ESG Disputes Radar

The Higher Regional Court of Hamm has today dismissed the seminal claim brought by Mr Lliuya, a Peruvian farmer, against the German energy company RWE. However, in what is being seen by climate NGOs as a first-of-its-kind judgment, the Court accepted that greenhouse gas emitters could, in principle, be held liable for losses arising from their contribution to negative climate change impacts.

Mr Lliuya sued RWE in 2015 to reimburse him for the costs of setting up flood protections due to a melting glacier which threatened his hometown in the Andes. The claim alleged that RWE, having knowingly contributed to climate change by emitting substantial volumes of greenhouse gases, bore some measure of responsibility for the melting glacier and was therefore liable to pay the costs of mitigating the consequent flood risks.

The Essen Regional Court initially rejected the claim in the first instance, finding that a single company could not be held responsible for climate change. However, in 2017, the Higher Regional Court of Hamm permitted the case to move into the evidentiary phase.

Although the case was dismissed due to insufficient risk to Mr Lliuya’s property, the Court has reportedly affirmed its 2017 ruling that sufficient evidence can establish a causal chain between a company’s emissions and the increased risk of a specific climate-related harm. It affirmed that even partial contributions to global emissions can form the basis for liability, so long as the risk to is sufficiently concrete and imminent and . confirms that climate responsibility can transcend national borders. In doing so, it has confirmed that civil liability for climate damage is legally conceivable under existing tort law.

Broader implications: This the first time a European Court has affirmed that greenhouse gas emitters can be held responsible for negative climate change impacts.

Although the judgment has not resulted in any immediate consequences for RWE, this ruling will provide support to other similar cases. This may include Falys v Total, where a Belgian farmer filed a claim in 2024 against French energy giant Total for climate damages relating to the effects of extreme weather on his farm’s operations. If the Higher Regional Court of Hamm’s ruling is taken up in other jurisdictions, we can expect the number of such claims to rise.

The public Prosecutor's Office in Frankfurt has imposed a EUR 25m fine on DWS, Deutsche bank's asset management arm after accusing the company of greenwashing.

According to the prosecutor's statement, the Frankfurt Public Prosecutor's Office has issued the fine against DWS Group and DWS Investment as part of an investigation conducted jointly for several years with the Federal Criminal Police Office in Wiesbaden on suspicion of 'greenwashing'. They commented DWS had "extensively" advertised financial products which claimed to have ESG characteristics from 2020 to 2023. The investigations found that "statements in external communications, such as claiming to be a 'leader' in the ESG area or stating 'ESG is an integral part of our DNA' did not correspond to reality,". While a "transformation process" was underway at the firm, it had not yet been completed, they said, adding: "Statements in external relations must not go beyond what can actually be implemented."

Broader implications: The fine is one of the highest issued in Germany if not in Europe. The penalty can be seen as a wake-up call in the dawn of the laws implementing new EU regulations such as the Green Claims Directive and the Empowering Consumers Directive. Both contain rules that will influence advertising as well as the provision of information companies (from financial services firms to consumer products) will have to provide to their clients. The most important measure is transparency and correctness -- both regulations aim to ensure customers are not misled. The case also highlighted growing concerns about how to police a surge in ESG investing as companies and institutions seek to bring portfolios in line with climate targets. Read our note here.

As part of NGOs and other pro-ESG stakeholders looking for alternative ways to apply pressure on companies to improve their ESG standards, we are seeing an increasing number of claims and complaints being made against those service providers who assist companies who are considered to be ESG outliers.

On 12 February, Greenpeace Netherlands issued a complaint to Dutch notary firm Loyens & Loeff in connection with its assistance to JBS's listing on the New York stock exchange and the relocation of its HQ to the Netherlands. JBS has long been a target for ESG campaigners. In February 2024, the New York Attorney General filed a complaint against JBS for misrepresenting its environmental credentials, although this claim was dismissed and ordered to be amended in January 2025.

Similarly, on 10 March, the Financial Times reported that Ad agency AMV BBDO is facing employment tribunal claims that it harassed a senior staff member after she warned that its campaigns could "greenwash" its client, the confectionery and pet food group Mars. As reported in February's ESG View, UK advertising firm WPP is also facing a complaint regarding its work for clients in high-risk ESG sectors.

Broader implications: Service providers should be careful to manage their ESG exposure when assisting clients in high-risk industries. These firms will often be subject to professional obligations which can be interpreted broadly to require them to avoid assisting with activities which could create ESG-related harms. Where the firm is particularly instrumental in facilitating harmful activity, it could also be considered jointly liable. However, the success of these cases has yet to be tested.

The anti-ESG sentiment continues to grow as a trend of US ESG disputes. We see this happening across the spectrum of ESG-related claims, including greenwashing.

The New York State Supreme Court dismissed the New York City lawsuit against Exxon, BP and Shell over alleged greenwashing of their products and their commitment to renewable energy and fighting climate change;

In Texas, a federal judge ruled that American Airlines violated federal law by basing investment decisions for its employee retirement plan on environmental, social and other non-financial factors. The Court ruled that American Airlines had breached its legal duty to make investment decisions based solely on the financial interests of its pension beneficiaries by allowing its asset manager and a major shareholder, to focus on ESG factors;

In a similar vein, BlackRock has recently reached a settlement with the Tennessee Attorney General regarding the AG's claim which alleged that BlackRock did not adequately disclose its use of ESG factors and that it overstated their financial benefits. BlackRock did not admit to wrongdoing or pay fines as part of the settlement.

Broader implications: As the new administration distances itself from ESG policies, it is likely that further actions against corporates that continue to pursue ESG initiatives in the US will continue.

