More greenwashing and other climate-related class actions on the horizon in Australia
14 March 2024
14 March 2024
In this article, we explore:
There are several reasons why class actions may be seen as an effective legal avenue for advancing the agenda for action against climate change.
First, the alleged impacts of conduct relating to climate change will typically affect a large class of people, whether as result of impact on the environment, or financial and marketing disclosures to the public.
Secondly, the evidentiary work to demonstrate both the environmental and economic effects of the conduct may be too burdensome for a single applicant. A class, particularly where supported by a litigation funder, might be better placed to bring this sort of claim.
It follows that, in circumstances where the conduct is alleged to have harmed a broad class of people but no single claimant could economically bring a single claim, class actions offer an avenue to pursue organisations for claims that might otherwise go unredressed.
Of course, using a class action to target climate-related conduct would not be without its challenges. A key challenge in any case where damages are sought is the requirement to demonstrate that there has been some economic or financial loss suffered by the claimant or class as a result of the conduct. Potentially the easiest way for a claimant to seek to establish harm or loss is to demonstrate that the impugned product is so environmentally harmful that it will cost the buyer more to use and/or operate, or that the product simply cannot be used at all (i.e. because it is illegal). Alternatively, claimants could seek to demonstrate that, had they known how environmentally deficient the product or service was, they would have paid less for it or not paid for it at all. However, this type of loss may be more difficult to quantify.
Nonetheless, there remains significant legal, scientific and economic obstacles to any climate-related claim, and this is why almost all such claims in Australia have sought declarations of law and injunctions as relief rather than damages.
To date, the most notable climate-related class actions in Australia have all been brought against the Commonwealth Government, on the basis of alleged duties of care owed to sub-sections of the Australian population or alleged misleading or deceptive conduct.
In Sharma v Minister for the Environment [2022] FCAFC 35 (Sharma), the Full Court of the Federal Court unanimously held that the Commonwealth Minister for Environment did not owe a duty to avoid causing personal injury to Australian children when deciding whether to approve plans to extend an open-cut coal mine in New South Wales, thereby overturning the Federal Court's decision at first instance.
However, it is unlikely that the Sharma decision will be the final word on a duty of care for climate change-related decisions. There is, after all, another novel duty of care class action with distinct facts currently in the Federal Court: Pabai & Anor v Commonwealth of Australia (Pabai), concerning the impacts of climate change on the Torres Strait Islands.
Separately, a third Federal Court class action was recently settled by the parties. In O'Donnell v Commonwealth of Australia and others (O'Donnell), a class of government bondholders alleged that the Commonwealth Government had engaged in misleading or deceptive conduct by failing to disclose climate change risks to investors in bond issue documents. The case settled in October 2023, with the parties agreeing to the Government publishing a statement containing various acknowledgements, including that:
It is evident from the above cases that long standing legal principles are being adapted for use in climate-related class actions against governments, with mixed success to date.
As explained below, companies and directors are already facing similar risk through traditional claims, and it is likely only a matter of time before class actions follow.
Climate-related litigation against companies operating in Australia is now well established. There are numerous examples of individuals, not-for-profit organisations, and regulators bringing claims against companies in a wide range of industries including oil and gas, energy and financial services.
Having regard to the individual claims that we have seen to date against companies, and the class actions that have been brought against government, we anticipate that the following types of claims may be a focus for class actions against companies in the future:
The above types of claims predominantly relate to companies that are engaged in emissions intensive operations or making climate-related disclosures.
As a subset of disclosure risks, we anticipate claims against financial advisers or asset managers who are alleged to have engaged in greenwashing by making misrepresentations about the "greenness" of companies.
Further, the general trend towards using litigation as a tool to address climate change suggests that directors also face the risk of allegations that they have breached their duty to act with due care and diligence in relation to climate change risks.
Unsurprisingly, there is no easy way to manage the risk of climate-related class actions.
Understanding, managing and appropriately disclosing the risks and opportunities presented to a business by global climate change is incredibly complex.
In some respect, proposed new climate-related financial disclosure laws will assist companies by providing greater clarity as to expectations regarding public disclosures. However, these laws will also require most companies to provide a greater level of disclosure than has previously occurred, and there are various potential pitfalls.
Here are four general principles to keep in mind:
Authors: James Clarke, Partner; Matthew Blycha, Partner; and Stephanie Douvos, Associate.
The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
Readers should take legal advice before applying it to specific issues or transactions.