Andrew Litchfield: Good afternoon everybody if you are listening or tuning in in Europe, and good morning if you are tuning in from North America. I am going to give us another 30 seconds or so, the numbers are still rising as people join so bear with us for another 30 seconds.
OK so I am keen to make a prompt start so we will get going. My name is Andrew Litchfield I am a partner in Gowling WLG's dispute resolution group and I do a lot of regulatory litigation involving quite a bit of environmental work. This is the fourth in the series of some webinars we have been holding over the summer with an environmental law and sustainability theme, and you will have seen from the invitation of course that today we are focused on climate change litigation.
Just to set the scene a little as to why we thought this was an appropriate topic. We have seen gradually, but with increasing pace over the years a much greater awareness of environmental matters, much greater demand for change coming through from the global population, much greater awareness of the risks and the dangers and the speed with which the climate is changing. Certainly in the UK, for example, we have had increasing numbers of demonstrations, increasingly popular demonstrations as well and demands for change and demands for action, which the politicians are starting to listen to and starting to take heed of and that is feeding through into law, into legal requirements. Of course the Paris Agreement 2015 was a big moment, lots over on this side of the Atlantic, lots of action from the EU as well as in relation to climate change and of course in the UK, the UK government's commitment to Net Zero by 2050. And those things start to feed through into government policy and then into local government policy and then of course private companies start to take heed as well and gradually with increasing pace things change.
So I am delighted today to be joined by three colleagues. Ben Stansfield is a partner in our real estate team, and I am going to be talking to Ben and asking him in particular about how climate change is being used to influence or attack even government policy and then the same question in relation to specific projects. Elsie Blackshaw-Crosby is an associate in our dispute resolution group with a special interest in environmental law and I am going to talk to Elsie about climate change in relation to companies, especially their reporting obligations and how those may be used or how those maybe influenced in future litigation. And then finally Liane Langstaff is an associate in our Toronto office specialising in environmental law and environmental litigation and I am going to ask Liane some questions about the North American perspective and how things are seen over there and what the particular influences are over there.
So the plan is for me to chat and talk to everybody for about 45 minutes and then we will leave some time for questions at the end before we finish at around about half past the hour. If you do have questions please can I encourage you to put them in the Q&A box, which you will find at the bottom of the screen. Can I also encourage you to put your name against any questions that you have just in case if we do not get time to pick them up and answer them we can contact you afterwards with some thoughts and some comments and we will come back to you later.
So Ben let us start with you, we have seen some high profile cases in the English courts where government policy in particular in relation to infrastructure projects has been challenged but what can you tell us about recent events?
Ben Stansfield: Yes you are right. In the last 6-12 months we have seen a real flurry and I think in the autumn we are going to see quite a few more cases. These are judicial review challenges to government policy, using climate change as the primary ground of arguments so a couple of cases to mention. The first being Plan B which is the Heathrow case, so by way of background, in 2015 the Paris Agreement was concluded following COP 21, which is the UN's International Climate Conference. That agreement set out the strength and government action to reduce CO2 emissions, limited average temperature increases against pre-industrial levels to, one and a half/two degrees. The UK ratified that agreement in December 2016 and then 18 months later it designated the Airport's National Policy Statement and that policy statement recommended a third runway at Heathrow Airport and by then Heathrow was well on the way to putting its application together.
Unfortunately, the Airport's National Policy Statement did not mention Paris once, just absolutely no reference, it did not factor in its obligations. So a claim for judicial review against the NPS was brought, the High Court rejected it and in February this year the Court of Appeal sided with the claimant and said yes, it was legally fatal that the government's Airport Policy did not mention Paris at all. Therefore, they declared the policy void and told the government go away and reformulate the Airport's Policy but this time take account of Paris and Net Zero and your climate obligations. Heathrow has appealed to the Supreme Court and it has been given leave to appeal so that will have a two day hearing on 7 and 8 October, so watch this space. Remember Heathrow has not even submitted its application for consent yet, this is all just policy based stuff. So I think the key takeaway from the Heathrow case for now is that the Paris Agreement commitments which are now effectively Net Zero must be taken into account explicitly in all government policy.
Now that then led to another JR application. So following Plan B three people got together, Dale Vince, who is the founder of Ecotricity, the Good Law Project and George Monbiot, a well know environmental campaigner. They came together and said to the Department for Energy and Industrial Strategy, you need to look again at your Energy National Policy Statement, it is nearly nine years old. It was adopted back in the days of 80% targets, there is essentially a chapter on fossil fuel developments, it does not mention solar once, it mentions wind 298 times, does not talk electricity storage. This was adopted when Chris Huhne, the Lib Dem Secretary of State within the Coalition Government, so quite some time ago.
