Climate litigation development: Australia leading the pack

12 minute read  08.10.2023 Sarah Barker, David Taylor, Charlotte Turner, Tatum Joseph

Australia leads in climate litigation. Investors probe ESG claims. Dive into MinterEllison's insights on recent cases and future trends.


Key takeouts


  • On a per capita basis, Australia is the global leader of ‘climate-related litigation’
  • ‘Climate-related litigation' is rapidly evolving. Strategic litigants are adopting a diverse range of legal strategies targeting a wider range of industries. Meanwhile investors are increasingly testing the veracity of ESG representations through creative strategic actions.
  • Now, more than ever, it is critical for businesses ensure that they have robust policies and procedures to manage climate change related risks and accurately represent their sustainability credentials.

A stocktake of climate litigation globally

Three recent reports (LSE's ‘2023 snapshot, UNEP's ‘Global Climate Litigation Report’ and NFGS Climate-related litigation: recent trend and developments) tracking the status of and analysing recent climate-related litigation trends highlight that, second only to the US, Australia has the highest number of climate-related cases (and first on a per capita basis). While the overall number of proceedings filed decreased year on year in 2022/2023, the number of cases against companies and financial institutions has rapidly escalated, driven largely by the significant number of recent greenwashing cases filed.

The reports highlight that litigation is being used as a strategic tool to drive strengthening of ambition, decision-making processes and governance of climate and sustainability-related issues. The range of companies and now individuals being targeted by litigants is diversifying, and coupled with the more sophisticated and complex cases, amplifies the climate-related litigation risk to companies in all sectors of the economy.

Investors are starting to see climate-related litigation as a risk informing investment decisions and a risk that could have a broader market impact on a corporation’s value. A recent interdisciplinary study, referred to in the LSE ‘2023 Snapshot’ report, found a ‘small but statistically significant’ reduction in corporation’s value following the filing of climate-related litigation, with share prices falling more in reaction to ‘novel’ cases. This indicates that markets are systematically taking the risk of climate-related litigation into account, and are already responding to the climate risk cases filed against companies and financial institutions.

We set out below key developments and current strategic levers being implemented, for Australian corporates to look out for.

So, what are the key trends?

1. Greenwashing interventions continue

Since our previous greenwashing update in July greenwashing claims continue to be filed by regulators and activists alike, notably:

Regulatory interventions

  • ASIC files third greenwashing proceeding – in addition to proceedings filed against Mercer (February 2023) and Vanguard (July 2023), ASIC has recently issued a case against ActiveSuper (August 2023). Broadly speaking, all three cases involve allegations of misleading statements about the sustainable nature and characteristics of funds labelled as “sustainable” and “ethical” on the basis that products offered included investments they were represented to exclude, such as fossil fuels.

Strategic interventions

  • Complaint to ACCC against VicForest – a complaint made on behalf of the Victorian Forest Alliance asks the ACCC to investigate whether statements made on VicForests' website about its environmental credentials and impacts of its logging practices and products are false and/or misleading.
  • Claim filed against EnergyAustralia for alleged greenwashing – Australian Parents for Climate Action have filed a claim against EnergyAustralia alleging statements about its 'carbon neutral' energy products are misleading or deceptive.

What does this mean for Australian business? To effectively manage the litigation risk relating to product disclosures, sovereign and corporate issuers should review the robustness of their approach to climate-related financial risk evaluation, verification and disclosure. More broadly, investor understanding that the impacts of climate change present significant foreseeable and often material risks (and opportunities) has matured. These issues must be considered and disclosed in the same way as any other financial risk relevant to a financial product issuance. Failure to disclose material physical or economic transition risks raises litigation risk for issuers.


Financial product disclosures

Increasingly investors understand that the impacts of climate change present significant foreseeable and often material risks (and opportunities). These issues must be considered and disclosed in the same way as any other financial risk relevant to a financial product issuance. Failure to disclose material physical or economic transition risks increases litigation risk.

  • Climate disclosure case against the Commonwealth settled – the claim filed in 2020 by Katta O'Donnell alleged that the information statements issued for exchange-traded Australian government bonds were misleading or deceptive in that they did not adequately disclose the economic and fiscal risks associated with climate change, and associated credit risks. If the Court accepts the terms of settlement, the Commonwealth government will publish a statement that climate change is a systemic risk that may affect the value of its bonds.

