Legally bound: The climate litigation and contract law boom

Martin Guttridge-Hewitt explores how activists pushing green agendas through courts, and lawyers adapting business practices to reflect the crisis, are signs of an environmental groundshift in public and private legislation.  

In spring 2021, the UK Government lost a major judicial ruling. After years of warnings, the Court of Justice of the European Union found in favour of environmental law charity ClientEarth due to Westminster ‘systematically and persistently’ exceeding legal limits on nitrogen dioxide (NO2) since 2010 and failing to tackle Britain’s national air quality crisis. 

Of course, there’s a glaring problem – exiting the EU in January that year means Britain isn’t beholden to Brussels. You could argue the ruling is largely symbolic, then, albeit fines could still ensue. But the case reflects a rapid rise in climate litigation actioned by campaign organisations, individuals and businesses, against private and public bodies for environmental negligence.  

In July 2021, the London School of Economics’ (LSE) Grantham Research Institute on Climate Change published a report supporting this point, citing ‘unprecedented’ numbers of key climate litigation judgements in the preceding 12 months with ‘potentially far-reaching impacts’. Since 2015, when the Paris Agreement was signed and then-Bank of England Governor Mark Carney delivered his speech on the climate crisis and its existential threat to economies across the world, 1,006 environmental cases have been brought to trial. That’s over half the 1,841 ‘green lawsuits’ undertaken since the first was heard in 1986.  

‘Climate litigation is definitely increasing,’ says Catherine Higham, Environmental Law Professor at LSE, currently coordinating the leading collection of climate-relevant laws and policies, with input from every country on the planet. ‘Much of this is brought about by NGOs and activists and can be traced to frustrations that these groups may feel regarding the mismatch between the urgent warnings of the scientific community and the relatively slow pace of climate action from governments and companies. However, not all cases are like this, several key examples have been brought by shareholders or employees against company directors, as well as cases between different levels of government.’  

Higham is quick to point out that while legal action to advance climate action is on the rise, so too are challenges to new environmental policies from those whose livelihoods will be adversely affected by actions like lowering emissions and net zero transition. Overall, the most significant proportion of cases so far have been filed against governments, which find greater success rates compared to those levelled at companies.  

‘We’re seeing an increasingly diverse set of arguments being deployed against corporations and other private sector actors – focusing, for example, on misinformation and greenwashing, or on the need to align policies with national and international targets,’ she says, nodding to the US as a global leader in climate litigation case volume. ‘The  most high-profile [US cases] are those filed against the Carbon Majors by cities and states seeking contributions to the cost of climate change adaptation measures. These have been caught up in lengthy procedural arguments about whether they should be heard before state or federal courts, but recent decisions suggest some may now proceed to trial. 

‘In Europe, there has been a series of recent successes in high profile challenges to the inadequacy of government action from apex courts in countries including the Netherlands, Germany, Ireland, and France, which may lead to many more actions being brought. These are also contributing to an increase in cases against companies in the same jurisdictions,’ she continues. ‘While most climate cases are still filed in the Global North, there are growing numbers in the Global South, particularly Latin America. These often rely on constitutional protections for the right to a healthy environment.’ 

Climate litigation is rapidly rising, then, and represents the most visible sign of the crisis influencing national and international law in practice. But those working in the profession say issues like worsening air quality, changes to global temperatures, rising sea levels, and the rate of associated disasters and events are also having a profound effect on day-to-day contract law and insurance. 

Nigel Brook is a partner at law firm Clyde & Co, heading up the reinsurance team. For the past five years he has also led on the organisation’s Resilience and Climate Change Risk campaign. Speaking to Air Quality News, he starts by explaining a major culture shift began across his sector in 2019, when the Bank of England introduced new regulatory expectations around climate change, instructing insurers and banks to begin actively looking for climate risk to assess by the end of 2021, rather than waiting for this to be requested.  