Section 6 of the Planning Act 2008 says the Secretary of State must look again, must review National Policy Statements whenever the Secretary of State thinks it is appropriate to do so. So if there is a significant change in circumstance, if there is change that was not anticipated when the policy was made, or if there is a potential for a material difference in policy. The claimant said we will write to the Secretary of State, please review it from the back of the Plan B case. BEIS declined to review it and said, well we have been thinking about it for a while we just have not got around to doing it, so a JR challenge was brought and that is going to be heard in 9 November. Key take away from that, I think we have to see what happens in the Supreme Court, there is logic in what the claimants are saying, there is something new to be considered here and equally BEIS has got discretion and it has obviously thought about it. My hunch is that the government are not philosophically opposed to review, it just probably wants to get Heathrow out of the way, there is Brexit, there is COVID-19. A full scale review of Energy Policy is quite meaty right now particularly as last week Hitachi pulled out of New Nuclear Wales.
There is another case in relation to Highways JR but it is along the same sort of principal. So there is essentially three cases that this autumn will look at government policy.
Andrew: Sounds like a pretty interesting few weeks to come on that score. OK so those challenges impact developers but they are aimed at policy rather than specific projects. Has it all been policy related to JRs, or do we have claimants challenging specific projects on climate change grounds?
Ben: Yes we have had a number of project challenges and in recent months they have started to argue on climate change grounds too. So a couple to mention here, we have had the Chris Packham HS2 case, so the High Speed Rail between London Euston and initially Birmingham. In March this year Chris Packham, who for our North American guest is a British Nationalist, a TV presenter an all-round good guy. He sought to challenge the Secretary of State for Transport who took a decision following an internal review to proceed with the project. Chris Packham sought an interim injunction to protect six ancient woodlands, and actually this was one of the first hearings we had in the pandemic. A number of grounds were argued, all environmental, a couple of climate change grounds in there as well.
The High Court was not persuaded so he went to the Court of Appeal and said can we have an urgent hearing to talk about this, and that was in July. He argued that the government failed to take account of greenhouse gas emissions and global temperature rises in light of its obligations under Paris and the Climate Change Act. The Court of the Appeal rejected that, which is quite different to how it took matters on policy, it said look the government was at liberty to select the issues in which it was advised by that review it was not constrained by policy or Climate Change Act and actually the government was fully aware of its Paris Agreement responsibilities and it had taken those into account. So the case failed.
Another one we had recently was Drax and ClientEarth. In 2018 Drax a power developer in the North of England applied for a consent of two gas fired power station generators, the Secretary of State granted consent October last year despite his inspectors recommending refusal. ClientEarth had some really prominent environmental campaign lawyers based on judicial review of that decision including greenhouse gas and Net Zero arguments and they all failed surprisingly. The judge said the need for the project was established in policy and this was almost a merits type claim, greenhouse gas emissions were relevant but not necessarily inconsistent with policy and he said in any event Net Zero is not incompatible with the policy statement. There are different pathways to securing the result and it is quite open to the Secretary of State to think about other mechanisms by which carbon can be reduced, so carbon capture and storage or EU ETS. So again I think the takeaway from those cases is the courts are pretty unwilling to knock out consent for individual projects.
There is a further case Millstone, which I will just talk about. This was an energy from waste plant in North London granted consent in 2017, a couple of years later we had Net Zero, one of the local residents sought to get the Secretary of State to revoke the DCO arguing change of circumstance, Net Zero, all this kind of stuff. The Secretary of State said no I am not going to do that, it went to the High Court and the court said no look this is just way too late in the day, government discretion, etc. So I think on that one the Court is not going to look at old consents, it seems unwilling to look at recent consents and it is focusing on policy at the moment.
Andrew: Yes I see well it seems like a greater willingness from the Courts to get involved in policy as opposed to upsetting specific projects. Is that fair?
Ben: Yes that is exactly right Andrew.
Andrew: OK. Let me turn to Elsie, Elsie what about the claims being brought directly against companies in relation to perhaps their reporting obligations on climate change? Just give us the background first.
Elsie Blackshaw-Crosby: Yes there are absolutely climate change litigation risks that are facing individual companies at the moment. Arising from disclosures that they make in their annual reports and/or their failures to adequately mitigate against climate change risks they are facing. I thought I might start initially by explaining the three types of climate change risk, which companies need to take into account and these are risks that have been identified by commentators and in particular by Mark Carney in a speech he gave in 2015.
So the first of these are physical risks, and these are risks arising from the direct impacts of climate change. So the negative impact of climate change on the value of a company's assets for example, risks that climate or weather related events such as floods, storms or wild fires may damage a company's physical assets and disrupt trade. That is one category of risk that companies may be facing from climate change.