What does this mean for Australian business? To manage the litigation risk relating to product disclosures, sovereign and corporate issuers should review the robustness of their approach to climate-related financial risk evaluation, verification and disclosure.


2. Attention is turning to the 'S' in ESG

In addition to the rapid increase in greenwashing interventions, stakeholders are turning their attention to scrutinising 'bluewashing' practices. Similar in principle to greenwashing, companies that fall short of their social commitments or engage in misleading or deceptive practices regarding 'S' (in ESG) issues are exposed to a heightened litigation risk.

Human rights are being leveraged as a tool to hold governments and businesses accountable for the impacts of climate change. Strategic litigants continue to test the boundaries, formulating new claims asserting a range of rights. These cases are gaining traction with several significant recent findings:

  • Australia found to be violating rights of Torres Strait Islanders because of inaction on climate change – In March this year, the Australian Government responded to the United Nation's Human Rights Committee decision detailing a series of consultation and adaptation measures and several funding commitments. This follows the landmark decision in September 2022 that found that the Government's failure to protect Torres Straight Islanders from the effects of climate change was a violation of the right to culture and the right to be free from arbitrary interference with privacy, family and home. The Committee recommended that the Australian Government provide compensation for the harm suffered, engage in meaningful consultations to assess the needs of the Torres Strait Islanders and take measures to secure their safe existence on their respective islands.
  • Land Court refuses thermal coal mine on climate change and human rights grounds – For the first time, the Queensland Land Court recommended a mining lease be refused on the basis of unacceptable climate change impacts and incompatibility with human rights. See our previous insight for further details of the claim.

While these cases are filed against governments, similar arguments have been easily be transposed into cases against businesses. Such as:

  • Shell ordered to reduce emissions – in the Netherlands, similar human-rights-based arguments were successfully used against Shell after being tested against the Dutch Government in the landmark Urgenda case. In a historic judgment, the court found that Shell was in breach of its duty of care under the Dutch Civil Code (informed by its human rights responsibilities), and ordered it to reduce its emissions in line with the Paris Agreement.
  • ClientEarth complaint against Cargill – filed a complaint with the US contact point alleging it had failed to conduct adequate environmental and human rights due diligence in relation to its soya supply chain in Brazil. Citing Cargill's monitoring, verification and reporting system and its policy commitment to supporting Indigenous Peoples and Local Community Rights, ClientEarth alleged that despite these claims, Cargill does not conduct people and environmental due diligence in line with OECD guidelines.
  • Grievance letters to banks – Traditional Owners, Elders and clan members filed human rights grievances against financial institutions supporting the Barossa gas project located in waters off northern Australia. The grievance is based on an apparent failure to undertake adequate human rights due diligence for the loan in addition to alleged breaches of policy and international human rights standards, including the failure to obtain free, prior and informed consent.

What does this mean for Australian business? While companies do not have direct obligations under international law, it is now recognised that they do have responsibilities to respect human rights including taking a proactive approach to ensure rights are not violated. Corporates should be careful to ensure that their actions are consistent with any public statements in relation to human rights, including support for principles such as the UN Guiding Principles on Business and Human Rights.


3. Strategic investor interventions

Investors are developing creative ways to inspect a company's internal documents in order to verify the accuracy of climate commitments or to establish if proposed corporate plans adequately disclose the risks as well as the opportunities.

  • A 'books and records' first – CBA released an updated policy and framework in August including new fossil fuel finance restrictions. This follows a previous action in which two shareholders used statutory inspection powers to obtain internal documents in order to verify the accuracy of its climate commitments - in particular, relating to the funding decisions to seven fossil fuel projects after it had published it's 2019 environmental and social framework and policy. The shareholders were granted access to a large range of documents after which they underwent an engagement process with the bank to progress internal governance.
  • Scheme of arrangement intervention process – a shareholder of AGL was concerned that the proposed demerger to split off AGL's fossil fuel entities was not in the best interests of the shareholders. Typically, shareholders are not able to access scheme materials before the 'first hearing' of the application to the court. However, following a successful intervention application, the materials were provided to the shareholder and in relation to the videos AGL proposed to publish about the demerger, the court ordered they were to be amended to disclose the risks and the disadvantages of the demerger. The scheme booklet was published unamended.

