finally, arbitration-related litigation cases may also arise. Indeed, given the continuous development of the French notion of international public policy, there is little doubt that environmental protection will be covered by French international public policy. As such, French judges may soon have to address whether an arbitration award prejudicial to the environment is contrary to French international public policy and thus rule on the coexistence of arbitral awards and the protection of the environment.

2.6 South Africa

2.6.1 What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence and Reporting Requirements Exist in South Africa?

As the law currently stands, South Africa does not have any legislation or guidelines which expressly regulate climate-related due diligence. However, recent publications have shown a shift towards the possible enforcement of such obligations in the future.

These include the voluntary disclosure guidance documents published by the Johannesburg Stock Exchange (“JSE”) in June 2022 to assist listed companies in making disclosures related to sustainability and climate change. Both guidance papers emphasise the importance of ESG and sustainability, and assist companies to voluntarily disclose high-quality ESG data, driving better disclosures and practices, which in turn helps to create investor certainty. These guidance documents provide a summary of the various international best practice disclosure initiatives and make suggestions to management on how to approach such disclosures and localise them.

The JSE Sustainability Disclosure Guidance acknowledges that ESG and sustainability will impact an organisation’s value, and notes that going forward sustainability-linked finance will be of key importance in light of the Green Finance Taxonomy. The Green Finance Taxonomy, which was published for public comment in March 2022, is a classification system or catalogue that defines a minimum set of assets, projects, activities and sectors that meet international best practice and national priorities. It can then be used by investors, issuers and other financial sector participants to track, monitor and prove their green credentials.

a Business Governance Guidelines

The King Code is a set of guidelines for business governance, which is currently on its fourth iteration, being King IV Report on Corporate Governance for South Africa (“King IV”), and contains a set of principles and leading practices which are recommended for companies to adopt. Whilst the King Code is generally voluntary, the application of its principles, as well as certain practices, are mandatory for all companies listed on the JSE in terms of the JSE Limited Listing Requirements. One of the underpinning philosophies of King IV is Corporate Citizenship, which confers rights, obligations, and responsibilities on an organisation towards the natural environment on which a society depends. King IV acknowledges that the success of any organisation relies on three sub-systems, one of them being the natural environment. It emphasises the concept of sustainable development calling it an ethical imperative which seeks to create value over time by responding and interacting with the challenges presented. It further advises that governing bodies should regularly monitor the activities and their effects. Part of the responsibilities mentioned include those in respect of pollution and waste disposal and protection of biodiversity.

In July 2021, the King Committee published a guidance note titled the “Responsibilities Of Governing Bodies In Responding To Climate Change”, which highlights the real impacts of climate change on sustainability and the consequences organisations may face for non-action. Ultimately, the guidelines states that organisations are exposed to a variety of risks when it comes to climate change but understanding what these risks are and having internal and external mechanisms to mitigate these risks will determine how well organisations respond to these risks. Part of these mitigation includes transparency in quantitative and qualitative manner. The guideline provides a list of seven considerations for governing bodies in the context of climate change while embodying the principles in King IV:

  • (i) Leadership;

  • (ii) Impact on organisation strategy, risks and opportunities;

  • (iii) Management and accountability systems;

  • (iv) Internalisation of externalities;

  • (v) Reporting disclosure considerations;

  • (vi) Assurance on disclosures; and

  • (vii) Legal considerations.

Another draft guidance paper which is currently in development is the draft document outlining Principles and Guidance for Minimum Disclosure of Climate Related Risks and Opportunities, which is expected to be released shortly. It is being prepared by the Disclosure Working Group of the Climate Risk Forum, and aims to guide reporters and create a platform for building a common understanding between regulators and industry on disclosure in the financial sector.

While the JSE climate change disclosure guidance for listed companies and the King IV advise boards of directors to report on sustainability issues, “environmental reporting” is not currently a corporate compliance and governance obligation in South Africa, and reporting on ESG is currently optional. Large-scale emitters, however, frequently demonstrate their willingness to share such information to gain finance because it is a requirement that financial lenders are placing on private corporations more frequently.

Though corporate due diligence is still in a development stage, various legislation in South Africa may be utilised to hold corporations accountable. One example is the Carbon Tax Act, which acknowledges that greenhouse gas emissions and climate change are pertinent issues that must be addressed, and utilises a market based instrument to do so by imposing a tax on greenhouse gas emissions, while additionally allowing for incentives for the efficient use of energy. The Carbon Tax Act divides emissions into three schedules, being fuel combustion emissions, fugitive emissions and industrial process and product use emissions.