In the last month, multiple outcomes to advertisement greenwashing claims have been published, providing insight into the continued prevalence of such actions.

Lloyds Banking Group: the UK's Advertising Standards Authority (ASA) published their ruling on an investigation into three LinkedIn posts and one poster produced by Lloyds Banking Group (Lloyds). Claimants argued the advertisements were misleading, having left out important details about Lloyds' contribution to carbon dioxide (CO₂) and greenhouse gas emissions. The ASA decided to uphold one of the claims concerning the LinkedIn post that claimed Lloyds was putting the "weight of [its] finance" into renewable energy. This was considered to be misleading about the portion of Lloyds' investments that were being spent on financing renewable energy. For the remaining claims, the ASA noted that since they each referred to specific projects or collaborations, consumers would understand these to be examples or case studies, rather than a statement about Lloyds' wider business practices.

MSC Cruises: MSC Cruises agreed to withdraw their advertising campaign around their use liquified natural gas (LNG), which claimed that consumers would be able to reach their destinations "with a cleaner fuel" and by MSC using "clean, green technology". This was considered an informal resolution to a nine-month investigation by the ASA, initiated by NGO Opportunity Green. They had argued the LNG contained methane, which has an 80 times greater impact than CO₂ over a 20-year period.

ClientEarth: ClientEarth settled their first greenwashing case in Poland against a Polish energy producer which had been using a sector-wide practice of labelling coal as "eco-pea coal" and packaging it with green and environmentally friendly imagery. There is evidence that burning the coal in question produces one of the most harmful forms of air pollution, at a rate of 40 times more than the Polish legal limit. The producer, which remains unnamed by ClientEarth, agreed to cease using the name "eco-pea" and to remove such packaging.

On 11 November, the Hague Court of Appeal overturned the District Court's judgment which ordered Royal Dutch Shell (RDS) to reduce CO2 emissions by 45% net by the end of 2030 through the corporate policy of the Shell group, relative to the 2019 levels.

Milieudefensie (Friends of the Earth Netherlands) had brought the case and argued that given the Paris Agreement's goals and the scientific evidence regarding the dangers of climate change, Shell has a duty of care to take action to reduce its greenhouse gas emissions. Plaintiffs base this duty of care argument on the Dutch Civil Code and the European Convention on Human Rights (ECHR).

The Court of Appeal ruled that Shell has an obligation to limit its CO2 emissions to protect citizens from dangerous climate change. This obligation stems from the human right to protection against climate change, indirectly influencing the duty of care for companies like Shell. However, the court could not establish a specific reduction percentage that Shell must adhere to, citing insufficient consensus in climate science. The court also found that requiring Shell to reduce emissions from the consumption of its products (scope 3) would be ineffective as other companies might take over this trade.

Broader implications: Notwithstanding the setback, the ruling acknowledges that large corporations can be obliged to combat climate change and that protection against dangerous climate change is a human right. We are expecting an appeal for cassation by the Supreme

As consumers, investors, and other market operators become increasingly environmentally conscious, there has been a significant uptick in scrutiny of claims and a rise in greenwashing action.

On 25 September, Vanguard Investments Australia faced a record A$12.9 million penalty judgement due to misleading ESG claims made to investors. Vanguard Investments Australia had noted that it would apply exclusionary screens to its Ethically Conscious Global Aggregate Bond Index Fund. However, the Australian Securities and Investment Commission (ASIC) found that approximately 74% of the securities the fund were not researched or screened against ESG criteria. Justice O'Byrne noted that the "contraventions should be regarded as serious" particularly as "the misrepresentations enhanced... Vanguard's reputation as a provider of investment funds with ESG characteristics." In a statement to the media, Vanguard Investments Australia has said it accepted the judgement and apologised to clients for the "unintentional" errors.

On 17 October, legal environmental NGO, ClientEarth announced that it would be filing its first greenwashing complaint against a financial institution. The NGO filed a complaint to the French financial regulator - the Autorité des marchés financiers (AMF) - challenging the naming of the financial institution's retail investment funds as 'sustainable' given the funds' exposure to fossil fuel investments.

Broader implications: Despite a recent report finding that trends around greenwashing are decreasing for the first time in six years, there seems to still be high-impact cases that are shaping the conversation around green claims. These cases demonstrate that NGOs and regulators are increasingly focused on protecting consumers from misleading greenwashing claims, particularly when it comes to investment products. We will be watching closely to see how this trend continues to unfold.

On 27 August, a coalition of NGOs filed a lawsuit at the European Court of Justice challenging the European Commission's refusal to review the sustainability criteria for aviation and shipping activities under the EU Taxonomy Regulation.

The Taxonomy Regulation, which applies to financial market participants that make financial products available, establishes criteria for determining whether an economic activity is environmentally sustainable for investment purposes in the EU.

In November 2023, the European Commission added new technical criteria to determine the environmental sustainability of manufacturing low carbon vessels and aircraft. In June 2024, the European Commission rejected the coalition's request for a review of these criteria. Now, the coalition - which consists of Dryade, Fossielvrij NL, Protect our Winters Austria, Opportunity Green and CLAW and is supported by 35,000 citizens - is asking the European Court of Justice to annul this decision because, as they argue, *"there is clear and conclusive evidence that the criteria do not support a 1.5 degree pathway as required by the Taxonomy Regulation."*

Broader Implications: This challenge is the latest in a series of legal challenges to the Taxonomy Regulation. If successful, we can expect to see further challenges over technical criteria, including in other sectors covered by the regulation. More broadly, if the Taxonomy Regulation proves vulnerable to successful legal challenges over its technical criteria, its usefulness as an established market standard for a transitioning economy may suffer.

