Fossil fuel companies, corporate directors and even governments face mounting lawsuits for harming the Earth, but experts say Asia — and Singapore — could offer a different outcome
As sustainability reporting becomes mandatory in many jurisdictions, shareholders and regulators seek more teeth in ensuring corporates make good on their commitments towards decarbonisation.
However, holding corporations accountable for their net-zero pledges could go beyond the limited powers that shareholders and regulators currently possess. Hence, the battle is spilling into the courtroom, and lawyers are now entering the fray.
Oil and gas giant Shell has faced two major lawsuits so far this year. The first, lodged in February by environmental lawyers ClientEarth, was aimed personally at 11 directors of the British multinational company.
In its capacity as a shareholder, the London-based environmental charity charged that Shell’s directors are mismanaging climate risk, and the company cannot achieve its aim of net-zero carbon emissions by 2050 with its current climate transition strategy.
“Shell may be making record profits now, but the writing is on the wall for fossil fuels for the long term,” said ClientEarth’s senior lawyer Paul Benson. “The shift to a low-carbon economy is not just inevitable, it’s already happening. Yet the board is persisting with a transition strategy that is fundamentally flawed, despite the board’s legal duty to manage those risks.”
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However, even with the backing of institutional investors with over 12 million Shell shares, judge William Trower rejected the case twice — first in May and again in July. Trower ruled that ClientEarth’s case “ignores the fact that the management of a business of the size and complexity of that of Shell will require the directors to take into account a range of competing considerations”, and the courts should not interfere.
Shell’s second — and larger — lawsuit came in September. The plaintiff? The US state of California, which alleges that five big oil companies and their trade organisation, the American Petroleum Institute, engineered decades of disinformation to mislead the public about the environmental impact of extracting and burning fossil fuels.
Ashish Chugh, principal at Baker McKenzie Wong & Leow, has a name for this emerging field — “climate governance by litigation”. “What that really means is that the courts are now involved in fashioning remedies to try and push that agenda… into how we develop this dialogue of climate change.”
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In an interview with The Edge Singapore, Chugh mentions the world’s first national enquiry on climate change by the Philippines’ Commission on Human Rights. The investigatory body under the Philippine Constitution conducted a four-year investigation and concluded in May 2022 that 47 fossil fuel companies — “carbon majors” like Shell, Chevron, ExxonMobil and BP — contributed to 21.4% of global emissions.
“It is very unique and innovative in the sense that you have a Commission of Human Rights, which goes on to analyse human rights in the context of environmental concerns,” says Chugh. “Not only are they looking at it just from a political [and] civil context, but more of an environmental context as well. They analyse the right to life, livelihoods [and] water and food security, and say these are also important for economic and environmental development.”
Cases against governments
Between 2017 and 2022, the number of court cases linked to climate change doubled to 2,180 worldwide, according to a report by the UN Environment Programme and Columbia University’s Sabin Center for Climate Change Law.
While most cases have been brought to the courts in the US, climate litigation is taking root all over the world, reads the July report, with about 17% of such cases being reported in developing countries, including small island developing states.
According to the report, most ongoing climate litigation falls into one or more of six categories: cases relying on human rights enshrined in international law and national constitutions; challenges to domestic non-enforcement of climate-related laws and policies; litigants seeking to keep fossil fuels in the ground; advocates for greater climate disclosures and an end to greenwashing; claims addressing corporate liability and responsibility for climate harms; and claims addressing failures to adapt to the impact of climate change.
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The most common type of cases is those seeking a review of decisions made by federal, state or local governments, says Amanda Lees, partner at King & Wood Mallesons (KWM). “Environmental groups and affected individuals often bring cases challenging the authorisation of new projects.”
One of the most prominent cases is the successful claim against the State of Netherlands, says Lees, under which the Dutch government was ordered to reduce its greenhouse gas emissions by at least 25% by the end of 2020 compared to 1990 levels.
The landmark case was brought on behalf of 886 Dutch citizens. The District Court of The Hague ruled in 2015 that the Dutch government is obliged to urgently and significantly reduce emissions in line with its human rights obligations, and its Supreme Court upheld the decision in 2019 following an appeal by the state.
Lees also cites a more recent case, filed in the US in August by the Centre for Biological Diversity against the US Department of Energy, challenging the approval of the exports of liquified natural gas from Alaska’s North Slope to Asia.
The US$38.7 billion ($52.3 billion) fossil fuel export project would include an 807-mile (1,299-km) pipeline bisecting Alaska, potentially exporting 20 million metric tonnes of gas per year and releasing more than 50 million metric tonnes of carbon pollution annually, according to conservation groups.