Another piece of draft legislation which addresses climate change is the Climate Change Bill, which is aims to enable the development of an effective climate change response and a long-term, just transition to a low-carbon and climate-resilient economy and society for South Africa. It will be the first piece of legal framework that responds to the effects of climate change, and focuses on a number of aspects, including requiring organs of state to amend and align their policies to the objects of the Bill by adopting a coordinated response to climate change, and creating governmental forums in which spheres of government will need to report their responses to climate change after having carried out needs and response assessments. The Bill requires that the Minister must determine a national greenhouse gas emissions trajectory and sectoral emissions targets, as well as publishing a list of greenhouse gasses which cause or are likely to cause or exacerbate climate change, and a list of activities which emit one or more of the listed gases. Carbon budgets are then required to be allocated to anyone carrying out such a listed activity, which carbon budget refers to the amount of greenhouse gas emissions that an entity is permitted to emit over at least three successive five-year periods. The Minister must review carbon budgets at the end of the five-year commitment period, or upon request by an entity subject to a carbon budget. If an entity has been allocated a carbon budget, it must prepare a greenhouse gas mitigation plan which outlines the mitigation measures that the entity proposes to implement in order to remain within its allocated carbon budget. The failure to prepare and submit a greenhouse gas mitigation plan to the Minister constitutes an offence in terms of the Bill that being a maximum fine of R5 million, imprisonment for a maximum period of five years or both such fine and such imprisonment.

b Greenwashing and Director’s and Officers’ Liability

Whilst ESG integration is the practice of incorporating non-financial factors into business processes, greenwashing is the art of pretending to do so. South Africa does not currently have any laws which specifically deal with greenwashing, but does have various voluntary and legislative tools available to tackle greenwashing. In light of the global focus by regulators on preventing and minimising greenwashing, and the recent focus on ESG reporting, it is anticipated that greenwashing-specific legislation may be introduced in due course.

For the past 20 years, directors’ and officers’ liability has largely been driven by governance issues, but the next wave of liability is expected to be led by environmental and social impacts as directors and officers are held to account for their organisations’ environmental and societal impacts. ESG issues are a key source of emerging liability for directors and officers. As businesses evolve and expand, investors, employees and consumers will expect companies to actively address ESG considerations and a range of ESG-related disclosure requirements and regulation. Companies that fail to address these issues open themselves up to the risk of litigation and/or regulatory investigations and actions. Currently, ESG litigation has been largely climate-related, although many other environmental and social issues could drive future litigation and regulation, including environmental disasters, deforestation, water and biodiversity degradation, as well as equal pay or human rights abuses within supply chains. Climate related claims can come in various forms – companies can face action for their non-disclosure, for their direct contribution to climate change, or their failure to mitigate and prepare for climate change associated risk.

There have not yet been any instances of directors in South Africa being found guilty of fiduciary violations or failings connected to climate change. However, the potential for such liability is present in the existing legislative framework, being the Companies Act of 2008. Fiduciary obligations include a duty to act with reasonable care, skill, and diligence as well as the obligations of good faith, honesty, and loyalty. According to the Companies Act of 2008, a company’s directors must act in the best interests of the company and in good faith when exercising their duties as directors. According to the “business judgment rule,” a director is presumed to have carried out their duties with reasonable care, skill, and diligence and in the best interests of the company if they took reasonable steps to learn about the situation, avoided any conflicts of interest, or complied with the rules regarding such conflicts, and then either made their own decision on the matter or supported the board’s or committee’s decision. However, if corporate decisions were taken in good faith, with care, and with knowledge, it can also lighten the necessary duty of care, skill, and diligence and may lead to courts exercising restraint when holding directors accountable for those actions, particularly those related to climate change. Directors may violate these obligations, particularly when physical or transitional climate risks pose a significant financial risk to the company and the directors have either neglected to take this risk into account or have not responded to it with reasonable care and skill. It will be harder for directors to avoid accountability for poor decisions under the business judgment rule given the volume, breadth, and availability of studies addressing climate change and company risk.

Directors in South Africa also face liability in terms of the express provisions of the National Environmental Management Act, 1998 (NEMA). NEMA is a framework legislation which places an overarching duty of care on every person who causes, has caused or may cause significant pollution or degradation of the environment to “… take reasonable measures to prevent such pollution or degradation from occurring, continuing or recurring, or, insofar as such harm to the environment is authorised by law or cannot reasonably be avoided or stopped, to minimise and rectify such pollution or degradation of the environment.” Various specific environmental legislation exists under the framework of NEMA, and governs particular aspects of environmental law, such as air quality, water, waste and biodiversity. The penalties for non-compliance under NEMA and the specific environmental legislation which falls under its umbrella are severe, including fines of up to ZAR10 million, imprisonment for a period of between one and ten years, or both a fine and imprisonment.

