27 January, 2022
It is nigh on impossible to visit the website of any reasonable-sized construction company nowadays without seeing words like "sustainability", "ESG", and "social footprint". Historically used as mere buzz words to drive online traffic, environmental issues are increasingly forming the core of responsible investment strategies. That shift has, at least in part, been driven by Government strategies such as the commitment to achieve net-zero carbon by 2050 and the Streamlined Energy and Carbon Reporting regime, which has required publishing of annual emissions and efficiency measures since 2020.
As always, the construction industry is leading the way. The World Green Building Council aims to achieve net zero emissions by 2030, the Green Building Council has mapped out its climate and carbon reduction commitments, and RIBA and other organisations have made similar pledges.
Saving the Earth is very much on the agenda. But with every commitment, promise, objective or enforced goal comes accountability. And with accountability comes the risk of falling short, and with falling short comes litigation.
Environmental litigation has always existed but on a relatively small scale, and claims usually either follow newsworthy disasters or disinterested inaction by Governments. However, the climate is, quite literally, changing. We are starting to see an increased awareness and concern in green issues from the public, and with that a rise in complaints and claims. It cannot be long before environmental litigation becomes commonplace.
So, what are the risks and how may these claims arise? Well, we have already seen examples worldwide, such as litigation in Australia by the Australian Centre for Corporate Responsibility against Santos, the country's biggest gas supplier. The ACCR alleges that Santos has misled and deceived in relation to its claim that natural gas supplies clean energy, and that it had mapped out a plan to reach net zero by 2040; the latter, it turns out, being heavily reliant upon unreliable carbon capture technology.
In 2015, the Dutch Government faced a class-action by the Urgenda Foundation which alleged that the government had a duty to protect its citizens from climate change; it ordered to take action to reduce emissions by at least 25% by 2020. In 2017, German energy company RWE was sued for its contribution to the effects of climate change in another country, and in Milieudefensie v Shell in 2021, a Dutch court ordered Shell to cut its CO2 emissions by 45 percent by 2030.
In the UK, activists have begun warning those that provide financial support to fossil fuel led projects that their directors may be in breach of their duties to shareholders, leaving both them and the corporate entity open to litigation. On 21 December 2020, the High Court handed down judgment in R (Finch) v Surrey Council, which found that the Surrey Council acted lawfully in granting planning permission for oil drilling next to Gatwick Airport without considering the full impact on climate in its EIA, but the result was appealed and heard by the Court of Appeal on 16 and 17 November 2021. Judgment has been reserved and the decision could have wide-ranging implications, including paving the way for further litigation.
It is clear that investors no longer consider a commitment to sustainability as a mere tick-box exercise, and Directors and Officers can be held personally liable where they knowingly engage in misleading behaviour. Well-meaning Environmental, Social and Governance policies codify a company's intentions, but may leave it having to explain why it failed to meet them. Such behaviours may also leave companies with some serious policy-cover issues; remember, insurers do not generally cover intentional acts of wilful deception.
It is essential that companies creating sustainability and ESG policies do so with realistic, measurable goals in mind, ensuring that they can follow through on the commitment with open and transparent accountability. Otherwise, they may find themselves on the uncomfortable end of a potentially uninsured claim for nuisance, negligence or breach of duty.
For more information contact David Mayor in our Construction & Infrastructure department via email or phone on 01254 222416. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
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