Climate lawsuits: How dangerous are they for businesses?

Amid a groundswell of climate protests, companies across the world are increasingly in the focus of climate activists who aim to change corporate policy through legal action. In Germany, car manufacturers such as Volkswagen (VW), BMW and Mercedes-Benz have already been hit, as have energy utility RWE and gas importer Wintershall Dea.

So far, however, companies in this country have little to fear from the judges. Last year, regional courts, for example, dismissed all lawsuits against the country's carmakers. Other rulings are still pending, such as that in the case of a Peruvian mountain guide from the Andes who wants RWE to bear a share of the costs for protective measures against the impacts of climate change on his home.

All over the world, more and more people are trying to obtain better climate protection measures in this way, and in some cases are also demanding compensation for damage caused by climate change. To date, more than 2,000 climate lawsuits have been filed worldwide, according to the London School of Economics.

Companies called out in the climate struggle

Consultancy EY has found that while most lawsuits to date have been against governments, more and more companies have been sued recently.

More than a third of global CO2 emissions emitted between 1965 and 2018 were caused by the 20 largest oil, coal and gas corporations. However, it is not only companies from the fossil fuel sector that are being sued, but also companies from the transport, food, agriculture, plastics and finance sectors, according to the German law firm Hengeler Mueller which specialises in commercial law.

One of the world's largest building materials manufacturers, Holcim, is facing legal action in Switzerland. Through its cement production, the group emitted more than seven billion tons of CO2 between 1950 and 2021, which is more than twice the amount emitted by the whole of Switzerland.

How worried should companies be?

Do companies that have been operating within the law now have to fear being held accountable for their CO2 emissions? And will judges tell them how they must run their business in future?

In the Netherlands, which has a very progressive legal system when it comes to climate lawsuits, the first efforts to hold companies accountable for their emissions were launched in May 2021. At the time, a court ordered the British-Dutch oil company Royal Dutch Shell to reduce CO2 emissions from its sales of petroleum products by 45% by 2030.

What makes this so special is that "the Shell ruling is the first ruling to uphold a lawsuit against a private company" over emissions, says Marc-Philippe Weller, director at the Institute for Foreign and International Private and Commercial Law at Heidelberg University. This ruling was "groundbreaking and inspired other plaintiffs," he told DW.

Also in 2021, Germany's Constitutional Court obliged the government to readjust its climate policy. Since then, climate activists refer to this ruling as they've taken various companies to German courts.

"Will this be successful? We should be sceptical given the status quo of the legal situation," said Weller.

The legal battles are underway

In fact, four German court rulings have so far been handed down in favour of the carmakers sued. In mid-September, for example, the Regional Court in Stuttgart rejected a lawsuit against Mercedes-Benz, and in February of this year, other regional courts rejected lawsuits against BMW and VW. However, this has not stopped the plaintiffs from taking their lawsuits to the next higher courts.

There is also speculation that the regional courts are holding back in an area of law not yet dominated by landmark decisions and prefer to leave the decision to the higher instances. This is why the case against RWE, which has been pending at the Higher Regional Court of Hamm since 2015, is particularly interesting. Especially since it may not only affect the future policy of the energy group.

Flood of claims for damages beckoning?

The plaintiffs want RWE to be obliged to emit less CO2 in the future. They also want the energy company to pay damages. Since RWE operations are allegedly responsible for 0.47% of global CO2 emissions, the company should pay the equivalent amount of the costs to the plaintiff — a Peruvian mountain guide who needs to protect his home from mudslides triggered by a glacier melt caused by climate change.

But what if the lawsuit against RWE is successful? Will other companies then have to fear that there could be recourse claims from all over the world? It's not quite that simple, said legal expert Weller. In principle, any damage that has occurred must be traceable to the CO2 emissions if compensation is to be sought. "That is likely to be clearly demonstrated in very few cases."

While judges can already initiate hazard mitigation, such as a ban on internal combustion engines, if they believe the hazard is highly probable, they would have to have a 100% conviction for a liability claim.

"Extreme weather events are increasing in probability, but it's hard to attribute a single weather event to climate change," Weller said. "There is just a probability that they are increasing. But not with a 100% certainty. That's the whole point."

The Peruvian farmer's situation is already a special case, Weller thinks, simply because the property is located below a potentially melting glacial lake.

Climate lawsuits are a corporate risk

Nevertheless, "these lawsuits will certainly increase," Weller is convinced. It cannot be ruled out that companies will be held liable for climate damage due to the German legal system which is "not static" but has many "dynamic elements."

"We have open legal concepts. That means what is not successful today may very well be successful tomorrow," said Weller.

Law firm Hengeler Müller also says that climate lawsuits are a real business risk. Their specialists assume that lawsuits for compensation of damages will increase in the future, for example with regard to extreme weather events and their consequences such as floods, heat waves and forest fires. Thus, climate claims would pose significant risks to a company's strategy, financial position and reputation.

"The aspect of climate protection should therefore always be considered when assessing corporate governance measures," the firm said in a statement to DW.

Whether climate lawsuits are successful or not, Weller believes that politicians have a fundamental responsibility when it comes to climate protection. "If you look at the rulings, the courts are really calling for politics to act."

Explaining its ruling in the Mercedes-Benz case, the Stuttgart Regional Court wrote that the essential principle of the constitution dictates that the legislature decides on the regulation here and that individual courts cannot make decisions that could have far-reaching consequences.

Insa Wrede is the editor of the business department online and radio at Deutsche Welle.  

Disclaimer: This article first appeared on DW, and is published by special syndication arrangement.