In terms of NEMA, directors (both past and present) who occupy positions of authority in companies at the time when offences are committed by those companies may themselves be guilty of offences, and liable upon conviction for monetary penalties, in addition to potentially having to compensate organs of state or affected third parties by way of damages for carrying out remediation, as well as the costs of the prosecution. For example, in terms of the National Environmental Management: Air Quality Act, 2004 (NEMAQA), the Minister may require persons falling within a category specified to draft a notice to prepare, submit to the Minister or MEC for approval, and implement pollution prevention plans in respect of a substance declared as a priority air pollutant (which includes greenhouse gasses). In terms of NEMAQUA, read with the National Pollution Prevent Plan Regulations, 2017, published in terms of NEMAQA, the failure to submit a pollution prevention plan in relation to greenhouse gasses is a Schedule 3 offense under NEMA, rendering directors potentially liable as co-defendants guilty of an offence “… if the offence in question resulted from the failure of the director to take all reasonable steps that were necessary under the circumstances to prevent the commission of the offence: Provided that proof of the said offence by the firm shall constitute prima facie evidence that the director is guilty under this subsection”. Directors may therefore be held personally accountable if it can be shown they did not take all necessary precautions to stop the crime from being committed. The director responsibility clauses in NEMA may be applicable to the Climate Change Bill because it has been developed as a particular Environmental Management Act.

South African companies may also be affected by reporting requirements included in the Corporate Sustainability Reporting Directive (CSRD) adopted by the European Parliament,88 and the Proposed EU Directive on Corporate Sustainability Due Diligence (the Proposed Directive).89

The CSRD requires large companies with EU activities to report on sustainability matters in their management reports. The reporting requirements may impact South African companies if they are: (i) listed on an EU regulated market; (ii) have a net turnover of over €150 million per annum in the EU; (iii) have a branch in the EU generating a net turnover of over €40 million per annum; or (iv) have a subsidiary in the EU that meets at least two of the ‘Large Company’ requirements.90

The Proposed Directive aims to encourage sustainable corporate behaviour throughout a company’s value chain, to introduce human rights, climate change and environmental consequences of director’s duty to act in the best interest of the company and to advocate oversight of a corporate sustainability due diligence policy, which includes an identification, prevention, ending and mitigation effects of companies and any adverse human rights violations. The Proposed Directive will apply to South African companies if they are (i) subsidiaries of large EU companies;91 (ii) part of the global value chain of such large EU companies; (iii) are active in the EU and have large turnovers generated in the EU in accordance with either Group 1 or Group 2 companies;92 or (iv) are part of a value chain of a non-EU company that fulfils the criteria at (iii).

c Shareholder/Parent Company Liability

Between the two extremes of having clear environmental shareholder liability rules and having none at all, South Africa lies in the middle. Although there is no specific legislation or case law dealing with the matter, it is possible that, under certain conditions, a shareholder may be held liable for the environmental effects of a company’s activity by drawing from other cases that recognise shareholder liability and by carefully examining the statutory duties created generally towards the environment.

Although South African courts do not lightly disregard a company’s separate personality, they will occasionally “pierce the corporate veil” to acknowledge a parent company’s actual control over a subsidiary and/or allow the company’s owners to personally be held accountable for the company’s decisions. In certain situations, there must be fraud or other wrongful behaviour, and the plaintiff must be without access to other remedies.

Additionally, NEMA has provisions that give the authorities the ability to pursue legal action against anyone who was or is “in control” of an activity that has caused or is producing pollution or environmental degradation, including potential harm from climate change. If the parent/subsidiary control aspect is established, it has been suggested that these clauses could allow a judge to pierce the corporate veil as well.

d Due Diligence

Although it is still in its infancy, due diligence on climate change is becoming more common in corporate transactions. Lenders and buyers are increasingly looking for proof that the target has the necessary licenses, such as those required by the Customs and Excise Act for the purpose of paying the carbon price, greenhouse gas reporting, and pollution prevention plans. Similar to this, due diligence reviews evaluate how climate change is included into environmental impact assessments (EIA) for new developments, looking for confidence that these issues have been effectively covered in the EIA and confirmation of the scope of the risk to operations and the law posed by these predicted impacts.

e Conclusion

We recommend that companies adopt an “enlightened shareholder value approach” which takes into account the maximisation of shareholder value in the long run while also considering the broader factors effecting the company such as the interests of other stakeholders, the well-being of employees and the impact of the company’s operations on the environment and its communities.

2.6.2 Recent Developments in Domestic Case-Law/National Legal Proceedings

Section 24 in the South African Constitution grants everyone the right to an environment which is not harmful to their health or wellbeing, and to have the environment protected for the benefit of present and future generations through reasonable legislative and other measures that:

  • (i) Prevent pollution in ecological degradation;

  • (ii) Promote conservation; and

  • (iii) Secure ecologically sustainable development and the use of natural resources while promoting justifiable economic and social development.

Various specific environmental legislation has been enacted by the legislature in order to give effect to this right, and both such specific legislation and section 24 itself are frequently utilised by civil society in South Africa to challenge administrative decisions which they believe may lead to outcomes which are environmentally undesirable. What Are the Recent Trends in the Courts?
a Environmental Litigation

The favourite tool in South African environmental civil society’s toolkit is the administrative procedure followed by entities seeking to obtain environmental authorisation for their projects, and in particular the public participation process. This is clear in the majority of environmentally related litigation in South Africa, and was again highlighted in the recent interdict granted against Shell in December 2021, preventing it from carrying out seismic surveys off the coast of South Africa. Although the negative environmental impacts of the surveys, including the climate change impacts, were raised by the various challenges to the decision to allow these surveys to be carried out, it was ultimately the failure to carry out sufficient and effective public participation processes which ultimately led to Shell being interdicted from carrying out such surveys.