The Federal Court of Australia has approved a settlement between Mercer Superannuation (Australia) Limited and the Australian Securities and Investments Commission for Mercer to pay AU$11.3 million for making misleading sustainability claims about its superannuation investment options, bringing an end to ASIC's inaugural legal action against greenwashing in the financial sector. Mercer admitted to falsely advertising its 'Sustainable Plus' options as excluding investments in industries like fossil fuels, alcohol, and gambling, contrary to the actual investments made.

Broader implications:  This decision against Mercer underscores the increasing legal focus by regulators on accuracy of ESG claims in the marketing of financial products and investments. In particular, regulators will penalise firms where exclusionary 'screens', intended to exclude certain industries, issuers or jurisdictions from an investment mandate, do not operate as intended, regardless of whether this results in losses for the affected clients. ASIC has two further cases against Vanguard Investments Australia and Active Super, where it is alleging that the firms exposed clients to industries and jurisdictions which it said were excluded.

Although we are yet to see the same flurry of activity from the UK's Financial Conduct Authority, this may change as a result of it recently arming itself with the Anti-Greenwashing Rule which came into effect on 31 May 2024. The rule applies to all FCA regulated firms, in all sectors of the financial services industry, and requires firms to ensure that their sustainability claims are fair, clear and not misleading. Whilst the rule is directly actionable by private persons under section 138D of the Financial Services and Markets Act 2000, this requires potential claimants to show loss (which may not be possible if the contravening non-green/sustainable investment out-performed their intended investments).

What:

In The Manchester Ship Canal Company Ltd (Appellant) v United Utilities Water Ltd (Respondent) No 2 the English Supreme Court decided that a canal owner whose watercourse had been polluted by discharges of foul water can bring private law claims in nuisance and/or trespass against the water company responsible, even absent negligence or deliberate misconduct. Such claims are not inconsistent with the statutory scheme for regulating sewerage companies established by the Water Industry Act 1991.

Detail:

A canal owner challenged the right of a water company to discharge foul water into a canal without consent. The Supreme Court allowed the canal owner’s appeal. It held that pollution of a watercourse can constitute an actionable cause of action in trespass or nuisance, and overturned a declaration that a tortious claim by the canal owner would be inconsistent with, therefore barred by, the statutory scheme for regulating sewerage established by the Water Industry Act 1991.

The implication of the judgments below had been that, without negligence or deliberate wrongdoing, no owner of any watercourse or body of water can bring a claim based on nuisance or trespass against any sewerage undertaker in respect of discharges of foul water into a watercourse.

However, the Supreme Court held that it is a matter of statutory interpretation whether a common law claim arising out of an interference with property rights has been excluded by a legislative scheme. It found that common law remedies are expressly preserved in the Water Industry Act (so long as the remedy does not arise "by virtue of [the act or omission] constituting, or causing or contributing to, such a contravention"). An owner of a watercourse has a right of property in the watercourse, including a right to preserve the quality of the water, which is protected by the common law of tort.

Here, the discharges were caused by sudden, heavy rainfall which caused the sewerage system to overflow and pollute the canal water. This could have been avoided by investment in improving the sewerage infrastructure. The Water Industry Act does not authorise sewerage undertakers to cause a nuisance by discharging untreated sewage water into watercourses, nor does it prevent watercourse owners from bringing a claim in nuisance against the polluter. As a result, the Supreme Court held that the owners could bring a claim in nuisance.

Our view:

This ruling leaves open the prospect that those who own or have rights to watercourses and are affected by pollution being discharged into rivers and watercourses can now take direct legal action against those responsible for polluting. Even where it is not appropriate for the court to grant an injunction as a remedy for those bringing claims of nuisance or trespass concerning the pollution of watercourses, those affected can still be compensated for any damage caused. This acknowledges the harm done to an individual’s property rights until a permanent solution is found, whilst ensuring that the polluter cannot shift the financial burden of their actions onto those impacted by their unlawful behaviour.

TotalEnergies, along with its directors and major shareholders, are facing a unique climate change criminal case in France, brought by individuals affected by extreme weather events and non-profit groups. The claim alleges criminal wrongdoing, including "manslaughter," "endangering others," "failing to combat a disaster," and "harming biodiversity."

The complaint directly targets the company's CEO, Patrick Pouyanné, as well as its board of directors and its 10 biggest shareholders who have allegedly voted in favour of the climate strategy proposed by TotalEnergies, and have rejected resolutions calling for more ambitious commitments in the fight against climate change. The Paris criminal prosecutor has three months to decide whether to launch an investigation.

Broader implications: This complaint is a marked escalation in campaign groups' efforts to attribute responsibility to fossil fuel companies for the damage caused by extreme weather events related to climate change and the burning of fossil fuels. The maximum penalty for involuntary manslaughter in France is five years in prison.

Previously, groups have sought to bring civil actions to recover damages for climate-related impacts, which are typically focussed on specific incidents. For example, TotalEnergies is the subject of two complaints under the French Corporate Duty of Vigilance Law, focussed specifically on the potential impact of the company's oil pipeline project in Tanzania and Uganda (see our October 2023 edition of ESG View for more details), although these are untested in the Courts and have largely been unsuccessful.

It is therefore uncertain whether this complaint will be successful. In particular, criminal liability requires a much higher burden of proof than civil claims. It will also remain to be seen whether the complaint can be maintained against TotalEnergies' shareholders, who do not exercise the same degree of control over the company and are not privy to the same information provided to the Board about the impact of the company's activities on the climate. However, with TotalEnergies' annual general meeting due to be held on 24 May 2024 (i.e. 4 days after the complaint was field), the complaint may serve to exert pressure on these shareholders to change their position.

