CLIMATECASECHART.COM

CLIMATECASECHART.COM

Greenpeace and Others v. Commission
Filing Date: 2023
Reporter Info: T-214/23
Status: Pending
At Issue: Whether the inclusion by the Commission of gas and nuclear in the Taxonomy Regulation is unlawful

   

At Issue: Whether finance decisions by the European Investment Bank may be subject to requests for internal review under the Aarhus Convention over their potential environmental harm

On April 12, 2018, the European Investment Bank (EIB) agreed to provide a 60 million euro loan to build a 50 megawatt biomass power plant in Spain. Environmental NGO ClientEarth submitted a request on August 9, 2018, to the EIB for internal review of that decision. ClientEarth disputed that the project would contribute to renewable energy objectives because, in part, it overestimated environmental advantages associated with biomass and underestimated logging and forest fire emission risks. On October 30, 2018, EIB rejected the request as inadmissible on the grounds that its financing decision was not an “administrative act” nor was the decision taken “under environmental law” as defined in the Aarhus Convention and therefore was not subject to internal review.

ClientEearth filed suit on January 8, 2019, in the EU General Court against the European Investment Bank (EIB), alleging that the bank had improperly rejected ClientEarth’s petition for an internal review of the Bank’s decision to finance a biomass power plant. ClientEarth argued that in rejecting its petition for internal review, the EIB misapplied the Aarhus Convention on access to information, public participation in decision-making and access to justice in environmental matters.

The EU General Court issued a decision on January 27, 2021, issuing an order that the EIB must accept ClientEarth’s petition for internal review. The Court found that the financing decision was taken “under environmental law” because all acts of public authorities which may violate environmental law, regardless of whether the institution is formed by environmental law, should be subject to internal review. Here the EIB’s decision was based on an assessment of whether it met renewable energy goals and therefore impacted environmental law. Further, the Court found that the decision was an “administrative act” despite the terms and conditions of the loan not yet being set because it produced definitive legally binding effects on third parties by enabling others to take steps to formalize the loan.

On April 2, 2021, the EIB appealed the decision with the European Court of Justice. The EIB alleges that the General Court, under the Aarhus Convention, misconstrued the notion of an ‘administrative act’, that the EIB decision to approve the loan does not have ‘legally binding and external effect’, and that the General Court was wrong when it classified the EIB’s decision as ‘adopted under environmental law’. The case is now pending before the Court of Justice

    

On January 30, 2020, the environmental group ClientEarth filed an action in the High Court challenging the UK government’s decision to approve a natural gas plant, which would be Europe’s largest.

The Secretary of State for Business, Energy and Industrial Strategy approved the plant in October, despite the Planning Authority’s recommendation that the plant be blocked due to climate change considerations. According to a press release issued by a barristers union, the complaint alleges, among other things, that the Secretary misinterpreted the Overarching National Policy Statement for Energy in assessing the project’s greenhouse gas emissions; failed to properly assess the carbon-capture readiness of the facility; and did not consider the UK’s mandate to achieve net zero greenhouse gas emissions by 2050 in a procedurally fair manner or, alternatively, failed to give adequate reasons for her assessment of the net zero target. The High Court gave ClientEarth permission to sue the government.

The High Court ruled for the defendants on May 22, 2020. The judge determined that the case involved policy questions requiring a balancing of interests, and that other public interests weigh against the UK’s climate goals and for the plant’s approval. These include the plant’s contribution to security and diversity of energy supply. On July 21, 2020 the Court of Appeal granted ClientEarth leave to appeal the case.

On January 21, 2021, the Court of Appeal upheld the High Court’s decision and rejected ClientEarth’s appeal, finding that the government’s approval of the plant was lawful. The Court of Appeal found that the Secretary of State balanced the adverse effects of the project, including greenhouse gas emissions, with the positive effects, including socioeconomic outcomes and re-use of existing infrastructure, and lawfully concluded that the benefits outweighed the adverse impacts. The Court of Appeal departed from the High Court in reasoning that greenhouse gas emissions are capable of being treated as “a freestanding reason for refusal” by the Secretary. Nevertheless, the Court reasoned that such emissions are not an “automatic and insuperable obstacle” to approval of infrastructure projects, and the decision-maker has discretion over the weight to assign to greenhouse gas emissions in approval decisions.

