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Wealth & Investment Management

3 lessons in climate litigation around the world

Posted by on 22 April 2024
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As climate litigations hit the headlines, it’s important to ask yourself: how prepared do you think your business is in defending its investments? And what can you learn from the energy sector’s cases in the recent past?

Environmental litigation can have a positive impact

Depending on which side of the fence you’re on, litigation can be seen as costly in more than one way. Not only can litigations have financial consequences, a firm’s reputation and brand can be at risk here. However, not all climate litigation must be bad news, as we learnt last year at IMpower. Laura Clarke OBE, CEO, ClientEarth, shared an interesting incident right after the Polish energy company Enea’s case was judged.

“That very same day, Enea’s share price jumped up by 4%”, Clarke shared with the audience.

The case in question was seeking the annulment of a coal power plant construction on the grounds that it exposed the company to climate related financial risks. Although this lost the company over $160 million, it is likely that the litigation protected Enea’s interest in the long-term.

For those in financial services, this is the important question to ponder: do you have the appropriate processes in place to avoid such losses? Have you accounted for such risks in your portfolio?

Sometimes it’s personal

$160 million is a lot of money, so recently, the story of Enea continued. In February 2024, ClientEarth reported that Enea is seeking damages from “former management and supervisory board members who had voted in favour of the investment”.

The move to hold individuals personally accountable is not an uncommon case. The LSE reports that between 2015 and May 2023 there have been 8 “personal responsibility” cases (outside the US), including ClientEarth v. Shell Board of Directors. In these cases, decision makers are put on the spot for enabling “climate damaging activities”.

Investment managers are responsible for funds spent well – does your organisation have robust due diligence processes? And will these processes stand the test of time? What was green yesterday may not be green tomorrow.

It’s not always about the money

Clarke also shared ClientEarth’s case against BP’s greenwashing advertising campaign. “Possibilities Everywhere”, the campaign stated, implying BP’s support for renewable energy. However, according to BP’s own figures, more than 96% of their annual capital expenditure is in oil and gas, while less than 4% goes towards low-carbon investments.

In financial services, supervisory bodies around the world have already put in place climate risk reporting processes. However, inconsistencies across regions pose a great challenge for the industry (and for individual businesses) to develop a uniform approach.

Jason Forrester, Global Head Enterprise Risk Management & Deputy CRO SC Bank, Standard Chartered Bank, shared last year:

“As an industry, we’re all taking legal advice, but that legal advice is self-developing because this is such a new area. I think we need to be communicating really well to our stakeholders, our boards, our investors, our regulators around the potential risk that we may face going forward, how we’re mitigating it, and actively monitor our mitigation strategies as we go through the next 5-10 years.”

Join the leading voices on sustainability and impact investing at IMpower incorporating FundForum, and discuss what’s next in this field.

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