In a decision hailed by the campaign group Fossielvrij as a historic victory, an Amsterdam court ruled on Wednesday (20 March 2024) that KLM misled consumers in its statements about its sustainable aviation. Fossielvrij brought the case following the decision of the Dutch advertising watchdog, which had found certain of KLM's "Fly Responsibly" adverts to be misleading.

The Court said that in some advertisements, that are no longer in use, KLM "makes environmental claims based on vague and general statements about environmental benefits, thereby misleading consumers." In particular, that "KLM paints an overly rosy picture of the effects of measures such as Sustainable Aviation Fuels (made from renewable raw materials) and reforestation." According to the Court such measures "only marginally reduce the negative environmental aspects and give the wrong impression that flying with KLM is sustainable."

The Court did not require KLM to rectify the incorrect statements or warn customers that aviation is currently not sustainable. Instead, it said that when KLM informed its customers about ambitions to reduce emissions, it must do so "honestly and concretely".

Broader implications: The case marks a watershed moment in Courts taking action against greenwashing, and highlights the risk of parallel proceedings in the ESG disputes landscape, where one decision (in this case, the Dutch advertising watchdog's) may inspire another action (Fossielvrij's claim). In the UK, we have seen a significant increase in decisions from regulators in cases of greenwashing, particularly the Advertising Standards Authority (see our podcast on Greenwashing: The year ahead), with a further increase likely following the introduction of the FCA's anti-greenwashing rule on 31 May 2024 (see our SDR webinar series here).  However, significant cases brought in the Courts are yet to materialise.

A Belgian farmer is taking French oil and gas company TotalEnergies to court, seeking compensation for climate change-fuelled damage to his farm and a Court order for the company to halt investments in new fossil fuel projects. The case, filed on 13 March 2024 at the Tournai commercial court, is the first climate change-related lawsuit in Belgium to target a multinational company.

Hugues Falys, who farms a herd of cattle in the municipality of Lessines, argues that, as one of the world's top 20 CO2-emitting companies, TotalEnergies is partly responsible for damage extreme weather did to his operations from 2016-2022. During that period, successive droughts reduced the yield of his meadows where he grows fodder for the animals - forcing him to buy feed and, eventually, reduce the size of his herd.

Broader implications: This case adds to the list of tort claims that are pending against international fossil fuel companies and seek to establish corporate responsibility for their contributions to climate change related damage. Only last month, New Zealand's Supreme Court overturned a previous ruling and held that tort claims against the country's major greenhouse gas emitters can proceed to trial (see our previous update). In Germany, Mr Luciano Lliuya’s claim against RWE has also been permitted to proceed to trial. Although the focus of these cases is fossil fuel companies, if successful, claimants could seek to apply similar principles to other industries.

In the landmark case, Smith v Fonterra, New Zealand's Supreme Court has this month overturned a previous ruling and held that tort claims against the country's major greenhouse gas emitters can proceed to trial, in likely the first mass climate tort claim in a common law jurisdiction to reach trial. Smith's claims to reduce emissions allege that the defendants' contribution to climate change constitutes public nuisance, negligence, and breach of a novel climate duty, all of which he alleges personally affect him through environmental and cultural impacts.

The New Zealand Court of Appeal, previously threw out the case, holding that Smith´s claims were bound to fail. It considered that due to the lack of a direct causal link between the defendants and the global effects of climate change, Smith’s claims could constitute “open-ended liability for defendants”.

The Supreme Court disagreed, finding that Smith’s main claim in public nuisance amounted to a “reasonably arguable cause of action”. The causation issues were found to be fundamentally similar to other public nuisances involving multiple contributors and the Court ruled that these should receive “evidence and policy analysis” at trial.

Broader implications: Although the case has been allowed to proceed to trial, this should not be understood as an endorsement of the merits of Smith’s claims. The Court has only ruled that they are not ¨bound to fail¨. However, the Supreme Court's willingness to entertain a mass tort claim opens the door for future litigation which could compel major polluters to mitigate their environmental impact, particularly if there are more proximate causation arguments.

On 19 January, Dutch NGO Milieudefensie (Friends of the Earth Netherlands) announced they would be launching a climate lawsuit against ING for its "inadequate climate policy". The NGO alleges that the bank has a "duty of care" under Dutch law to not create any danger that could lead to avoidable damage to property or personal injury such as through the effects of climate change.

The NGO demands that ING reduces its carbon emissions by at least 48 per cent by 2030, compared with 2019. It also demands that:

• For fossil fuel clients, ING ceases all financing to those that, after being warned by ING for a year, continue investing in fossil fuel projects or that lack a "good" phase-out plan.
• For large corporate clients, ING require that all such clients have in place adequate climate plans and cease financing those who do not meet this requirement within one year.

ING has since responded to the claim publicly, stating their approach is in line with the science and will adapt as the science evolves.

Broader implications: Whilst this is the first climate case filed against a bank in the Netherlands, it aims to build on the Dutch precedent from the landmark 2021 case against Shell, which was also brought by Milieudefensie and led by the same lawyer, Roger Cox. Globally, however, this is not the first "turning off the tap" case brought against a bank. For example, in February 2023, three NGOs launched a claim against BNP Paribas in France on the basis that it had not taken effective measures to prevent human rights and environmental abuses throughout its chain of operations (see the March 2023 ESG View). We expect to see more of these types of cases being launched as the year progresses.

In December 2023, ClientEarth, the non-profit environmental law organisation, issued warnings to trustees of the UK's largest pension funds, highlighting potential breaches of their legal duties if they did not adequately consider climate-related financial risks. In particular, ClientEarth emphasised the need for trustees to engage more effectively with climate issues when investing in bonds issued by energy companies and, if necessary, to stop providing capital to companies not meeting credible transition plans.