At Issue: Environmental group challenged government’s decision to approve natural gas plant.

 

 

clientearth v fca

ClientEarth lawyers say the FCA’s failure to spot this omission is particularly problematic, given the conflict between the company’s intention to develop new fossil fuel assets intended to operate for decades to come – including Cambo and Rosebank – and the consensus that developing new fossil fuel infrastructure is incompatible with the 1.5°C temperature goal set out in the Paris Agreement.

Such new oil and gas projects pose risks to companies and investors in terms of carbon lock in and stranded assets.

The case also argues that failing to provide investors with a meaningful indication of how Ithaca’s business and finances might be affected by full or even partial achievement of the Paris Agreement goal deprives them of the information necessary to make an informed assessment of the company’s financial position, which is a breach of prospectus requirements that the FCA should have identified.

ClientEarth Accountable Finance Lawyer Robert Clarke said: “One of the financial regulator’s main duties is to protect investors. A key way it does that is by ensuring companies that apply to list on the London Stock Exchange adequately disclose the risks associated with their activities, including climate-related risks, in the prospectus as required by law.

“In the case of Ithaca’s listing, we believe the regulator has failed when it comes to this fundamental function by ultimately waving through Ithaca’s prospectus even though legal requirements have not been met. 

“The company’s plans for new oil and gas appear to be fundamentally incompatible with global climate goals and the massive risks associated with its activities have not been properly explained in its prospectus. Without this vital information, investors will not be able to assess how Ithaca might be affected by the global net zero transition.”

Prior to Ithaca’s listing, ClientEarth wrote to the FCA twice to raise concerns about the inadequate disclosure of climate-related risk in Ithaca’s prospectus.

Although Ithaca’s final prospectus contained some further information on the climate risk associated with its activities, and the FCA proceeded to approve the prospectus, ClientEarth lawyers say that the additions were not sufficient to meet prospectus regulation requirements or to make the approval lawful.

Clarke added: “Worryingly, this comes just a year after the Government announced at COP26 its ambition for the UK to become the world’s first net zero-aligned financial centre. The FCA’s prospectus approval in this case raises serious questions about what this ambition means.

“If anything, the regulator’s failure sets up a situation where financial markets are working against climate change goals and obscuring long-term risk for investors. Full and transparent disclosure of climate-related risk enables investors to make informed financial decisions and is essential to ensuring that financial flows can shift to support net zero.

“We welcome the FCA’s recent moves to introduce new disclosure rules on climate but it’s absolutely vital that it applies and enforces existing rules too, especially during the listing process.”

ClientEarth lawyers have filed the claim as a judicial review case against the FCA – and it is now up to the High Court to decide whether to grant permission to bring the claim.

CLIENTEARTH v SHELL

On 2023, NGO ClientEarth sued all eleven members of the board of directors of Shell plc before the English High Court, for allegedly failing to take steps to protect Shell against climate-change-related risks … alert memorandum of 2023

On May 17, 2023, the Court refused to continue the claim. ClientEarth requested reconsideration, and was granted an oral hearing

The lawsuit is one of the first cases of its kind in Europe…. ClientEarth alleged that the directors had breached their statutory duties to protect Shell, and sought a mandatory injunction requiring the directors to (1) adopt and implement a strategy to manage climate risk; and (2) comply immediately with the May 2021 judgment of the District Court in The Hague (the “2021 Shell Judgment”), which ordered that Shell cut its greenhouse gas emissions by 45% by 2030 compared to 2019 levels, in line with the Paris Agreement.

Since its establishment in 2007, London-based NGO ClientEarth has been an active environmental litigant, with 170 lawsuits pending against governments and large corporates, and initiatives spanning more than 50 countries.

Section 260 of the UK CA 2006 permits a shareholder to bring a claim on behalf of the company against its directors for breach of the directors’ duty of care towards the company. The claim is brought for the benefit of the company (rather than the individual shareholders).