South Africa contributes significantly to global GHG emissions, due to its heavy reliance on coal fired power stations, but it is simultaneously extremely vulnerable to climate change given the socio-economic conditions and the water scarcity experienced in the country. In recent years South Africa has seen a rise in litigation and legislative development linked to climate change, with both the legislature and the judiciary recognising the impact which it will have on South Africans.

South Africa’s first climate change case involved an application brought in 2016 by a non-profit organisation, Earthlife Africa Johannesburg (Earthlife), in the High Court to review and set aside the environmental approval which had been granted for the construction of the 1200MW Thabametsi coal-fired power station, which would have been one of the most emission-intensive plants in the world. Earthlife maintained that the Department was obliged to consider the climate change impacts of the proposed power station before granting an environmental authorisation, and that it had failed to do so. The Court held that on a plain reading of the relevant legislation (being the National Environmental Management Act), climate change impacts are a relevant factor that must be considered prior to the issuing of an environmental authorisation, and that the absence of an express provision in the statute requiring a climate change impact assessment does not entail that there is no legal duty to consider climate change as a relevant consideration. The matter was referred back to the Minster to properly consider the climate change impacts when deciding the internal appeal process on whether to set aside the environmental authorisation, and although Earthlife was unsuccessful in the reconsideration of the internal appeal, upon launching a second review application in relation to the decision to grant the environmental authorisation and the second internal appeal process, an order was taken by agreement in the High Court, in terms of which both the environmental authorisation and decision to dismiss the internal appeal were reviewed and set aside, and the application for the environmental authorisation was remitted back to the original decision maker afresh. Ultimately, the funding for the Thabametsi power plant was withdrawn, and the project was abandoned.

b Decisions Made by Environmental Authorities

Recently, there have also been several challenges to the proposed use of gas as an alternative power generation source in South Africa, with the environmental authorities (led by the Minister responsible for the environment) recognising that the climate change impacts of this alternative energy resource. In 2020, Karpowership, submitted an application for an environmental authorisation for a gas-to-power operation to be carried out off the coast of South Africa in Saldanah Bay (as well as operations in Richards Bay and Ngqura, and this authorisation was refused on inter alia the basis that the public participation process had been flawed, and that the effects on the environment could not be adequately assessed largely because the underwater noise levels was not fully investigated. The Minister then refused an internal appeal brought by Karpowership against this decision, stating that despite the dire lack of electricity in South Africa, she was duty bound to uphold section 24 of the Constitution, and that amongst other things, the climate change impacts of the proposed project could not be overlooked, and that other bases of electricity generation are available. Citing the Earthlife judgment, she stated that a Climate Change Impact Assessment was a necessary part of the environmental impact assessment process for projects with climate impacts, and that such comprehensive assessment must assess inter alia the impacts of climate change on the proposed project itself, and the ways in which the project might aggravate the impacts of climate change in the area. Finding that the Climate Change Impact Assessment conducted on behalf of Karpowership did not comply with these requirements, she noted the report did find that “Because of greenhouse gas emissions associated with the proposed projects and the abovementioned international consensus on the anthropogenic causes of climate change, the likelihood of the impact occurring is definite. The impact is therefore rates as High negative significance and cannot be mitigated below a High negative rating.” On this basis, amongst other things, the internal appeal was dismissed.

In addition to climate change impacts, air pollution in particular has been a focus for both civil society organisations and the environmental authorities in South Africa. In what has become known as the ‘deadly air’ case, civil society organisations launched constitutional litigation to request the court to acknowledge that poor ambient air quality in the Highveld Priority Area constitutes a violation of section 24 of the Constitution, and in March 2022 successfully obtained an order acknowledging such breach, and ordering the Minister to publish regulations within 6 months. The environmental authorities themselves are also focussing on air quality contraventions, with their enforcement division, known as the ‘Green Scorpions’, targeting the country’s power utility, Eskom, for failures to comply with air emissions licence conditions at its Kendal power plant. Despite the dire electricity shortage, in 2020 the Green Scorpions issued a compliance notice instructing the shutdown of two units at the Kendal power station, and the submission of a plan for maintenance to be carried out on an additional four units. Although more time was ultimately granted to Eskom to bring the Kendal units, as well as units at its various other power plants, into compliance with legislative standards, charges were laid against Eskom for the breaches to its air emissions licence, as well as supplying false and misleading information to the air quality officer.