The second category of risk is transition risk and these are financial risks faced by companies as a result of the process of adjustment towards a lower carbon economy. So for example, this would encompass the financial impact on the company of any sudden or disorderly changes in government policy or regulation. It would encompass any risk as a result of changes to technology or increase physical risks that could prompt a re-assessment of the value of a large range of assets.
The third category of risk is liability risk, and this is the risk of future claims being brought against companies by parties who have suffered direct loss or damage from the effects of climate change and are seeking compensation from those that they hold responsible.
I thought I might talk through these risks by looking at three case studies from other jurisdictions where shareholders have brought claims against companies on the basis that they have failed to take adequate actions to mitigate both physical and transition risks and all of these failed to disclosure them to shareholders and perspective shareholders. I understand that Liane is going to touch on briefly litigation in the US which has been linked to liability risk.
Andrew: OK, so what have you been observing in other jurisdictions so far?
Elsie: Yes, so other jurisdictions seem to be further ahead than the UK in a lot of this litigation, the US is particularly far ahead and Liane will go into various cases that are happening there, but I wanted to touch on one series of cases that is happening in the US being brought against Exxon. The claims have also been brought against the Chairman, CEO and Directors and the claims are shareholder claims, they are seeking damage for loss and value of their investments in Exxon and their claims are based on material misrepresentations and breaches of fiduciary duty.
So by way of background the claim is made on the basis that Exxon made in its reports, annual accounts and other public reports, materially false and misleading statements about physical and transitional risks likely to affect the company. In broad terms, the public statements said that the company would face little material transitional risk from climate change and that the value of its assets would not be impacted. The claim also alleges that the company provided false and misleading assurances regarding those risks and it alleges that in those same documents the company failed to disclosure material adverse climate related facts about the company's business, operations and its prospects.
It is also claimed the company employed internal practices that were inconsistent with the representations it made in its public statements. In particular the company is alleged to have been applying a much lower proxy cost of greenhouse gases in their profit and loss calculations than it had been claiming in its external reports and publications. When the published proxy cost was actually applied internally it was after enormous write-downs and profit re-adjustments.
In terms of status of this case it remains undecided, still going through the Courts and it is at various different stages because there are lots of different claims being brought against groups of shareholders in different Courts. But it is clear if the Court does not find in favour of the claimants it may well be on very claim specific factors, which suggest that there were clear instances of deceit by the company and its directors rather than just a claim based on general reporting. However, I think that the claim does show how shareholders are grappling with the risks posed to their investments by climate change and how they are relying on public statements made by companies in relation to those risks in order to take action against companies and its directors where they consider that those risks have been misstated and they may have been misled in investing in those companies.
The second claim is a bit closer to home for those of us in Europe. It is a claim that was brought in Poland against a power company called Enea and this one also relates to transition risk. So the claim was brought in 2019 by the Environmental NGO ClientEarth, who Ben has already mentioned and is very active in general in climate change litigation. ClientEarth became a shareholder of the power company and with the benefit of that position it brought shareholder proceedings against the company alleging that the company and its directors had failed to consider the material economic transition risks of its project to build a new core fired power plant costing €1.2 billion.
In particular the claim pointed to evidence from economic analysts, rating agencies and energy industry experts that said the project was likely to become unprofitable in the future due to the decarbonisation of the economy. In the end the Court did not actually need to determine that climate risk claim, as it found that the company resolutions authorising constructions were invalid under Polish company law and the construction was therefore unable to proceed without further compliant resolutions.
However ClientEarth has put the directors on notice that should the company decide in the future to proceed with the construction of the power plant it would bring claims for breach of directors duties, based on their failure to consider the material economic transition risks posed by the construction and on the basis that any such decision would be harmful both to the company and its shareholders.
So why is this relevant to us in the UK or in the US? Well at least in the UK similar directors duties exist and I think that companies need to bear in mind the risk of litigation where significant strategic decisions are seen to have been made without taking into account transition risks. Another interesting aspect of this case are the capped views by ClientEarth. They became the shareholder of a target company with arguably a single aim of bringing litigation to stop activities that they see as being harmful to the environment.
There is one last case study that I am going to look at briefly, and this is a claim against a utility company in California. So this company were found to have caused some of the 2017 wildfires as a result of its operations. By way of background this was linked to the wildfires in California in 2017 which were said to have spread out so rapidly because of the very dry conditions which were linked to the drought caused by climate change. Federal investigations after the fire found that this utilities company's failure adequately to maintain its power lines and to keep them clear of trees and clear of faults caused those power lines to start what were initially small fires that then resulted in numerous uncontrollable and devastating wildfires because of the drought.
