There are numerous strands to climate litigation. Insurers have thus far been most interested in the civil liability strand, and for obvious reasons. They are watching very carefully to see, for example, whether and how:
- large emitters can be sued for direct climate impacts to property;
- directors can be sued by shareholders for corporate mismanagement in the face climate risk; and
- companies can be pursued for stakeholder greenwashing.
Among the other strands of litigation are public law challenges. Essentially, this strand comprises challenges to decisions of government and regulators on the basis that they do not take account of climate matters in the way that they should.
Public law challenges account for a very large chunk of climate litigation as a whole. However, because they do not result directly in the imposition of liability and damages awards on companies, they have tended to get less attention from insurers.
Ignoring this strand is a mistake. The decisions handed down by the courts relating to regulatory decision making can have a huge impact on how Ministers and regulators treat requests from certain industries, possibly putting the future viability of such industries in jeopardy. Viability is very relevant to insurers, in particular when making both underwriting and investment decisions.
Three recent cases
A particularly good example of this is the three UK decisions in recent months that have firmly challenged the viability of UK fossil fuel extraction industries.
The first is R (Finch) v Surrey County Council [2024] UKSC 20. This case resulted from a decision by Surrey County Council in 2019 to grant planning permission for the expansion of an existing oil production well.
At its heart, this case examined how far downstream from a development project a decision-maker is required to look when assessing the likely environmental effects of a proposed development. Is it confined to an assessment of the direct releases of greenhouse gasses from within the well site boundary during the lifetime of the project (as the Council had done) or does it extend (as the claimants argued) to combustion emissions when the oil extracted from the wells is refined is burnt elsewhere as fuel?
The Supreme Court held that the Council’s decision was unlawful because the emissions that will occur when the oil produced is burnt as fuel are an inevitable ‘indirect effect’ and therefore required consideration by law.
The second is the case of Friends of the Earth and South Lakeland Action on Climate Change v SoS for Levelling Up, Housing & Communities & others [2024] EWHC 2349.
In this case, West Cumbria Mining Limited obtained planning permission from the Secretary of State for a new coal mine in Cumbria. However, the permission was challenged in the High Court by environmental groups and quashed. Following the Finch decision, the High Court was not satisfied that the Secretary of State had addressed “downstream” greenhouse gas emissions in a lawful manner.
The third is the judicial review brought by Greenpeace and Uplift relating to the lawfulness of the agreement to the grant of consent by the Secretary of State for Business, Energy and Industrial Strategy and the granting of consent by the Oil and Gas Authority for the development of and production from the Jackdaw and Rosebank oil and gas fields in the North Sea and North Atlantic respectively.
Again following the Finch decision, the Court of Session in Edinburgh held that the decisions were unlawful as the Environmental Impact Assessments (EIA) on which they were based did not assess the effect of downstream emissions.
The net result of this trio of cases is that planning permission for new fossil fuel projects in the UK will be extremely challenging to obtain and that companies with heavy UK fossil fuel exposure will suffer as a result.
Further, the cases raise questions as to what the court’s approach will be in connection with projects other than fossil fuel projects where downstream greenhouse gas emissions, whilst not inevitable, are nevertheless very much on the cards.
Points for insurers
Public law challenges are now a significant part of the climate litigation landscape. This should come as no surprise given the plethora of net zero transition laws that form the backdrop to ministerial and regulatory decision making in many jurisdictions (including the UK).
The challenges, if successful, can have significant impact on the established regulatory process in connection with certain activities.
Companies with effective governance around environmental matters will stand a much better chance of spotting the potential for change in the regulatory environment and regulatory processes and positioning the business accordingly.
Ascertaining whether the companies in which they invest or they insure fall into this category should be a priority for insurers.
For more information on how environmental law can help you, contact our specialist environmental law solicitors.