Broader implications: The letters add a further voice in the fierce debate over whether trustees should prioritise mitigating climate-related risks over providing short-term financial returns to members. Similar arguments were made by members of the UK’s Universities Superannuation pension scheme, who alleged that, in failing to have a credible net-zero transition plan which included divestment from all fossil fuel investments, the directors of the trustee company to the scheme were in breach of their statutory duties. Although the case failed for procedural reasons, it shows that members are willing to hold trustees to account where they do not consider that climate-related financial risks are being taken considered adequately.

That said, in the UK there is no statutory requirement for pension schemes to disinvest from fossil fuel companies. Further, the investments structures available, such as sustainability-linked bonds, do not compel companies to meet climate goals, presenting a challenge for trustees wanting to balance investment in energy companies with climate risk management. Likewise, the potential backlash from members if trustees take too hard a line on climate risk is apparent. In November 2023, trial started in proceedings against the Mayor of New York, challenging his decision to rid public pension funds of billions of dollars in fossil fuel investments. Although such a case has not yet been brought in the English Courts, the risk of one if trustees prioritise climate-related financial risks over their fiduciary duties to their members is something trustees should consider carefully.

On 5 December 2023, the Paris first-level Court handed down the first ruling on the merits of a French Corporate Duty of Vigilance claim. The claim was issued in December 2021 by Sud PTT (a French trade union) against La Poste (French post) alleging that La Poste had failed to include in its vigilance plan a map of the risks and serious violations arising in La Poste's value chain in relation to human rights, fundamental freedoms, health and safety. In its ruling, the Paris first-level Court held that the risk map submitted by La Poste in its 2021 vigilance plan did not enable La Poste to identify which actions should be introduced or reinforced as a matter of priority with regard to the fundamental rights of individuals, their health and safety or the environment. The Paris first-level Court therefore ordered La Poste to: 

• amend its vigilance plan by including a risk map designed to identify, analyse and prioritise La Poste's risk activities;
• implement procedures for assessing subcontractors based on the risks identified under the risk map;
• amend its vigilance plan by including an alert mechanism after having collaborated with the relevant stakeholders (trade unions); and
• publish an appropriate system for monitoring vigilance measures.

Broader implications: This ruling is the first merits decision to be handed down since the French Corporate Duty of Vigilance Law came into force in 2017. After a series of procedural decisions, it will be interesting to see the precedential value and impact of this ruling on similar, pending proceedings (for example, the claims against TotalEnergies and BNP Paribas also include allegations of insufficient risk mapping).

According to a press release from ClientEarth, the Court of Appeal has refused their application for permission to appeal the High Court’s decision rejecting their ground-breaking application (as a minority shareholder) for a climate-related derivative action against the directors of Shell.

See our articles for:

• the legal basis on which ClientEarth attempted to bring the action;
• the High Court’s decision on the papers; and
• the High Court’s decision following a subsequent oral hearing.

This marks the end of ClientEarth’s attempted action – there are no further routes to appeal.

Broader implications: The deference shown by the Courts to company management decisions will be welcome news for company directors, in particular where the size and complexity of the company in question (in this case, Shell) is such that they must take account of a myriad of competing considerations, some of which may relate to ESG and the proper balancing of which is no small task.

The written judgment of the Court of Appeal is yet to be published. We will provide our key takeaways from that judgment, once available.

A complaint has been filed by Sherpa, an activist NGO, with the financial division of the French Attorney General (parquet national financier) against BNP Paribas, Crédit Agricole, BPCE and Axa. According to Sherpa, these financial institutions are involved in money laundering and environmental law violations relating to the illegal deforestation of the Amazon rainforest.

Sherpa allege that:

• Between them, the four financial institutions purchased nearly USD 70 million of bonds in Mafrig (the second largest Brazilian food processing company) and JBS (the largest meat processing enterprise in the world) between 2013 and 2021.
• Both Mafrig and JBS have been reported to have committed environmental and human rights abuses linked to illegal deforestation.
• When the Mafrig and JBS bonds are repaid with proceeds derived from illegal deforestation, BNP Paribas, Crédit Agricole, BPCE and Axa are helping to reintroduce the proceeds of Mafrig and JBS’s alleged human rights and environmental offences into the legal circuit.

The French Attorney General has three months to decide whether or not to move forward with an investigation.

Broader implications: This complaint follows the recent trend of claimants seeking to stop ESG issues by “turning off the tap” – i.e. targeting the financiers rather than the company directly causing the ESG issue in question. To our knowledge, this is the first biodiversity claim using a criminal complaint based on anti-money laundering regulations. Often a tort claim is used in this regard (e.g. a claim based on the French Corporate Duty of Vigilance Law, to which BNP Paribas, Crédit Agricole, BPCE and Axa are also subject).

Gramercy, a US hedge fund who manages over USD 6bn in assets, has committed over USD 550m in the form of a secured loan to a litigation specialist law firm to fund claimants in environmental litigation. This includes those pursuing the largest opt-in class action lawsuit in England & Wales against two mining firms (BHP and Vale) at the centre of a dam collapse in Brazil.

The loan, which forms part of Gramercy's litigation funding offering and promises returns notwithstanding broader market movements, includes co-investments from some of its clients.

Broader implications: The news will be a welcome boost to potential ESG claimants, particularly following the blow suffered by the litigation funding market earlier in the summer when the English Supreme Court's ruling in R (on the application of PACCAR Inc) v The Competition Appeal Tribunal rendered many litigation funding agreements unenforceable (see our article here). Gramercy's arrangement exemplifies a workable alternative to litigation funding agreements that entitle the funder to recover a percentage of damages.