The company has subsequently filed for bankruptcy as a result of the liability claims made against it in relation to the fires, and following that filing shareholders have brought a claim against the company's directors, its offices and also the banks involved in underwriting its corporate debts. They claim that they made misleading statements about the risks, regulatory compliance and investments in power line safety which led shareholders to have a false impression of the company's business, operations and financial success. I want to highlight this case today as an example of a claim where the company's activities were neither directly linked to climate change nor was it part of the carbon heavy industry, and yet it has been forced to file for bankruptcy because of damage i.e. physical risks caused by its activity that happened as a result of the physical impact of climate change. The risk of damage was not reflected in its reports, and there were insufficient actions taken by the company to mitigate those risks and this has allowed shareholders to bring claims for misrepresentation.
Andrew: OK. Are there any signs of anything similar or anything that is coming down the tracks in the UK?
Elsie: The UK is definitely a little bit further behind on this type of climate risk litigation. We have not seen any similar cases to date, but saying that we do not think it will be long before we do start seeing cases brought in the UK in relation to climate change disclosures in company reports and/or mitigation taken by the company in relation to climate risks.
We think that such claims may be brought either by regulators for failure to comply with relevant regulatory reporting regimes or by shareholders claiming misrepresentation and/or breach of fiduciary duties. I therefore thought it would be helpful briefly to comment on the status of reporting on climate change risk in the UK. So in our experience reporting and disclosures on these issues are typically quite high level, and environmental disclosures often focus on greenhouse gas emissions and backward looking statements about the impact of the company's operation on the environment rather than forward looking statements about risk going forward.
There are various reporting requirements under the Companies Act that require narrative reporting of the principal risks and uncertainties based in the company. There are also financial reporting requirements under Part 15 of the Companies Act requiring UK companies to prepare accounts that provide a true and fair view of the company's financial position. And given that climate change is a very real risk faced by companies, both narrative and financial reports should reflect the physical transition and liability climate change risks if applicable that a company is facing.
Admittedly the legislative and regulatory regimes applicable in the UK do not yet explicitly require this level of detail, but there is undoubtedly mounted pressure for them to do so and it would be fair to say that the regulatory and legislative frameworks are in flux on these issues and there are signs that the UK companies will soon be required to report in line with the very prescriptive framework supported by the taskforce on climate related disclosures. In the meantime however, it is important to consider whether your company's public reports accurately reflect the climate risks faced by the company and whether there might be any litigation risk associated with those disclosures. Companies and their boards of directors need to become aware that investors will be scrutinising these disclosures and potentially placing reliance on them, which if it turns out to be unfounded may well be the type of litigation that we have been seeing in other jurisdictions.
Andrew: So there is a distinction between climate change groups joining or becoming shareholders for the sole purpose of bringing a claim on the one hand and other investors, other shareholders who have made a genuine investment but who are may be worrying that they have suffered as a result of the misstatements that may have been made.
Elsie: Yes absolutely. There is definitely that distinction and there is the activist element of organisations like ClientEarth who are undoubtedly using every avenue available to them to bring action against companies that they see to either be directly involved in activities that are damaging the climate or supporting activities. So for example through financing of companies. They are also raising many challenges against those sorts of companies as well.
Andrew: OK, so in its infancy over here in the UK by the sound of it. But I suspect as with everything you are way ahead of us in North America so Liane what can you tell us about what is going on over there?
Liane Langstaff: Thanks Andrew. So North America has been experiencing some of the same trends that Ben and Elsie were telling us about but there is a bit of a different regulatory context that changes the types of transition and litigation risks that we see and so that is what I would like to take you through. In Canada at least there is a lot of consensus about the need to do something about climate change. Canada is a signatory to the Paris accord. It declared a climate emergency in 2019 shortly after the UK did. Canada has also adopted Net Zero commitments by 2050 so in that respect we are very similar.
But what is a little bit different is in Canada and indeed in the US it is a bit disjointed about how we are going to curb emissions and so although there is some form of carbon pricing across Canada it varies depending on the jurisdiction. And so what we see is for instance in British Columbia, they have a carbon tax, in Quebec they have the cap and trade system that links with the Western Climate Initiative so that they can trade emission permits with US states like California. And then we have federal backstop legislation that tries to promote at least the same level of stringency and it is called the Greenhouse Gas Pollution Pricing Act and it imposes a fuel charge or sets up this system for large industrial emitters. It only applies in those provinces and territories that do not have their own carbon pricing scheme that meet the base level of federal stringencies.