There is therefore a recognition by the courts of the fact that climate change is a critical consideration for authorities in assessing whether the environmental impact of projects is balanced with the need and desirability of such projects, and an application of this principle by the authorities themselves. We anticipate that this principle will become a standard assessment criteria across all new projects in South Africa, and that to the extent that the effects of climate change are not properly considered, this will be viewed by the courts as a ground to find that the administrative decision-making process was flawed. There is also a growing recognition that the environmental impact of a project cannot be ignored purely on the basis that it is desirable from an economic perspective, and that the cost of such project (both for current and future generations) must be properly taken into account.

c Shareholder Activism

In addition to external challenges to projects on the basis of their climate change impacts, there has also been substantial growth in the use of shareholder powers to effect internal change in organisations in South Africa, through what is known as ‘shareholder activism’. Activist shareholders purchase shares in publicly listed entities and, using their rights as shareholders to engage with management and to put forward resolutions to be voted on by the body of shareholders, have pushed a climate change agenda in order to force businesses to acknowledge and react to the effects of their operations on people and the environment.

The non-profit organisation Just Share is particularly active in this regard in South Africa, and has focussed its attention on banking institutions and oil majors. In April 2019, Just Share and the Raith Foundation proposed two climate change-related motions for consideration at the 2019 Annual General Meeting of Standard Bank. A report on Standard Bank’s assessment of the greenhouse gas emissions resulting from its financing portfolio and its exposure to climate change risk in its lending, investing, and financing activities was mandated by the first resolution. The second resolution proposed that Standard Bank must create and make public a lending policy regarding loans to coal-fired power plants and coal mining ventures. The board advised shareholders to vote against both resolutions on the grounds that they would not give investors a more thorough understanding of the company’s exposure to and risk management for climate change, that it was unclear how the Standard Bank group would actually implement the resolutions, and that it did not believe the resolutions were in the interests of the group as a whole. While only 38% of shareholders voted in favour of the first resolution, 55% of shareholders voted in favour of the second resolution, making the latter binding on Standard Bank. In accordance with this decision, Standard Bank announced the release of their Coal Fired Power Finance Policy. With the help of this policy, shareholders were able to evaluate whether Standard Bank had adequately addressed the financial and environmental risks associated with the financing of new coal-fired power infrastructure. Additionally, this policy gave shareholders access to information that they could use to make well-informed investment choices. These resolutions had the result that Standard Bank was forced to increase the transparency and information it provided about its climate change policy.

A similar strategy has been adopted by Just Share in relation to various of the other major South African banks, as well as Sasol. We anticipate that the prevalence of shareholder activism in South Africa will continue to grow and be used as a tool by concerned investors and non-profit organisations.

2.7 United Kingdom

2.7.1 What Is the Role Played by Corporate Due Diligence and Reporting Requirements? What Human Rights, Climate or Nature-Related Corporate Due Diligence and Reporting Requirements Exist in the United Kingdom?

Although climate and nature-related corporate due diligence and reporting are not currently mandatory for all businesses in the UK, many companies do so voluntarily using frameworks and reporting guidelines including the Task Force on Climate-Related Financial Disclosures (TCFD), the Carbon Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI) and the Sustainability Accountancy Standards Board (SASB), as well as industry-specific reporting frameworks.93 That said, the type of businesses required to make climate-related disclosures is widening in scope. For example, TCFD, which began in 2015 as a set of voluntary reporting recommendations, has been enshrined in regulatory frameworks in many jurisdictions, including the UK. The UK has commenced plans to roll out mandatory TCFD-aligned reporting, starting with more than 1,300 of the largest UK listed companies and financial institutions.94 In November 2020, the UK announced that it was planning to introduce mandatory reporting of climate-related financial information across the economy by 2025.95

a Task Force on Climate-Related Financial Disclosures (TCFD)

The TCFD published a list of recommendations on how corporate filings can include climate-related financial risk disclosures in June 2017. The TCFD recommendations are structured around four thematic areas that represent core elements of how organisations operate:

  • (i) Governance

  • (ii) Strategy

  • (iii) Risk management

  • (iv) Metrics and targets

TCFD was introduced as a voluntary, market-led initiative, yet many governments, including the UK, are encouraging or requiring companies to make disclosures based on the TCFD recommendations.96

From 1 October 2021, the UK government has made it mandatory for trustees of occupational pension schemes with more than £5 billion in relevant assets, all authorised master trust schemes and authorised collective money purchase schemes to make TCFD-aligned, climate-related, financial disclosures.97 Furthermore, the UK government approved two further regulations in January 2022, requiring limited liability partnerships with more than 500 employees and a turnover of more than £500 million and UK companies with more than 500 employees that are listed in section 414 of the Companies Act 200698 to make TCFD-aligned, climate-related financial disclosures.99 This means that these entities need to make climate-related disclosures in line with the four pillars of the TCFD covering governance, strategy, risk management and metrics and targets.

