Lawyer Monthly - November 2021 Edition

36 WWW.LAWYER-MONTHLY.COM | NOV 2021 SURGING CLIMATE LITIGATION CALLS FOR BETTER DISCLOSURE While this case only represents a single judgement within the Netherlands – and one that Shell intends to appeal – it could serve as a bellwether for legal action against corporates and motivate similar actions in a wider range of jurisdictions. Transparency in corporate reporting key Similarly, issues surrounding disclosure are exposing corporates to litigation risk. Investors, regulators, customers, and key stakeholders are increasingly calling for transparency into organisations and countries’ climate-related risks – including both transition and physical risks – and opportunities. This has seen corporate reporting become a priority for many organisations, with 90% of S&P 500 companies having published a sustainability report in 2020 – up from just 20% in 2011. Across Europe, many businesses have opted to use an integrated reporting framework in which they disclose sustainability-related information alongside traditional financial disclosures. Meanwhile, the US Securities and Exchange Commission recently announced a proposal for new rules on mandatory climate change disclosure. This appears to indicate that the volume of sustainability-related disclosure is likely to increase over time. Simultaneously, stakeholders are increasingly requesting high-quality disclosures that highlight significant financial exposures in the face of climate change. As a result, there is a growing body of litigation globally that cites securities law in an attempt to encourage issuers of securities to be more transparent regarding their climate-related risks and opportunities. The litigation includes several legal arguments that range from fraud or misrepresentation – whereby an issuer knew about climate- related risks and chose not to disclose them or their disclosures were viewed as misleading or false – to allegations that an issuer did not go far enough in measuring, and then disclosing, its climate risks. Undoubtedly, stakeholders including regulators and investors will continue to demand more transparency around disclosures. The adoption of standardised global reporting frameworks for climate- related issues, such as the Task Force on Climate-related Financial Disclosures (TCFD), could be crucial in mitigating exposure to litigation. The bottom line As more extreme and acute weather events continue to arise as a result of climate change, the worldwide focus on the actions of both nations and corporations will likely continue to sharpen. While we have not yet seen a scenario in which climate litigation has had a material impact on an issuer’s creditworthiness, we expect the rise of climate litigation may be one of many mechanisms by which transition and physical risks crystalise for issuers, carrying with it potential for reputational and financial risks. The adoption of standardised global reporting frameworks for climate-related issues, such as the Task Force on Climate-related Financial Disclosures (TCFD), could be crucial in mitigating exposure to litigation.