What does this mean for Australian business? In this environment of heightened stakeholder pressure and expectations, companies must ensure they are robustly implementing their stated policies on climate change and operating with an appropriate level of transparency.


4. Personalisation of climate liability

As boards continue to grapple with how to adequately manage the risks (and opportunities) of climate-related issues to their company, they increasingly face personal liability risk from shareholders (and other stakeholders) who consider directors are not acting in the best interest of the company or with the required standard of due care and diligence. Unlike in 'stock drop' cases, strategic litigants seeking declaratory or injunctive relief do not have to show they have suffered any loss or damage to file a claim.

  • Shareholder derivative action – in its capacity as a shareholder, strategic litigation firm ClientEarth filed a derivative action against the board of directors of Shell alleging the directors had breached two of their primary duties under English company law. The case alleged that by failing to adopt a Paris Agreement-aligned emissions reduction strategy, the directors were failing to act in good faith and promote the long-term success of the company, and were in breach of their duty of due care, skill and diligence by failing to oversee management implementing credible strategies and plans to reach the targets the company does have in place. ClientEarth sought a declaration that the directors had breached their duties and a mandatory injunction requiring them to adopt and implement a Paris-aligned strategy. The application was refused both on the papers and at an oral hearing with the court finding ClientEarth failed to make out a prima facie case for the relief sought. ClientEarth has been ordered to pay Shell's costs of the application and permission to appeal has been refused.

What does this mean for Australian business? Given climate change is a foreseeable and likely material risk to companies in all sectors of the economy directors should ensure they are robustly governing climate-related risks (and opportunities) to guard against allegations of a failure to adequately discharge their duties.


What's next?

The evolution and novel framing of cases signals there will be a continued increase in the pace of filings of climate and sustainability-related litigation against companies. Over the horizon, the following are evolving key areas where litigants are likely to focus their attention:

  • Increased use of the court process to drive climate outcomes – as with many of the claims identified above, strategic litigants are likely to continue creative and novel actions to advance climate ambition. Corporates should be prepared for claims which seek to access information in order to establish the 'say-do-gap' or alignment between strategy and stated ambition.
  • Impending mandatory reporting requirements for companies - may also lead to litigation for example where plaintiffs can more easily establish that a parent company has knowledge of emissions of subsidiaries in other jurisdictions or human rights abuses throughout the supply chain. Australia is following many other jurisdictions in progressing the introduction of ISSB-aligned mandatory sustainability disclosure standards, which includes disclosures of scope 3 emissions and transition plans. Reporting on scope 3 emissions will require companies to understand their supply chain and could give rise to allegations of awareness of human rights abuses. This is consistent with a global trend of jurisdictions (such as France and Germany) adopting human rights due diligence reporting for companies with regard to the companies they control and all their contractors and suppliers.
  • Biodiversity and nature-related climate nexus cases – in parallel to the 'climate playbook' of strategic litigation, we expect an increase in litigation focused on the biodiversity-climate nexus, particularly in the context of the release of the Taskforce Nature-related Financial Disclosures and the emergence of biodiversity as a material financial risk for organisations. This may include, for example, pressure on government to integrate global 'benchmarks' such as the goals and principles of the Global Biodiversity Framework into national law or heightened expectations on corporates to filter these issues through to business strategy, governance and assurance.

What does this mean for Australian business? Strategic litigants are adopting a diverse range of legal strategies against a wider range of claimants. Significantly, cases against corporate actors are increasing in a broader range of sectors than ever before. As such, the risk of climate-related litigation has never been higher. It is therefore critical that businesses ensure they have a robust strategy and policies in place for the management of climate and sustainability-related risks, including mitigation, adaption and the representation of its sustainability credentials.


How MinterEllison can help

In a field as dynamic as sustainability and climate change, it is critical to understand the law as it stands, and its direction of travel. Whether you are at the beginning of your climate and sustainability risk governance journey or committed to best practice, MinterEllison’s multidisciplinary team can assist with the assessment, governance and management of climate-related risks.

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