The only difficulty is that this is very contentious and subject to litigation because of our federal system, and it is particularly timely to be talking about this because just yesterday our highest level of Court, the Supreme Court of Canada heard a constitutional challenge to the Greenhouse Gas Pollution Pricing Act and so what had happened was Ontario, Saskatchewan and Alberta all challenged the constitutionality of that act. I act for one of the interveners the Canadian Public Health Association, along with my Gowling WLG colleagues Jennifer King and Mike Finley. To give you a flavour and full disclosure of what our clients position was, because the Canadian Public Health Association views climate change as a public health threat it supported the Greenhouse Gas Pollution Pricing Act and supported some form of government action at all levels.
So we will have to see what happens with it because the success in the lower Courts was divided, the Courts of Appeal of Ontario and Saskatchewan deemed the act constitutional but Alberta deemed it unconstitutional, so now that all the submissions are in we will see what ends up happening at the Supreme Court. But I think the most important thing to take away from this landscape is that there is tension in North America and it emphasises the transition risk that Elsie was talking about. So because there are these disagreements about what is the best way to curb emissions it can make it difficult for businesses to know what to do because the regulations are in flux. Certain regulations might be struck down with these lawsuits or when political regimes change, new regulations that are more stringent or maybe even less stringent regulations might come into play causing the costs of transitioning to these different regimes.
And it also poses a related litigation and reputation risk because it might be more difficult for a company to rely on regulations or to point to them when they are constantly changing, especially when different stakeholders have different views about what they think is appropriate in the circumstances. So regardless of what we see in terms of specific regulations we often tell the companies we work with that they should continue to track and make efforts to mitigate their greenhouse gases wherever possible so that they are ready no matter what happens in terms of the regulatory environment.
Andrew: So just picking up on that last point you just made there actually. What do you think in-house counsel boards need to know about the general picture of North American lawsuits?
Liane: I think in-house counsel and boards of directors should also be cognisant that they are going to have to comply with these regulations, but that they could too be the subject of lawsuits like Elsie and Ben were telling us about. I am going to talk a little bit about two different types of lawsuits, the first being tort claims against large carbon emitters and the second being securities law cases similar to what Elsie took us through. And again we look to the US, it tends to be a more litigious society than Canada so they are at the leading edge of what is happening on the climate litigation front. In particular there have been lawsuits by civil society groups and even municipalities claiming that large corporations caused or contributed to adverse climate impacts and for this I will take us to New York City.
New York City launched a lawsuit against major carbon emitters for the costs to protect its citizens from climate change. If you think of things like flooding risks, storm water management, sea level rise all of that has a hefty infrastructure price tag and so they were looking for damages to deal with some of these costs. In that case it was dismissed in July 2018 but it went to an appeal in November 2019 that is when it was argued. We are still waiting on the result of that but win or lose it send ripples, and it sends ripples into Canada and so the cities of Toronto and Victoria in DC also considered whether or not they should launch similar lawsuits and had that studied by their municipal staff.
But I will say that on this branch of tort claims it is difficult. There are lots of challenges about whether those claims will ultimately be successful, they are often challenged due to causation issues. It is just so difficult to prove that one company, or even a handful of companies, are the direct cause of the climate change harms that an entity is experiencing. And so that seems to be one of the major problems with them and for that reason a more immediate concern especially for publically traded companies are the security flaw cases that Elsie took us through, and so it can be shareholders bringing these cases. But the other thing that we will likely see more and more in the future is securities regulators taking on these types of cases to ensure compliance with disclosure obligations and again to illustrate this risk we go to New York.
The Attorney General of the State of New York brought a case against ExxonMobil for allegedly misleading shareholders about the cost of climate change and that decision came out in December 2019, so relatively recent, and in the end the court ruled in favour of Exxon. So you might be thinking well OK one of these first cases it does not even lead anywhere, but I would caution that the facts matter so in that case New York State took issue with certain sustainability reports that Exxon had released between 2013 and 2017. And Exxon then adduced evidence from leading investors that they had not really made their decisions based on those reports and so they did not even have to go into what the reports said, there were no material misstatements that could mislead a reasonable investor, they were looking elsewhere.
But I would caution that that was 2013-2017 and reasonable investor expectations may be changing and Elsie mentioned Mark Carney has been talking about these risks since at least 2015 but I think the voices in the investment community have been amplifying. They are reading the results coming in from the Intergovernmental Panel on Climate Change and we are seeing people like Larry Fink, the Black Rock CEO, coming out and making statements about climate risk and its importance.
In terms of Canada we have not seen these types of securities lawsuits yet, but securities regulators are setting the stage so that companies better understand their obligations when it comes to climate change and so last year the Canadian securities administrators issued a specific notice about reporting on climate risks. It was still more of an encouragement and I guess a note about how to go about this better, as opposed to thou shalt do this. But it did encourage moving beyond big disclosures and instead it recommended relevant, clear and understandable entity level disclosure.