The UK’s Financial Conduct Agency (FCA) has also introduced requirements for various regulated firms to make TCFD-aligned, climate-related disclosure requirements on a comply or explain basis.100

b Taskforce on Nature-Related Financial Disclosures (TNFD)

Similarly, there is a growing awareness of the potentially disastrous impacts of biodiversity loss and ecosystem degradation on the global economy and supply chains.101 This is one of many factors leading to the establishment of the TNFD, a nature-related financial disclosure framework, which is currently published in beta form.102 The TNFD operates in parallel with the TCFD and sets out a framework in which companies and financial institutions can assess, manage, and report on their opportunities and risks in relation to nature.103 It aims to assist with the appraisal of nature-related risk and the redirect of global financial flows away from nature-negative outcomes and towards nature-positive outcomes.104

Although the UK government supported the establishment of the TNFD,105 it has yet to formally adopt its recommendations, which are still in draft form. It is hoped that the UK government and regulators will include TNFD in UK companies’ mandatory reporting requirements.

c International Sustainability Standards Board (ISSB)

Although the TCFD is currently seen as the gold-standard for sustainability and climate-related reporting, the UK has indicated its intention to follow the reporting standards of the International Sustainability Standards Board (ISSB) once these are published.106 The ISSB was established in November 2021 by the International Financial Reporting Standards Board to create an integrated sustainability reporting mechanism, building on and incorporating the TCFD guidelines. The ISSB has committed to working with the TCFD and the TNFD to ensure that it aligns its standards to the recommendations by both taskforces.107 The ISSB standards aim to deliver a comprehensive global baseline of sustainability-related disclosures that meet investors’ needs.

d 2011 UNHRC Guiding Principles on Business & Human Rights (UNGPs)

Under the UNGPs, all businesses have a responsibility to respect human rights, which requires continuous human rights due diligence.108

e Corporate Sustainability Reporting Directive (CSRD)

The EU’s Corporate Sustainability Reporting Directive (CSRD),109 adopted in November 2022, will require a broader scope of ‘large companies’ (approximately 50,000 companies) to carry out sustainability reporting on their global supply chain from 1 January 2024.110

The compulsory due diligence reporting requirements under the Directive will apply not only to EU businesses but also to UK and other non-EU incorporated businesses ‘which have a significant activity on the territory of the Union’111 if they meet certain criteria.112

Both EU and non-EU incorporated businesses to which the CSRD applies will be required to comply with a range of new sustainability reporting standards over various topics. These include reporting on environmental matters, such as biodiversity and climate change, and on social factors such as working conditions and human rights.113 Companies will not only have to include information about their own operations but also about their value chain, including on their products and services, their business relationships and their supply chain.114

In parallel with the reporting requirements in the CSRD, companies may need to adopt more corporate sustainability due diligence in accordance with the Proposed Directive on Corporate Sustainability Due Diligence (the Proposed Directive) once this is adopted by the European Parliament.115 What Is the Impact of Corporate Due Diligence Requirements on Business Operations, Corporate Governance, Finance and Relationships with Supply or Value Chain Partners?

As discussed above, the number of companies who are subject to compulsory climate and nature-related corporate due diligence and reporting requirements is increasing in the UK.

Companies subject to the CSRD reporting requirements will have to include sustainability information about their value chain.116 This will likely impact relationships with supply or value chain partners as companies will need to receive primary environmental data from their value chain in order to report on their complete environmental impact. Additionally, according to the EU Commission’s Proposed Directive, companies will not only have to develop and implement a prevention action plan to mitigate potential adverse human rights and environmental impacts, but will also have to seek contractual assurances from their business partners to comply with this plan and verify their compliance with the plan.117 If potential adverse human rights and environmental impacts cannot be prevented or adequately mitigated by a company, then that company would be required to refrain from entering into new or extending existing relationships with the value chain in which this impact arose. An EU Parliament briefing on this topic therefore suggested that Member States would have to ensure the availability of an option to terminate business relationships in contracts governed by their laws.118 Thus, as a consequence of the reporting requirements under the CSRD and future reporting requirements under the Proposed Directive, companies may terminate certain business relationships if they are unable to prevent or adequately mitigate certain environmental impacts.

In the financial sector, the Bank of England has published climate-related financial disclosures in line with the TCFD recommendations as part of its annual report since FY 2019/2020 and has promoted the adoption of climate-related disclosures aligned with the TCFD recommendations.119 Banks are now subject to the disclosure requirements contained in Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022. Consequently, for financial years starting on or after 6 April 2022, banks will need to produce a non-financial and sustainability information statement which contains climate-related financial disclosures.120 How Does Corporate Due Diligence Ensure Accountability for Climate or Social Harms Throughout the Supply Chain?

Due diligence and reporting requirements aim to ensure accountability throughout supply and value chains by imposing obligations on companies to identify, mitigate, prevent and, importantly, report the adverse impacts of their activities on human rights and the environment, as well as to identify related risks and opportunities. This aims to create sustainable and responsible business practices by ensuring legal and commercial certainty, transparency, and accountability between commercial actors, investors, and consumers. This is achieved in several ways:

Firstly, many of the new reporting requirements cascade throughout the supply/value chain, meaning businesses must factor in the activities of their supply/value chain partners when calculating their own social or environmental impact. A common example is the need to include ‘Scope 3’ emissions in a company’s GHG reporting. Scope 3 emissions are GHG emissions from sources not directly owned or controlled by the company, which occur upstream and downstream in the company’s value or supply chain.121 Examples include the extraction or production of purchased materials, transportation of purchased fuels, and the use of sold products and services.122 Cascading reporting requirements put commercial pressure on companies to improve and minimise the social and environmental impact of their business partners, as well as themselves, or otherwise potentially risk loss of business and reputational damage.

