The momentum created when people get together is often more powerful than the efforts of an individual.

In Scotland, there is a relatively new regime designed to make it easier and more cost effective for groups of affected individuals to get together and seek compensation for alleged wrongdoing. This reflects moves at an EU level, as well as mature class actions regimes in, for instance, the US and Australia.

There are several sectors that are at particular risk of a group action in Scotland including the energy sector, given Scotland’s role as a global energy hub, and financial services. Whether by virtue of a registered office, operational or manufacturing presence, or having Scottish customers, these all provide a nexus to Scotland. And it is already happening: a recent case was brought by more than 1,000 Kenyan-resident tea pickers who sued Kenyan tea plantation owner James Finlay (part of the Swire conglomerate) in Scotland, based simply on a registered office address.

As such, Scotland should be on the risk register for corporates who may face group or class action claims.

What are the risks involved?

A large class of claimants can coordinate their fire power – they are likely to have litigation funding – and their resolve. The process can add time and expense.

Most importantly, any settlement or negative outcome is multiplied by the number of class members, meaning potentially very significant exposure – both in compensation and legal costs.

Climate-related ‘group claims’

One type of ‘group claim’ that we are likely to see more of in Scotland is climate-related litigation.

There have been more than 2,500 claims relating to climate change globally, according to Columbia University’s Sabin Center for Climate Change Law. And the growing significance of climate change litigation is recognised locally in Scotland with the establishment of Strathclyde University’s new Climate Change Litigation Initiative.

The recent decision by the UK Supreme Court in a case brought by a group of residents in Surrey demonstrates what can be achieved by a group of campaigners. You can read more about  this judgement and its implications here.

A ground-breaking claim brought by a Dutch NGO, the Urgenda Foundation, succeeded in 2019 in obliging the Dutch government to reduce, by the end of 2020, greenhouse gas emissions by at least 25% over 1990 levels. The claim focussed on human rights laws and established a legal duty of the Dutch state to achieve a reduction due to the risk and impact of climate change on Dutch citizens.

Fast forward to 2024, and the Swiss ‘Klimaseniorinnen’ (elderly ladies for climate protection) celebrated their success at the European Court of Human Rights (ECtHR) in arguing that Switzerland was violating their human rights by inadequate action on climate change, which was having a direct impact on their health. The Swiss Parliament has voted not to implement the ECtHR decision, which is yet to play out.

Back to the Netherlands (and to the future), a decision is keenly awaited in an appeal by Shell of the claim brought by the Dutch arm of Friends of the Earth (Millieudefensie), other NGOs and more than 17,000 Dutch citizens, who successfully persuaded a court to order Shell to reduce emissions by 45% by 2030 relative to 2019 levels, both in its own operations and emissions from the use of the oil it produces. A decision on Shell’s appeal is anticipated during Autumn 2024.

What is the thrust of climate-related claims?

The claims are broad, creative and evolving. The most recent annual survey of climate change litigation published by the London School of Economics identified the following themes:

• challenges to government climate policy;
• challenges to climate plans or targets of companies to align with Paris Agreement limits;
• claims seeking to integrate climate considerations into decision making on a particular project or policy;
• challenges to finance of high emitting or climate-harmful projects;
• claims of failure to adapt physical infrastructure, strategy or operations to address climate change;
• claims seeking monetary compensation for contribution to climate change;
• climate-washing cases; and
• allegations of personal responsibility on officers and directors for failure to manage transition risk involving lower-carbon alternatives.

What effect is climate litigation having?

There can be direct impacts of a change in the law or policy making. The Urgenda decision led to a change in the Dutch government’s climate ambitions, and similar litigation against government policies is seen as successfully rising above the prevailing political winds. Litigation may stall or prevent projects predicted to have an adverse impact on climate change, particularly in the planning sphere.

More recently there have been a growing number of cases directly against companies rather than governments and involving an increasingly diverse range of sectors. In the race to be seen as clean and green, climate washing claims are increasing significantly, which may force renewed or enhanced climate commitments.

The Grantham Research Institute calculated in 2023 that more than 50% of the 549 cases they identified had outcomes favourable to climate action. Another study by the Centre for Climate Change Economics and Policy / Grantham Research Institute looked specifically at the impact of an unfavourable court decision in a climate case and found a measurable reduction on company value.

Campaigners also see success in more indirect impacts such as growing public awareness, understanding and behaviour.

Whilst there is little research on long-term impacts, this sort of analysis is likely to encourage lenders, financial regulators and governments to consider climate litigation as a relevant financial risk.

What next?

With the new Labour government apparently serious about increasing the pace of the UK’s transition to net zero, it is likely that climate change litigation will be an increasing area of risk as campaigners and litigants seek to capitalise on this new momentum.

The risks of a group claims in this area can be managed through monitoring of potential claims via social and other media, early engagement with claimants and their lawyers, and involvement of experienced advisers who can guide companies through the process.

We will be speaking about the risks related to group claims at our Risk Resilience in the Energy Sector conference in September, full details of the conference can be found here. If you would like to speak directly to one of our experts on how this issue may affect your business, please do get in touch.

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