This goes to what Elsie was talking about as well. It is not enough to have a one off statement that climate change is a risk or backward looking this was our impact on climate change. Forward looking what are the risks in the categories of your litigation risks, your transition risk and you physical risks and then what are you doing to manage those risks. So that is one thing that we are seeing in the disclosure context. As a final note I note that the Canadian Climate Law Initiative, which is an organisation that I work with, they recently commissioned a legal opinion. It was released in July and it concluded that corporate board members and officers are legally obligated to address climate change risks and opportunities. And again this will vary, the exact risks and opportunities will vary based on your business but through the corporate duty of care, boards have responsibilities to be informed about the risk of climate change and to be satisfied that the risks that are most material to their business are being adequately managed. And if they do not do so they will open themselves up to risks of climate lawsuits in the future.
Andrew: So that sounds like a very clear shot across the bows of anybody on those boards that they need to be thinking about that very seriously. Ben mentioned the impact of climate change on specific projects over here in the UK. What is happening with regards to climate change and project approvals in North America?
Liane: I would agree with Ben that climate change concerns have and will arise even more in major project approvals in Canada. What we saw in the past is under the Canadian Environmental Assessment Act, you could also consider climate change in terms of when you were gathering information to help tribunals make decisions about whether or not to approve major projects. There was also judicial reviews in the same way that Ben was talking about especially when it came to oil sands projects and pipeline projects is where it most frequently came up.
But now it is changing to be really any type of project should be taking this into account and the reason for this is legislative change and so last year we repealed our former Canadian Environmental Assessment Act, put into force a new act The Canadian Impact Assessment Act and that act makes climate change front and centre. Some of this is a bit of lip service you will see it in the preamble to the act as we are trying to meet our Paris Accord commitments and things of that nature but it also shows up in the meat.
So when you talk about whether or not a new project will be approved it has to be in the public interest, and the public interest is kind of this broad amorphous topic, it can mean a wide variety of things. But what the statute tells us, it does include certainly, is the extent to which a designated project either hinders or contributes to the government of Canada's international climate commitments and obligations like Paris, and so the types of cases that Ben spoke about they have already occurred and I think they will continue to occur in the future in Canada.
Andrew: OK thank you very much. We thought that it would be particularly helpful for everybody if we also pulled together an attempt to put onto one slide some practical hints and tips and things that you should be doing and should not be doing and hopefully as if by magic that slide will appear on our screens any second now, here we go. And then I think Ben and Elsie and Liane are going to take three each so I am going to hand back over to Ben just to pick up the first three.
Ben: Yes, OK. So I am going to deal with audit your consent applications, so that was something I was talking about earlier. These applications take months and years to put together, you can often get blind to the gaps to the holes. It is really helpful to do a pre-submission legal audit of your application, make sure that the obvious JR grounds have been taken out, the environmental impact assessment remains and I think will for a couple of years before climate change takes over. I think the IA challenges will remain the primary means for knocking out your projects, and that is not you know, you might not be building power stations, you might be building a new headquarters, a new factory, get those reviewed, make sure they comply with legal requirements and all your notes and all that kind of stuff are taken care of.
Next one below that, understand the stakeholder mood where law and policy lags behind. Now this is relevant to what I was talking about in terms of policy which has not kept up with the stakeholder mood. And I think when you are putting together your applications for your project you need to think about what the law requires you but also what your stakeholders are expecting. So you might need to go beyond legal requirement in order to reduce a JR challenge or you might be to anticipate that look this is all going in one direction, the policy might not be as climate change friendly as the campaigners would like but maybe you just need to take that extra step now and do it voluntarily. So just to understand what your stakeholders are thinking.
And that links with my final point on engage with your stakeholders. So speak to your employees speak to your customers, speak to your investors even climate groups or local opposition groups who are against your project or do not like the products that you are manufacturing. If you engage with them openly and transparently you will understand what they think you are doing well, so do more of that, but also where they think you can improve. No one is perfect on climate, but understand where your weaknesses are because actually it is going to be really good stuff for your Section 127 Corporate Reports where you talk about what you were doing with the community and what have you. And I think you will be really encouraged by some of the findings. I think I am now handing over to Elsie.
Elsie: Yes, thank you Ben. I am going to deal with three of these practical steps that are on your slide as well. The first of them is the disclosure needs to be accurate and consistent. So this comes back to what I was talking about, about the possibility of litigation being brought against disclosures which are found to be inaccurate or to misrepresent the reality of climate risk based by companies. So I have got four bullets that I would suggest that you consider when making any disclosures.