Secondly, the introduction of new standardised reporting requirements provides legal and commercial certainty for corporate actors when evaluating the environmental and social impact of potential or existing business partners or investments. This facilitates market competition by creating a level playing field for commercial actors throughout the supply chain.

Thirdly, standardised disclosures by companies on the impact of their commercial activities on human rights (for example, child labour and exploitation of workers), and on the environment (for example pollution and biodiversity loss), provides more transparency for consumers, who can make educated and informed choices.

Fourthly, as it becomes easier to compare companies’ performance and exposures to climate-related risks and opportunities, investors and other stakeholders will be better equipped to incorporate these factors into their investment and business decisions. Business’ disclosures on the impacts, risks and opportunities of the changing climate may help them better understand what they need to do to address these for their organisation, operations, and people.123 What Remedies Exist for Breaches of Corporate Due Diligence & Reporting Requirements?

Currently, the voluntary nature of most reporting requirements and standards means there are no fixed penalties for ‘breaches’ per se. That said, companies are not free to report with impunity. Liability can arise for misleading or false statements in corporate reports or disclosures in the UK in many ways, for example:

  • (i) under ss. 172, 174 Companies Act 2006 for the acts and omissions of directors in relation to management of climate risk or climate reporting;124

  • (ii) under ss. 141C, 145, and 463 Companies Act 2006125 for any loss suffered by the company as a result of untrue of misleading statements in statutory directors and other reports;

  • (iii) under section 90 of Financial Services and Markets Act (FSMA) 2000,126 for a company and its director(s) for any misleading or untrue statements or omissions in listing particulars and prospectuses, and under section 90A and Schedule 10A FSMA 2000127 for misstatements in periodic financial disclosures; and

  • (iv) at common law and tort, for negligent misrepresentation, negligent misstatement and fraudulent misrepresentation for false or misleading statements in corporate reports or disclosures.

Further, the FCA has wide ranging statutory investigatory powers and can take action against companies and individual directors for “contraventions” including breaches of FSMA 2000 and various FCA principles and rules,128 or a failure to comply with other applicable regulatory obligations, including sustainability disclosure requirements. The FCA’s disciplinary powers include imposing financial penalties, withdrawing or suspending a firm or individual’s FCA authorisation, censuring firms and individuals, commencing court proceedings (e.g. injunctions or freezing orders) and criminal prosecution.129 As reporting requirements become increasingly mandated, the scope for regulatory intervention and formal penalties grows.

In addition, a company’s failure to improve on its sustainability performance – or to report at all – could expose companies to negative publicity, potentially leading to loss of customers and contracts, and difficulties attracting and retaining talent. Credit ratings could be downgraded, and a more challenging investment landscape could emerge. It is possible that, in the future, poor credentials in this area could influence the availability and pricing of financing and insurance, particularly as banks and insurers come under increasing pressure from regulators and other stakeholders to assess and manage climate risks in their portfolios and actively support the transition to net zero.130 As discussed below, there is also the risk of potential litigation against companies and their directors.

2.7.2 Recent Developments in Domestic Case-Law/National Legal Proceedings What Are the Recent Trends in the Courts and What Are the Outcomes?

Since the adoption of the Paris Agreement, climate litigation has gained pace, increased in volume, and expanded in scope and geographical coverage. The number of climate cases has been steadily increasing every year. In fact, the number of climate change-related cases more than doubling since 2015 – with around 800 cases filed between 1986 and 2014 versus over 1,200 cases filed in the last eight years alone.131

Climate litigation has become a useful tool to force action by both governments and corporate actors around the world, and most claims to date have been of this nature.132 Climate-related claims against governments may target national climate-related frameworks, strategies, or targets, climate legislation, government policies (e.g. concerning energy production), and public decisions. Although success rates against governments have been more notable outside the UK, for example in the Netherlands (see Urgenda Foundation v State of the Netherlands, in which the Court of Appeal concluded that the government’s plan to cut emissions was inadequate and ordered an increase in emissions reductions targets), and Germany (see Neubauer, et al v Germany, in which activists secured a ruling that the German government’s climate legislation is insufficient due to its failure to make sufficient provisions for emissions cut beyond 2030), the UK is making mixed but modest progress.

In 2018, Friends of the Earth and Plan B Earth filed a suit against the British Secretary of State for Transport alleging inadequate consideration of climate change impacts from the expansion of the Heathrow International Airport,133 and that the national policy statement supporting the expansion violated the Planning Act 2008 and the Human Rights Act 1998. After various rounds of judicial consideration, in December 2020 the UK Supreme Court ruled that the expansion programme was lawful, on the grounds that the government sufficiently considered climate impacts with regard to the less stringent climate goals of the Climate Change Act 2008 rather than the Paris Agreement 2015.