‘They had to improve climate governance and develop a climate strategy, carry out climate scenario testing, for physical risk, liability, and risks associated with transitioning [to environmentally friendly policies like net zero],’ says Brook. ‘Last year the biggest insurers were forced to conduct quite a detailed stress test, and that has prompted a lot of activity. But it’s beyond that – there has been a serious realisation among clients [that the climate crisis] is real.’  

This increased awareness of climate change and its risk to business has seen some firms completely exit the so-called ‘catastrophe market’, essentially stopping underwriting property against disasters. Brook says modelling used by insurers is sophisticated, and predicts levels of loss incurred by something like a hurricane based on magnitude and path. But as he explains, such simulations are no longer reliable because events are rapidly increasing in prevalence, citing Houston, Texas, where three ‘500-year’ floods – considered to have a one in 500 chance of occurrence – happened in just 18 months.  

The situation is making experts consider a different approach to holding risk. Traditionally, insurance is about indemnification – the insured is paid compensation by the insurer to cover the costs of any event they are insured against. There’s increasing thinking the climate crisis era means this model should be replaced by what is known as parametric insurance. Simply put, when a predetermined parameter is passed, such as sea temperatures around a coral reef reaching a certain level, pay-outs are triggered before damage takes place, so the insured is better placed to mitigate losses resulting from the event by taking direct action immediately.  

Altering perspectives on risk also includes the ability to cover multiple stakeholders, for example, NGOs working to protect that reef, tour companies and hotels reliant on travellers drawn in by the reef, and community groups. And it may even be possible to ‘hedge’ policies based on risk sharing, bringing together parties with opposing vulnerabilities. Hypothetically, a business susceptible to high temperatures could therefore share a policy with another that will be adversely affected by extreme cold spells, offsetting costs to one half of the policy through payments into the other. 

‘[The Chancery Lane Project] is an initiative launched by lawyers two-and-a-half years ago. Like many good things, it was born out of frustration,’ says Zaneta Sedilekova, specialist in climate and biodiversity risk, global supply chains and finance, and associate at Clyde & Co, the first major firm to join the Chancery Lane Project. ‘The legal definition of a contract is a meeting of wills between two parties, law restricts content only insofar as preventing illegal activities. You can agree on anything, really. So, Chancery Lane is about redrafting those agreements with climate clauses.’ 

The repercussions are significant. Hundreds of London firms are now participating and contributing to the project, alongside many beyond the UK capital. Common clauses are being redrafted by pro-bono teams with the climate in mind. These contractual blueprints can be accessed by anyone, and only need moderate additional work to tailor them to a company’s specific circumstances, significantly reducing costs compared to drawing up completely new agreements. This means major economic actors can create meaningful change across borders without the need for the often lengthy process of policy being enacted at government level. 

‘So, if you are contracting a supplier, you can set a net zero target and ask the supplier to do the same,’ Sedilekova continues. ‘By monitoring reporting every year, you can build in incentives… Science tells us that to be net zero by 2050, we must reduce emissions by 7% each year. That’s great, but if a supplier goes beyond, say a 14% reduction, the buyer could pay for those extra points. All of a sudden, a mechanism exists to incentivise fast reductions, making more companies want to achieve it.’  

With individuals and groups more empowered to begin climate litigation action, a changing insurance landscape placing the crisis front and centre, and key stakeholders taking targets into their own hands, a groundshift is visibly underway. However, as Sedilekova tells, this presents new challenges to her profession, with growing demand for lawyers with skills like data analysis, which are not traditionally part of legal training but often vital in climate cases.  

Meanwhile, the fundamental reason many of these steps are being taken in the first place is nothing short of alarming, and damning. As our conversation draws to a close, Sedilekova puts it into better words than we ever could: ‘I think it’s important to see examples like climate change litigation as something people don’t want to do. They do it out of despair, they do it out of a lack of action by others.’ 

This article originally appeared in the April issue of Air Quality News magazine – read it in full here.