First of all is that you need to really clearly describe any assumptions or methodology that you are following so that can be referred back to when people are considering your disclosures. You also need to think about forward looking statements particularly carefully, and who knows what will happen in the future. We all have that uncertainty and so you should make forward looking statements appropriately caveated. My third thought on the accuracy and consistency of disclosures is that you should make sure that you test the quantity, quality and comparability of the information that is being disclosed so you are not saying one thing in one part of the report and one thing in the other part of the report. And outside of your formal reports and accounts ensure that all company communications are consistent and none of them extend beyond what the company is actually able to achieve and what it is actually doing.
The second aspect that I was going to look at in terms of practical steps was the tile of embed climate change into risk management. So things are definitely changing internally at many, many companies but climate change can still be seen sometimes as a slightly siloed issue, relevant to your ESG reporting but not necessarily being considered elsewhere and in all aspects of your business. So we recommend that companies adopt strategies to manage the risk that climate change poses but also ensure that climate change risks becomes an embedded part of risk management and all strategic decision making processes. And also make sure any decisions or discussions the board of directors are having or any advice that you get given is properly documented and appropriately documented so that you can point to advice that you may have had or decisions that you may have made on the basis of those decisions. And finally just make sure that cross-functional teams are involved in the consideration of climate change so you can make sure that you are accurately looking at the impact of climate change across all business aspects.
The third tile I am going to deal with today is expect disclosure requirements to change. So as I said there are currently very broad requirements under the Companies Act in the UK but we are definitely seeing a change and a move towards the TCFD framework for reporting which is far more detailed. And the government, in its 2019 green financing strategy document, said that is was expecting at least all public companies to be reporting in line with that framework by 2022. There is clear implication from a number of different regulators that they will also be expecting companies that fall underneath their regulatory function to be reporting in line with that. So we would just recommend that you are alert to future reporting and disclosure requirements and you are taking steps now to understand the upcoming scope and implement any necessary changes in advance of any deadlines that come about, because it can take an awful lot of work behind the scenes to be able to report accurately in line with any new reporting requirements. And you may in doing so wish to consider getting involved in policy consultations or with your trade association in order to shape new regulations that may impact your sector and in that way you then have a say.
Andrew: OK I think that just leaves three tiles. Liane are you going to pick those up?
Liane: I can pick those up. So the last ones that I will talk about are to conduct risk assessments. So it is part of that embedding climate change into risk management but specifically take the time to conduct a risk assessment to identify the risks to your business more specifically from climate change. And like Elsie said I agree with having a cross-functional team to ensure that they cover all aspects of the business including the supply chain and that the board should receive adequate training to ensure that it understands these risks. You would not expect the board to know this right off the bat and so they need to have the training but also have access to the experts who can give them the advice they need to make considered decisions.
I would also say be transparent, disclose the trends and uncertainties expected to have a material impact on your business.
The third is rapid response. So implement mechanisms to respond rapidly to changes in the company's risk profile as a result of climate change. Things are constantly changing, last year we would not have thought that pandemic risk was going to be material to your business, maybe scientists did but we as lay people did not know. So be attuned to those things as they change because climate change, it is very difficult because it is a risk multiplier, it takes the risks that we already are seeing in the world and makes them that much more serious and that is why it is important for boards of directors to be alive to these issues.
Andrew: Thank you everybody. Liane while you have got the microphone before you switch yourself back off again I just want to pick up this question which has come in on the Q&A, and you touched on it a little bit there when you were talking about one of those practical steps. So the question as you have probably seen is "climate change although a certainty is highly dynamic and complex scientific phenomenon, what level of scientific depth should boards and directors be expected to have?" You mentioned training and external advice but you could go on forever and ever, and they have got plenty of other things to be doing. So at what point, how expert do they need to become in order to demonstrate they have met their fiducial duties?
Liane: I would say the standard is never perfection, I think Ben had said that. It is a learning process and I think that you should not expect your board members to be scientists. It would be the same level of diligence that would be required if you have no financial or accounting background and yet you are on the board in a strategic role or a human resources role some other aspect and expertise is what you bring. You still need to have a working knowledge of the financial statements and to be able to understand what the experts are telling you from the company in order to make considered decisions. And I think that would be the same standard when it comes to climate change, you are not expected to be able to read the IPCC report and understand everything that is being told to you or the specifics, or to anticipate yourself what the specifics would be for your business, but you would have to willing to receive a small degree of training and then listen to the experts either internal to the company or external in order to make a considered decision. I also think it goes back to, as Elsie mentioned, documentation and I think documentation of the steps you have taken can also show due diligence in this respect.
Andrew: I suppose it depends to a huge degree on what the nature of your business is. If you are a carbon heavy business you are going to need to be much more greatly informed than somebody with a less of an impact on the environment I would say.
Liane: Although that may be changing, given Elsie's California electricity for example.