In 2021, environmental NGO Plan B Earth and four individuals filed a petition for judicial review, alleging that the UK government violated human rights by failing to implement effective measures to uphold its Paris Agreement commitments.134 As with the 2018 application, the court refused the petition on the papers, stressing that courts are not well equipped to determine the adequacy of government policy on such matters.135

However, a landmark victory in July 2022 suggests that the tides may be changing. In July 2022, the High Court sided with the claimants – Friends of the Earth, Client Earth and the Good Law Project – in their judicial review of the UK Government’s net zero strategy, which sets out plans to decarbonise the economy. The High Court found that the net zero strategy did not meet the Government’s obligations under the Climate Change Act 2008 to produce detailed climate policies, that show how the UK’s legally binding carbon budgets will be met. The plans only added up to 95% of the emissions reductions needed to meet the Sixth Carbon Budget, which is the volume of GHG that the UK can emit during 2033–2037. The High Court ordered that a new net zero strategy be laid before Parliament by March 2023, and refused leave to appeal.

This is accompanied by an increase in nature and scope of climate-related claims and complaints against companies. It can be reputationally and financially damaging for corporations to be seen as not effectively acting on climate change, and liability can arise for companies and directors personally. In the UK, there has been an increasing number of claims against directors, trustees and other fiduciaries for their failure to adequately consider climate related risks and opportunities in business planning. For example, in ClientEarth v Board of Directors of Shell in 2022, ClientEarth bought shares in Shell and brought an action against Shell’s directors personally by way of a derivative action. ClientEarth alleged that (i) Shell’s directors were in breach of their duties under s172 and s174 of the Companies Act 2006 for failing to properly manage climate risk by failing to adopt and implement a climate strategy that aligns with the Paris Agreement goal, and therefore for failing to act in a way that promotes Shell’s success for the benefit of its shareholders and (ii) that the board has failed to exercise reasonable care, skill and diligence in discharge of its duties, putting Shell’s long-term commercial viability at risk.136

One of the issues with claims similar to ClientEarth v Board of Directors of Shell is that the minority shareholder requires the English High Court’s permission for the action to continue, and it is not yet clear how the High Court will react. If this action is allowed to proceed, its impact will be significant, and we will likely open the floodgates to other claims of this nature.

Greenpeace has challenged the UK’s North Sea Transition Authority over its approval of the Jackdaw oil field on climate grounds.137 The UK Court of Appeal has considered a judicial review challenge to the UK government’s decision to approve $1.15 billion of financing for a gas project in Mozambique.138

Liability for “greenwashing” is similarly becoming more common, as regulatory and judicial scrutiny of environmental credentials and allegations made in sectors such as finance,139 aviation, and advertising is growing.140 Another possible source of climate litigation could be challenges to government support of the fossil fuel, aviation, automotive and similar carbon-intensive industries. In July 2022, Greenpeace filed a claim against the UK Government’s North Sea Transition Authority over its approval of Shell’s new gas field, Jackdaw, in the North Sea. Greenpeace is claiming that the government approved Jackdaw without checking the full environmental impact it would have on the climate.141 The UK Court of Appeal has also considered a judicial review challenge to the UK government’s decision to approve $1.15 billion of financing for a gas project in Mozambique.142

The key point to note about climate litigation, in the UK and elsewhere, is that it is constantly evolving in nature and scope. Claimants are moving beyond suing the ‘obvious’ targets of governments and big emitting corporations, to a new class of defendants. Where they direct their focus next is yet to be seen.

2.7.3 What Do You Anticipate Happening Next? What Lessons Can Be Learnt?

This field will continue to evolve, and other drivers of climate litigation are likely to emerge as the world transitions to a net-zero economy. The deployment of green and smart infrastructure systems at scale or of new and untested technologies that disrupt established business models, for example, may drive change in this space if the risks are not adequately assessed, understood and mitigated.143 As the world changes, supply chains are also expected to be forced to react, and utilise climate-conscious contractual clauses.144 The impact is dependent on the wording of the clause itself – a regular obligation, such as to use a certain percentage of hybrid vehicles in a supply chain, arguably lacks bite without some form of liquidated damage clause, so any such clauses are recommended to be drafted carefully with advice from professional practitioners.

3 Conclusion

While countries are making steady progress towards their individual net zero goals, more is required to align the different legal regimes, reporting standards and regulatory requirements that are evolving in different jurisdictions. This is important for two reasons. Global alignment will not only make compliance easier for corporations – and in so doing minimise the risk of liability including from regulatory fines or litigation – but will also ensure that all major economies are implementing the same or similar standards and working towards the same collective climate goals.


This paper has been prepared by Clyde & Co’s offices across different jurisdictions. Thanks to Clyde & Co trainees Saskia Wolters, Maciko Chan, Vincent Fraser, Camille Lusaka, Juana Al Hijazin, Athena McDonald, Abarna Harindra, Dan Bates, Caitlin Harrad, Patrycja Slazak, Blue Debell, Ross Deuchars, and Paige Matthews for their assistance in the development and drafting of this paper.


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