“The Biden administration made a mockery of the climate emergency when it approved the Alaska LNG carbon bomb and this lawsuit aims to stop it from being built,” says Jason Rylander, an attorney at the Center for Biological Diversity’s Climate Law Institute. “The science is clear; development of massive new fossil fuel export projects like Alaska LNG is incompatible with a stable climate.”
Compensating fossil fuel players
Often, activists bring constitutional claims against governments for failing to consider climate change, says Lees, who is based in Singapore. However, government decisions to combat climate change have also faced similar challenges in the courts.
“There have been claims in other jurisdictions against governments that have announced the phase-out of coal-fired power plants, including claims by foreign investors under multilateral and bilateral investment treaties,” says Lees.
Alberta, Canada’s fourth-largest province, pledged in 2015 to phase out coal-fired power by 2030. This led to a 2018 case by Westmoreland Coal, a US company, against Canada under the North American Free Trade Agreement (Nafta).
As the only US investor in Alberta’s coal industry, the company argued that it was unlawfully excluded from a scheme developed to compensate investors for losses associated with the provincial government’s Climate Leadership Plan.
Westmoreland Coal filed for bankruptcy in the US in October 2018, and a Nafta tribunal dismissed the claim in January 2022.
Elsewhere, two treaty cases were brought against the Netherlands in 2021 for its plans to phase out coal-fired power generation by 2030, notes Lees. In November 2022, a Dutch court ruled that the state does not have to compensate German energy suppliers RWE and Uniper for the decision.
There have also been claims regarding decisions to not allow new fossil fuel projects. In May, Singapore-based mining company Zeph Investments filed a notice of arbitration against Australia, alleging that the state breached obligations to it under the Asean-Australia-New Zealand Free Trade Agreement.
Zeph is owned by Australian mining tycoon and one-term Member of the Australian Parliament Clive Palmer. The company seeks A$41.3 billion ($36.5 billion) in damages arising from a November 2022 decision by Queensland authorities to deny a mining lease to a Zeph subsidiary on the climate change and human rights impact of the project, says Lees.
Singapore has already embarked on the earliest stages of phasing out coal-fired power by attempting to clarify the varied, and often ambiguous, stages of transition finance.
The Monetary Authority of Singapore (MAS) launched in June a fourth and final consultation for the upcoming Singapore-Asia Taxonomy, focused on its proposal to include the managed phase-out of coal-fired power plants in its guidance for financial institutions.
“By providing clear definitions on what is green, what is transition and what is neither, the Singapore-Asia Taxonomy aims to catalyse green and transition finance flows to enable the decarbonisation of brown sectors,” says Indranee Rajah, Minister in the Prime Minister’s Office and Second Minister for Finance and National Development.
MAS’s “detailed thresholds and criteria” mandate that the coal-fired power plant must be economically viable, replaced by clean energy with equivalent electricity capacity, phased out by 2040 and not have a total operating duration exceeding 25 years, among other stipulations. The plant owner must also commit to no new development of coal-fired power plants and a transition plan to reach full alignment to 1.5°C by 2030.
MAS has even proposed a new asset class to cover the revenue shortfall. A working paper released in conjunction with McKinsey & Co on Sept 26 introduced “transition credits”, or high-integrity carbon credits, that could be sold to incentivise owners of coal-fired power plants to retire their assets early and replace them with renewable energy.
The key is for governments to adequately compensate plant owners, says Lees. But that could be easier said than done; MAS estimates a US$70 million economic gap arising from retiring a coal-fired power plant with a onegigawatt capacity five years earlier.
Baker McKenzie Wong & Leow’s Chugh highlights long-time investors in fossil fuels. “Some of these are long-term projects that have been on for decades. What you’re essentially saying now is: ‘You may have invested in these projects, but because the policy has changed, you need to phase it out.’ Now, that is obviously something that makes sense politically, but how do you ask investors to lose value in something that they have invested in for the long term?”
Avoiding greenwashing
The Singapore-Asia Taxonomy will soon be finalised and launched for use. Without it, banks run the risk of being accused of greenwashing for keeping projects like coal-fired power plants on their loan portfolios.
Keeping an eye on such risks is Loretta Yuen, head of group legal and compliance at OCBC O39 . She says key areas of litigation in the future may include greenwashing or misrepresentation in climate disclosures and whether corporations are fulfilling their emissions reduction commitments.
There could also be legal actions against corporations that are alleged to be responsible for, or which contribute to, adverse climate impact, Yuen adds. These include lenders who provide financing for such projects, such as banks.
The bank unveiled in May its 2030 and 2050 targets to reduce financed emissions in six sectors: power, oil and gas, real estate, steel, aviation and shipping. Together, the targets cover 42% of OCBC’s corporate and commercial banking loan portfolio, specifically the parts of the value chain responsible for the majority of emissions.