Andrew: Indeed, yes. Ben you have talked about JR as a remedy, and personally I love the idea of thinking about the lawyer within the New York municipality who decided that there may be a claim that could be brought for the extra cost that they are having to incur in protecting from flood damage. So JR is a remedy OK, but often it just quashes the original decision and makes the decision maker just go around again and they can go around again and it is delayed and it is costs and it is inconvenience and it is adverse PR but you can make the decision again and this time nod to whatever you failed to nod to before and away you go. So is that the case, it does not really get you anywhere in the end?
Ben: I think that you are absolutely right, the decision gets ripped up, the decision maker is told to do it again and correct the procedural error. In this case it will be, they can start with their Airport's Policy and say notwithstanding the Paris Agreement which we are fully aware of and take note of we think we should another third runway. So yes they could, I think again it goes back to this sort of mood music which we have talked about that I think climate change is so engrained in everyone's mind now and I think COVID-19 has probably really helped us understand that a little bit. But I think because it is a pretty bold move for the government to reformulate policy and to totally ignore this. It is quite difficult with runway three, because it is quite political and obviously from the need case for a third runway is tricky now because we are not flying, we are not travelling, we are doing things via Zoom much more. But Heathrow is saying look in ten to 15 years' time we will be travelling again, we will need Heathrow runway three. So I think my hunch is that the policy will still require or will still enable the runway to be constructed but there will be a much greater discussion as to how the government will still meet its climate targets notwithstanding the extra aviation and what have you. So I think they will go to town on the new policy but yes I suspect they will come out with the same conclusion.
Andrew: And so what about other novel arguments that people like the clever lawyer in New York came up with in relation to flood damage? What else is coming down the track that someone has raised here about human rights legislation or wider integration of climate change considerations into rationality challenges. What else have we seen around the world for novel argument that could be deployed?
Elsie: The human rights question is absolutely bang on. There are quite a lot of instances now of claims being brought against governments based on human rights issues and actually earlier this month there was a case that was launched or issued by a group of young people in Portugal. They brought it to the European Court of Human Rights and based it on the European Convention of Human Rights on a number of different articles including the right to life, and they are saying that the governments' failures to act in accordance with obligations to reduce carbon emissions is a breach of their right to life.
So we are absolutely seeing different challenges and companies are being sort of focused on as well in sort of different ways. So there is a claim I think was actually being heard and was heard yesterday by the court in Poland in relation to another power plant, a coal power plant. It was another ClientEarth case where ClientEarth said that the environment was a common good, and I understand that under Polish law there is a requirement for the Courts to protect common goods. On that basis ClientEarth challenged the ongoing use of these incredibly damaging coal power plants and we saw the court order quite a novel remedy where they ordered the owner of the coal power plants to actually sit down at a table with ClientEarth and discuss their concerns and come up with a solution. Which is not a remedy I have ever heard of, certainly not under English law, but it is showing that both the claimants and people who are concerned about the environment are sort of scratching their heads and coming up with every possible angle to bring claims. But the Courts are also doing the same and they are trying to take a practical approach because they do not necessarily have the tools and solutions in their sort of normal tool kit to answer the concerns.
Andrew: I think that could be an interesting meeting couldn't it? To be a fly on a wall between the enforced meeting between the coal fired power station operator and the environmental activists.
Elsie: Yes it will be one I will be watching and seeing what happens certainly.
Andrew: Yes, will that be an effective court remedy? I think we are very nearly out of time but just let me pick up one more corporate governance question before we finish which is again similar to the degree of expertise that we touched on before. This is a question about again the degree of knowledge I think that boards need to have and so do we think that this is becoming so material and so important that it needs to be the topic of a specially constituted board committee? Liane do you want to go on that one because it is related to what you said before?
Liane: Sure. I think there are board committees already for climate change especially like you said for companies that are very carbon intensive. If you are an oil company yourself you probably are already doing this, they are ahead of us on this. You will see it more and more that I think it would be useful to have a board committee but to go to one of Elsie's points it should be a cross-functional team and you should have it come back to governance decisions on the entire board. So even if you have a breakaway committee at the end of the day all the board members are responsible for climate risk and mitigation and so they need to be involved in that decision as well.
Andrew: OK we are just over half past so our time is up. Can I just say thank you to everyone for joining and listening in and for the questions that have come through, we have not picked up them all but the ones we have not we will answer separately. Thank you for your time we will be doing more on this subject I am sure in the future, it is a very hot topic. There is an awful lot as you heard earlier from the amount of cases that are coming through, the frequency, how recent all those challenges are and the fact that many of them are still going through the courts as we speak. So there will be more to come on this topic and one to follow with interest. So please watch out for those and we will see you next time, thank you very much.