Plaintiff shs need Permission to proceed in derivative claims because they are an exception to one of the most basic principles of company law: a company should determine whether or not to pursue a cause of action available to it, rather than the shareholders.

to give permission to proceed, the court must be satisfied that the shareholder has established a good prima facie case (PFC), which is a “a higher test than a seriously arguable case”. The court applied the rigorous test that ClientEarth must show directors could not reasonably concluded that their actions were in the interests of Shell.

If a prima facie case is not established, permission should not be given, but the claimant can ask (within seven  days) for an oral hearing to reconsider the decision.

The statutory general duties owed by directors to the company pursuant to s.170 of CA 2006:

  • -the duty in good faith to promote the success of the Company for the benefit of its members as a whole,  and
  • the duty to exercise reasonable care, skill and diligence (s.174 of CA 2006).

Incidental duties

ClientEarth argued the duties extend to “necessary incidents” of the statutory duties including to:

  • -make judgments regarding climate risk that are based upon a reasonable consensus of scientific opinion;
  • -accord appropriate weight to climate risk;
  • -implement reasonable measures to mitigate risks to long-term financial profitability and resilience of Shell in the transition to a global energy system aligned with the Paris Agreement;
  • -adopt strategies reasonably likely to meet Shell’s climate risk mitigation targets;
  • -ensure strategies adopted are reasonably in the control of (both existing and future) directors; 
  • -take reasonable steps to comply with legal obligations.
  • The court denied the incidental duties, on the basis that they would impose specific obligations on the directors, against the principle that it is for the directors to determine how best to promote the success of a company for the benefit of its members.

ClientEarth also pleaded that under the common law, a director who is aware of a court order (UK or foreign) is under a duty to ensure that is obeyed.

Shell argued there was no duty owed by directors to a company to ensure they comply with the orders of a foreign court. The court agreed with Shell in this.

The alleged breaches

  • -A failure by the board to set an appropriate emissions target.  ClientEarth’s position is that an absolute emissions target to be met before 2050 is required, and the directors’ decision to set Carbon Intensity Targets is inadequate. In particular ClientEarth argues that the directors have failed to ensure that Shell has a measurable and realistic pathway to meeting the NZ target;
  • -The directors’ strategy as regard management of climate risk does not establish a reasonable basis for achieving the NZ target and are not aligned with the Paris Agreement; and
  • -The directors have failed to comply with the 2021 Shell Judgment. Client Erath alleges that although the 2021 Shell Judgment determined that Dutch law imposed a 45% emission reduction obligation on Shell to be achieved by 2030, the Directors have not prepared a plan to ensure timely compliance.

The court held that ClientEarth’s allegations do not establish a PFC because:

  • -1. ClientEarth failed to prove that the directors are managing Shell’s business risks unreasonably.
  • -2. ClientEarth failed to prove that there is a universally accepted methodology as to the means by which Shell might be able to achieve the reductions referred to in its Energy Transition Strategy (“ETS”). The law respects the autonomy of decision making of directors and their judgments on how best to achieve results which are in the best interests of their members as a whole.
  • -3.ClientEarth’s case ignores that the management of a business of the size and complexity of Shell will require the directors to take into account a range of competing considerations.
  • -4.As to the alleged breach to comply with the 2021 Shell Judgment, the court considered that the Dutch Court had accepted that Shell was not at the time acting unlawfully and that it was a matter for Shell as to how it exercises its discretion to comply with the obligations imposed by Dutch law. This, it was held, cuts across the suggestion that the directors are under a duty to comply with the 2021 Shell Judgment in any manner other than compliance with their duties to do what would promote the success of the company.

Relief sought

the orders sought by ClientEarth, to implement strategies to manage climate risk and comply with the 2021 Shell Judgment, are insufficiently precise to allow enforcement.

Refusal of permission

The court held: ClientEarth had not established a PFC, and refused ClientEarth permission to continue the claim….ClientEarth only holds 27 shares in Shell implies that its real interest is not how best to promote the success of Shell for the benefit of its members but that, instead, ClientEarth seeks a collateral motive.

Also, the court noted the strength of sh support for the directors’ strategic approach to climate change risk (Shell’s ETS was supported by 80% of the votes at the 2022 AGM). By comparison, the support which ClientEarth had received for its claim from shs amounted only to “a very small proportion

 

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