The US SEC has found that DWS:

• made "materially misleading" statements about its controls for incorporating ESG factors into research and investment recommendations for ESG products;

• from August 2018 to late 2021, whilst marketing itself as an ESG leader, failed to adequately implement certain provisions of its global ESG integration policy as it had led clients and investors to believe it would; and

• failed to adopt policies and procedures to ensure its public statements about its ESG products were accurate.

Without admitting or denying the SEC's findings, DWS has agreed to pay a USD 19m penalty, as well as a cease-and-desist order and censure.

Broader implications: This is the SEC's largest ESG-related penalty yet against an asset manager and demonstrates the regulator's continued focus on greenwashing / misrepresentation. Sanjay Wadhwa, Deputy Director of the SEC's Division of Enforcement and head of its Climate and ESG Taskforce, warns that "whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words".

As with other investigations, the SEC relied on historic legislation to pursue its investigation rather than wait for ESG-specific enforcement powers. This reflects the approach taken by regulators in other jurisdictions and we expect the trend to continue.

The Australian government has agreed to settle a class action brought against it for failing to disclose the climate change related risks of investing in its bonds. As part of the settlement, a statement will be published by the Australian government acknowledging that climate change was a systemic risk that may affect bond value. This will be the first formal acknowledgment by a country with an AAA credit rating.

The statement will outline some of the government’s plans in relation to the climate crisis, including sustainable finance reforms and the addition in the federal budget of fiscal impacts of climate change. In contrast, at the time the case was filed in 2020, the budget did not even mention climate change. The terms of the settlement are due to go to the Federal Court for approval on 11 October.

Broader implications: This is the first time that legal action has been used by a bond investor to hold the government accountable in this way. It has been described as a world-first court case, a landmark settlement and an important step towards recognising the risks of climate change on investments. Attention has been drawn to how climate change may impact the wider bond market with the hope that action to reduce those risks will now be prioritised.

On 27 June, following a complaint filed by ClientEarth in 2021, the UN issued a Communication to Saudi Aramco warning that the state-run oil company’s alleged contributions to the climate crisis could be in violation of international human rights law. In addition, the UN issued Communications to Saudi Aramco’s financiers, noting the contributions that financial institutions and asset managers can make to adverse human rights impacts through the provision of financing.

The UN has no enforcement powers in this regard, nor do the Communications constitute legal judgments. However, Communications may be cited in other legal actions or used to inflict reputational damage.

Broader implications: This the first time that the UN has targeted the oil industry in relation to the adverse impacts on human rights caused by contributions to climate change, adding to the ever-increasing pressure being placed on the industry in relation to the climate crisis. Further, the Communications to Aramco’s financiers will add to the growing expectation being placed on financial institutions and asset managers to take responsibility for human rights issues in their value chains.

The Proposed Class Representative (PCR) (Professor Carolyn Roberts, an environmental and water consultant) has issued a claim against the first of six water companies which, she alleges, each hold a monopoly position for providing water and sewerage services to household customers in their geographic area. The PCR alleges that the water companies have been misleading their regulators by underreporting the number of pollution incidents, which has resulted in higher customer bills. The combined value of all six claims is expected to be around £800 million.

Broader implications: This is the first time an environmental collective action is being brought in the UK’s Competition Appeal Tribunal (CAT) – it will be interesting to see how the CAT responds. There is a risk that the CAT may see this as an attempt to shoehorn an environmental claim into the remit of the collective action regime. The first hurdle will therefore be ‘certification’, meaning the claim will need to pass the gatekeeps of the CAT before it is allowed to proceed.

On 31 August 2023, Mr Justice Trower refused ClientEarth’s application for permission to appeal his decision in their ground-breaking application for a climate-related derivative action against the directors of Shell. It remains to be seen whether ClientEarth applies for permission to appeal again – they have the option to do so to the Court of Appeal.

In the meantime, following the July 2023 refusal, Shell sought its costs of the proceedings to date, which Mr Justice Trower awarded (also on 31 August 2023) on the standard basis (i.e., Shell may recover its reasonable and proportionate costs). In English litigation, the general rule is the unsuccessful party will be ordered to pay the costs of the successful party. However, in its submissions, ClientEarth argued that Shell was not entitled to its costs, relying on the derogation from the general rule provided by CPR PD 19A para 2 in relation to derivative claims. Mr Justice Trower rejected this argument, concluding that “it was appropriate and proportionate for Shell to” voluntarily attend the oral hearing and make written and oral submissions.

Broader implications: As noted by ClientEarth in its submissions, this decision could “stifle future attempts to pursue board members of large well-resourced companies for breach of duty” given the costs risk posed to the litigant. Certainly, this decision will give potential litigants pause for thought before pursuing this type of actions, as well as other types to which the general costs rule could apply. The level of Shell’s costs has not been publicised but will likely be substantial.

The English Court of Appeal has unanimously dismissed an appeal by two members of the Universities Superannuation Scheme (USS) who tried to pursue a derivative action against current and former directors of the pension fund's corporate trustee for failure to produce a disinvestment plan for its fossil fuel investments.

The Court of Appeal held that the claim could not be characterised as a derivative action. There was no prima facie case of loss to the company as a result of the alleged breaches of directors' duties. In effect, the claim was an attempt to challenge the company's management and investment decisions as trustee "without any ground upon which to do so". It should therefore have been brought as a direct claim in breach of trust, not a as a derivative action.

Broader implications: Following the refusal of ClientEarth's derivative action against the Directors of Shell, the Courts are giving short shrift to claimants who wish to interfere in the management decisions of companies and allege that more should be done by directors to mitigate the financial risks arising from climate change.

