Climate Litigation: Key risks and liabilities for oil and gas companies14 June 2024

• challenges to government decisions, which generally try to halt or reverse the consents, permits and approvals necessary for oil and gas companies to bring new projects to fruition, or expand existing operations;
• direct challenges to companies’ policies and operational decisions (including damages claims); and
• ‘ecosystem’ attacks – making it more challenging for oil and gas companies to function profitably, for example by restricting access to finance.

A. Challenges to Government Decisions

In Greenpeace Limited v Secretary of State for Business, Energy and Industrial Strategy (2021), Greenpeace and Uplift brought a judicial review case against a decision taken by the Secretary of State for BEIS and the Oil and Gas Authority in relation to the licensing of additional offshore oil and gas exploration. The main issue was whether the Secretary of State acted lawfully by not including Scope 3 emissions (emissions released when fuel is used by consumers) in its assessment. The court held that it was relevant for the Secretary of State to take into consideration the control it may exercise over Scope 3 emissions, however accepted the position that the Secretary of State did not have an appropriate benchmark to measure these emissions at the time. In response, the Secretary of State announced a checkpoint system to assess the compatibility of any future licensing with the UK’s climate policies before granting any oil and gas licenses.

Greenpeace brought a second similar case at the same time, against the same defendant, before the Scottish Courts. The Scottish Courts appeared to have taken a harder line, finding that Scope 3 emissions did not have to be accounted for in an environmental impact assessment for these purposes, as they did not constitute “direct or indirect significant effects of the relevant project”.

B. Direct Challenges to Companies

In Milieudefensie et al. v Royal Dutch Shell (2022) (“Milieudefensie”), the Hague District Court (“District Court”) ordered a Dutch-based oil and gas multinational, Royal Dutch Shell, to reduce carbon emissions associated with its products by 45% based on its 2019 levels by the year 2030. The District Court explained its decision with climate-related human rights and tort-based duties, including those related to corporate due diligence, and on a standard of care arising out  of the goals of the Paris Agreement and the United Nations Guiding Principles on Business and Human Rights.

In the UK in ClientEarth v. Shell’s Board of Directors (2023), ClientEarth applied for permission to bring a derivative claim against Shell’s directors under section 260 of the Companies Act 2006, concerning Shell’s climate change risk management strategy, in response to the Milieudefensie ruling. ClientEarth alleged that the directors had breached their general duties under section 172 (to promote the success of the company) and section 174 (to exercise reasonable care, skill and diligence) by failing to set an appropriate emissions target and failing to manage associated climate risk. However, unlike Milieudefensie, ClientEarth was not successful in its claim. For further details and consideration of the case, please refer to our earlier article.

In Luciano Lliuya v RWE AG, a Peruvian farmer is suing a German energy company in a German court for damages resulting from the melting glaciers in Peru. At first instance, the court dismissed Lliuya’s claim for an injunction and damages. It held that it could not provide effective redress, because Lliuya’s situation would be the same even if RWE stopped emitting GHGs and there was no ‘linear causal chain’ within the causal relationship between the particular emissions and climate change impacts. On appeal, the court found the farmer’s case to be admissible and required an expert opinion on the threat of flooding to Lliuya’s home and how RWE’s GHG emissions contributed to that threat. The case is ongoing.

On the other end of the spectrum, oil and gas company, ExxonMobil, has pushed back against climate activist investors who have urged the company to improve their greenhouse gas emissions by setting Scope 3 targets. ExxonMobil has argued that this violates the rules of the Securities and Exchange Commission for petitions.

C. ‘Ecosystem’ Attacks

In August 2023, UN experts sent a letter of concern to Saudi Arabian oil company Aramco, for failing to reduce carbon emissions and breaching climate-related human rights under the UN Guiding Principles on Business and Human Rights (UNGP). UNGP 12 mandates corporations to respect human rights guaranteed in international human rights law. UNGP 13 requires that companies take measures to avoid adverse human rights impacts and adopt decisions to prevent human rights abuses. This letter followed ClientEarth’s legal complaint lodged in 2021 against Saudi Aramco for alleged climate-related human rights violations and greenwashing. This complaint also included a number of the company’s financiers, including Citigroup, HSBC and JPMorgan Chase and associated correspondence alleges that directors at those financial institutions may not be complying with their fiduciary duties to implement climate policies by funding these producers.

In 2021, Friends of the Earth brought a case for judicial review against UK Export Finance (“UKEF”) in the High Court of England and Wales. Friends of the Earth challenged UKEF’s decision to finance an LNG project in Mozambique, saying that, in failing to consider Scope 3 emissions which the project would produce, the UKEF’s decision to invest was incompatible with its obligations under the Paris Agreement. At first instance, the High Court could not agree on an outcome and, therefore, the case was dismissed. On appeal in 2023, the Court of Appeal rejected Friends of the Earth’s case. The Court held that it was tenable for the UKEF to reach the view that the investment was compatible with the Paris Agreement, and this was sufficient to meet its obligations. Further, it was not obliged to quantify Scope 3 emissions.

What does the future hold for oil and gas companies?

In line with the ruling in Verein KlimaSeniorinnen Schweiz and Others v Switzerland, states are required to put in place relevant targets and timelines, which must form an integral part of the domestic regulatory framework to comply with Article 8 of the Convention. However, the ECtHR provided a discretion as to the exact measures the Swiss state ought to take, to comply with the judgment.

This decision marks the first occasion the ECtHR has recognised the rights of individuals to be protected against the impacts of climate change. It is a significant legal development that has the potential to impact the way courts will consider climate change issues in the future. Given that the Convention draws on general human rights language and principles incorporated in other international conventions, the impact of the ECtHR’s decision may not be limited to Convention states alone but may influence how other international human rights conventions are interpreted such as in Africa and the Americas.