See you in court: insurance, climate change and D&O liability in 2022
While insurers talk climate policy, investment exclusions and ESG ratings and politicians do their ineffectual hand waving at headline COP-twenty-something events, explosive climate news is brewing in the courts, which will come to the fore in 2022.
"As frustration mounts at a perceived lack of ambition, we predict a sharp increase in the use of strategic litigation against governments and businesses to force the pace of change," Clyde & Co's Nigel Brook (pictured) says of his top calls for 2022.
A May 2021 Dutch court ruling demanding Shell trim a trifling 45% of its carbon emissions by 2030 may very well have inspired activist throngs. Climate action is coming to be regarded as a human right and being litigated as such.
Six young people from Portugal have filed a complaint with the European Court of Human Rights (ECtHR) against 33 states for failure to adequately address climate concerns and talk is rife of direct demands the court could make on those states. That process is fast-tracked and could make headlines already in H1 2022.
Corporates will be on the defensive bench just as often or more. It’s not just coal and fuels. Automakers are next, taking heat following US, German and Chinese refusal to meet phase-out deadlines for fuel-driven autos. VW, BMW and Daimler/Mercedes in Germany are already facing recent headline suits.
Where there is litigation, there is D&O liability. A net zero promise here, a regulator demand for transparency and accountability there and viola! - the door is open for an activist shareholder to see dereliction of duty. Insurer's will be under direct regulatory and investor pressure to march towards net-zero targets on their own, then sit in court watching their clients face the same.
"In 2021, we have seen various shareholders with climate change agendas, often minor shareholders, successfully lodge resolutions against company executives of large corporations, such as removing directors, replacing board members, forcing transparency of emission targets and investment strategies, selling fossil fuel assets and restructuring investment strategies to become more renewable," Jacques Jacobs at Clyde & Co said. "These trends of shareholder activism and shareholder accountability of directors and officers will both intensify in 2022."
Jacobs cites an SEC decision in the US that climate change shareholder proposals will no longer be able to be excluded from a vote at corporate general meetings as a recent motivator for activists. See also new UK requirements for large companies to publish net zero transition plans by 2023 and the European Parliament Directive on Corporate Due Diligence and Corporate Accountability. He's watching shareholder proceedings against Santos in Australia for engaging in misleading and deceptive conduct in respect of various Net Zero representations.
If old-fashioned emissions targeting is too garden-variety of an environmental concern, consider the up and coming field of bio-diversity litigation, Clyde & Co.'s Wynne Lawrence and Zaneta Sedilekova added.
"The growing number of climate change litigation cases has set the wheels in motion for further biodiversity litigation," they say. Cases are underway against retailers stocking products traceable to deforestation and land appropriation.
Activist investors plus regulatory ESG reporting requirements equals D&O trigger. "ESG misstatements will constitute a real legal and reputational vulnerability for companies and their directors and officers (and their insurers)," Jacobs said.
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