The Court of the Council of Permit Disputes in Belgium has ruled that INEOS's €3 billion plastics project in the Port of Antwerp is not legal. As a result, the project is now suspended.

The Court ruled that INEOS failed to tell Flemish authorities the full extent of the project's predicted impact on the surrounding environment. These crucial omissions meant the authorities failed to fully assess the environmental impacts of the project, and should not have granted its approval. The Court also held that the nitrogen pollution created by the project would breach the EU Habitats Directive, which aims to protect over a thousand species of animals and plants, and 230 habitat types.

Broader implications: As greater public scrutiny is placed on new environmentally detrimental infrastructure projects, companies will need to ensure that they have completed their environmental due diligence thoroughly in order to mitigate the risk of any last minute challenges.

The Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings against Vanguard Investments Australia at the Federal Court of Australia. ASIC alleges that Vanguard made false and misleading statements and engaged in conduct liable to mislead the public when it represented that all securities in the Vanguard Ethically Conscious Global Aggregate Bond Index Fund were screened against certain ESG exclusionary criteria. However, according to ASIC a significant proportion of the bonds were from issuers that were not researched or screened and that the index and fund included issuers that violated those criteria.

Broader implications: These proceedings are the latest in a string of actions brought by ASIC in respect of potential greenwashing. The regulator has committed to continue to monitor asset managers' marketing of supposed 'green' or 'sustainable funds' to ensure that investors are not misled.

Last year, the High Court ruled that the UK government’s strategy for reaching net zero emissions was unlawful on the basis that it did not provide detail as to how targets would be met. Accordingly, in March 2023, the UK government published its revised plan (the Carbon Budget Delivery Plan) which sets out its strategy for cutting greenhouse gas emissions and reaching net zero. That plan is facing three fresh High Court challenges, from the same three organisations (Friends of the Earth, ClientEarth and the Good Law Project), alleging that it is still “not fit for purpose”. The organisations argue that the new plan is in breach of sections 13 and 14 of the Climate Change Act 2008, which requires the UK government to prepare and report on proposals and policies for meeting its legally binding carbon budgets. This is against the backdrop of a recent June report from the Climate Change Committee, an independent body formed to advise the UK government on climate change preparation, which stated the UK is “no longer in a clear global leadership position on climate action” and had backtracked against the progress made in 2022.

Broader implications: The UK government is under ever increasing pressure to deliver on its climate change commitments with campaigners clearly intending to hold it accountable by whatever means necessary

The Amsterdam Appeals Court ruled in favour of the Dutch Government's action to reduce the number of flights at Amsterdam's Schiphol airport (one of Europe's busiest hubs) from 500,000 to 460,000 per year despite challenges from major airline carriers. The Appeals Court held that The Hague can reduce the number of flights at the airport between the end of the year and October 2024, giving considerable weight to the interests of local residents as regards violations of noise standards.

Broader implications: The ruling follows similar ESG-related scrutiny the aviation industry has been facing recently. Last month, the District Court of Amsterdam allowed environmental groups to bring a claim against KLM alleging that the airline mislead consumers regarding its sustainability credentials in its "fly responsibly" campaign. In parallel, there was the launch of an EU-wide complaint to the European commission against 17 airlines to prevent airlines from making claims that give the impression flying is sustainable. Heightened focus on the ESG impact of aviation will prompt the industry to more closely consider its sustainable advertising claims and continue to prioritise investments in more fuel-efficient and sustainable aircraft.

Following an oral hearing at which ClientEarth asked Mr Justice Trower to reconsider several points made in his earlier judgment, the English High Court maintained its decision to refuse to give permission for ClientEarth (as a minority shareholder) to bring its ground-breaking application for a climate-related derivative action against the directors of Shell.

See our article for our full analysis and key takeaways.

ClientEarth has already indicated its intention to appeal this decision to the Court of Appeal by making an application to Mr Justice Trower for permission to do so. We await the Judge's decision. If permission is refused, it is open to ClientEarth to seek permission to appeal from the Court of Appeal.

Broader implications: For now, the Court appears stoically unwilling to entertain actions of this kind as, according to the Court, they are not in line with the legislative intention of the derivative action procedure (as contained in the Companies Act 2006). Perhaps as part of that intention, the Court has set out a heavy evidential burden for any potential claimant wishing to employ the derivative action procedure. Further, the judgment suggests that any shareholder with objectives beyond simply promoting the success of the company for its shareholders (ESG or otherwise) will face an almost irrebuttable presumption that they have an ulterior motive and will be refused permission to pursue a derivative action.

Following the dismissal, for procedural reasons, of the claims launched in 2019 against TotalEnergies regarding the content of its vigilance plan, a new action has been launched against the multi-energy company, this time on the merits. 26 Ugandan citizens, as well as the five French and Ugandan NGOs that launched the first action (AFIEGO, Les Amis de la Terre France, NAPE/Amis de la Terre Ouganda, Survie and TASHA Research Institute) and Maxwell Atuhura (a human rights defender), issued proceedings on 27 June 2023 before the Paris first-level Court against TotalEnergies regarding its obligations under the French Corporate Duty of Vigilance Law.

The claimants allege that they have suffered serious damages relating to their rights to land and food. They seek to hold TotalEnergies liable and request compensation for the human rights violations caused over the past 6 years in Uganda by TotalEnergies' Tilenga and EACOP projects. According to the claimants, their claim clearly demonstrates the causal link between the failures in the development and implementation of TotalEnergies' vigilance plan, on the one hand, and the damages they have suffered, on the other. They add that TotalEnergies failed to identify the risks of serious human rights abuses associated with its mega-oil projects, to act when TotalEnergies was alerted to their existence, and to implement corrective measures once the human rights violations had occurred.

Broader implications: Having been dealt the blow of the first claim against TotalEnergies being dismissed, campaigners (and many others) will be watching to see how this claim progresses in the French Courts.

The UK Advertising Standards Authority (ASA) censured Shell, Repsol, and Petronas in relation to adverts (television promotions, posters and online, TV and YouTube ads) which misled consumers as to the companies' green credentials.  The ASA held that the focus which the adverts placed on the  companies' sustainable activities with little to no mention of the rest of their activities misled consumers misled as to the progress each of the companies was making in their sustainability transition journeys.

The Swiss Fairness Commission (SLK), an independent regulatory body in the Swiss communications industry, upheld complaints from five European countries relating to FIFA's claims that the 2022 Qatar World Cup had been carbon neutral. It was held that a high standard should be applied when claiming carbon neutrality and that FIFA had fallen short in showing that its claims were accurate in terms of sustainability.

While the ASA and SLK's decisions may only have a reputational impact on the relevant businesses, this may not be the end. For instance, the District Court of Amsterdam allowed to proceed a civil claim brought by environmental groups against the airline KLM for allegedly misleading consumers about their environmental credentials in an advertising campaign. Crucially, this claim followed a 2022 decision from the Dutch Advertising Code Authority (SRC) which had found certain adverts to be misleading.

Broader implications: Decisions by regulatory authorities of greenwashing may have limited reputational impact. However, they are precedents for environmental campaign groups to bring further claims in the Courts against targeted businesses.

The Braunschweig Higher Regional Court in Germany dismissed a case brought by a number of European pension funds against Volkswagen (VW) relating to whether or not the executive board has to report on climate change-related lobbying activities. The case was rejected by the court, which also denied the investors the right to appeal the decision. VW had refused to table the lobbying proposal, arguing that shareholders lack the authority to address the issue. Based on the German law principle that shareholders are not permitted to give detailed instructions to the board, the court stated that the request went beyond seeking transparency and could influence the company's strategic decisions. AP7, one of the plaintiffs, disagreed with the court's ruling asserting that every reporting duty could unduly impact strategic decision-making if one was to logically apply the court's ruling.

Broader implications: The court's decision does not prevent future legal action of other German companies rejecting similar resolutions. It will have to be seen whether such cases will come to different conclusions.

Three New York City pension funds face a claim in the US accusing them of breaching their fiduciary duties by divesting c.$4 billion of assets from companies involved in fossil fuel extraction. The plaintiffs claim the decision to divest was "a misguided and ineffectual gesture to address climate change".

The trustees of the pension funds said the decision followed "an extensive and thorough fiduciary process." However, the claim alleges the divestment was voted through "to advance environmental goals unrelated to the financial health of the plans", and that it constituted an "unlawful decision to elevate unrelated policy goals over the financial health of the plans," inconsistent with the trustees' fiduciary responsibilities. This contrasts starkly with the claim brought by ClientEarth against the directors of Shell in England & Wales, accusing the directors of breaching their statutory directors' duties by failing to take into consideration environmental issues.

Broader implications: This claim is the latest significant development in the anti-ESG campaign in the US. As part of this movement, certain political figures are seeking to prevent asset managers, including pension funds, from including ESG factors in their investment decision making processes. At least 49 anti-ESG bills have so far been introduced across the US in 2023, and state treasurers have removed funds from asset managers who apply ESG factors. Whereas in March this year, Joe Biden vetoed a Republican-led bill designed to prevent pension fund managers from basing investment decisions on ESG factors.

The English High Court has rejected a request by ClientEarth for permission to bring a judicial review claim against the UK Financial Conduct Authority (FCA).

ClientEarth sought a declaration from the High Court that the FCA's approval of a prospectus by oil and gas operator and producer, Ithaca Energy PLC, was unlawful and in breach of the Prospectus Regulation. It alleged that Ithaca's prospectus failed to describe adequately the climate risks associated with the company's activities, which includes part-ownership of oil and gas fields in the North Sea. ClientEarth's request was refused on the basis that the claimant lacked sufficient interest in the FCA's decision to approve the prospectus in order to bring the claim. ClientEarth has vowed to appeal the judgment.

Broader implications: If ClientEarth succeeds in this case and Ithaca's prospectus is found to be non-compliant, this could have serious implications for the company, as the listing of its shares could be called into question. The company has already come under fire for its participation in new fossil projects with Shell (Ithaca's partner in the North Sea oil fields),recently announcing that it is selling its 30% stake after significant public backlash against the project. Ithaca's share price has dropped over 30% since its listing in November last year.

ClientEarth's ground-breaking application in England for a climate-related derivative action against the Directors of Shell was refused by the High Court.

Mr Justice Trower's decision maintains the principle that Courts will show deference to the business judgments of directors who act in good faith. ClientEarth's case is one of only a few to have asked a Court to opine on the application of this well-established principle to directors' considerations of ESG factors in the context of their statutory duties, albeit through the prism of an application for permission to bring a derivative action, which has its own particular rules and principles.

The Judge also noted that ClientEarth's very small stake in Shell (27 shares) "gives rise to a very clear inference that its real interest is not in how best to promote the success of Shell for the benefit of its members as a whole".

Broader implications: This High Court refusal might serve to limit the impact that activists are able to gain from acquiring small stakes in public companies to promote their agendas through litigious actions in the English Courts. See our article for our full analysis and key takeaways. In spite of this, ClientEarth was granted an oral hearing at which they will ask the Judge to reconsider his decision.