In addition, OCBC will no longer extend project financing to upstream oil and gas projects that obtained approval for development after 2021. This is on top of the bank’s sector target to cut oil and gas emissions by 35% by 2030 and 95% by 2050 against a 2021 baseline.
OCBC was the last of the three local banks to announce their sectoral plans; DBS and United Overseas Bank U11 both released their sector-specific transition strategies last year.
According to Yuen, OCBC has been proactively engaging its clients to develop and invest in greener assets, while incentivising consumers to make more “climate-friendly lifestyle choices” by offering sustainable financing solutions and green loans.
The OCBC 1.5°C loan, for example, incentivises corporates to set and work towards clear emissions reduction targets. When corporates meet or exceed their targets, OCBC says it offers them a reduced interest rate on their loans.
“Some of the key challenges with managing legal and regulatory risks relating to sustainability include concerns of greenwashing, the need to improve climate-related financial disclosures and keeping abreast of legal and regulatory developments in various sustainability-related areas,” says Yuen.
The bank has dedicated resources internally, including at management level, to cater to sustainability issues, Yuen adds.
The bank set up the Board Sustainability Committee in February to step up efforts in its oversight of ESG issues. In July, OCBC appointed Mike Ng as its first group chief sustainability officer (CSO), “with a strong business and client focus”.
“We partner closely with the group CSO and his team to actively lead the efforts in supporting clients’ transition and deliver innovative products and services to help clients achieve their climate action plans,” says Yuen.
Few cases in Asia
In line with global trends, climate litigation against governments and corporations in some parts of Asia is increasing, such as in the Philippines, South Korea, Japan, India, Indonesia and Pakistan.
But the region’s number of cases still lags behind other parts of the world, such as the US, Australia and Europe.
There is no one universal set of reasons why there is still relatively little climate litigation in Asia, says Joseph Chun, partner at Shook Lin & Bok Singapore. “One reason is that the substantive laws in Asia may be less generous in terms of explicitly giving individuals rights to a healthy environment, and judges may be less willing to give an expansive interpretation of existing laws as implying such rights, though there are notable exceptions in some jurisdictions.”
The law may also be less generous in terms of legal standing, adds Chun. “Courts may not grant environmental non-government organisations legal standing to commence legal action in the public interest, if they cannot prove they have suffered harm or an infringement of their rights.”
In some jurisdictions, claimants may even have to show that a defendant’s alleged unlawful conduct has caused them harm “over and beyond” that suffered generally by the public, says Chun, who is also an adjunct associate professor at the National University of Singapore.
Legal action may also be financially risky, he says, as the default rule in some countries — Singapore included — is that an unsuccessful party has to pay the winning party’s legal costs. “There may be no cap on the liability for such costs, even for public interest litigation,” says Chun.
Companies are rightfully being held to account for their statements, but it is unlikely that the number of cases in Asia will skyrocket, says Baldev Bhinder, managing director at Blackstone & Gold, a specialist energy and commodities law firm in Singapore.
“Most litigations are brought in the US, which is a litigious jurisdiction coupled with the fact that some of the defendant companies are listed in New York,” he adds. “Environmental, social and governance (ESG) litigation is on an upward trend, but it’s unlikely for Asia to see the same scale of litigation as the companies in the cross-hairs might not be headquartered here.”
Singapore ‘not a litigious society’
In any case, representative actions are rare in Singapore, notes Bhinder.
One recent example would be the group of more than 100 Credit Suisse bondholders in Singapore that joined a class action lawsuit in May seeking some $100 million in restitution from the collapsed investment bank.
Bhinder calls the class action against Credit Suisse “a unique situation”, and lawyers whom The Edge Singapore spoke to think climate change litigation is unlikely to take root in Singapore.
According to Chun, Singapore is “relatively speaking, not a litigious society”. “Cause lawyering and public interest litigation are rare, and there is little expression of public support for such litigation. Non-government organisations registered in Singapore are generally also less confrontational in their advocacy than in some other countries in Asia.”
Instead, Chun thinks the public and civil society tend to rely on a “strong and proactive” government to introduce and enforce and implement various legislation, regulations and policies to address environmental issues.
KWM’s Lees, too, describes Singapore as “generally non-litigious compared to other jurisdictions”.
She listed three reasons for Singapore’s seemingly docile nature in a July 2022 post on the firm’s website: “the difficulty in bringing representative actions in the Singapore courts; the smaller number of companies listed on the Singapore Exchange S68 and limited number of IPOs; and fewer activist shareholders compared to Australia and other jurisdictions”.
That said, a novel representative action was filed against Singapore-registered public company PNG Sustainable Development Program (PNG) on behalf of some 150,000 people from Papua New Guinea affected by mining environmental damage caused by a gold and copper mine there.
PNG was incorporated in Singapore in October 2001 with two shareholders: the state of Papua New Guinea and BHP Minerals Holdings. PNG was created as a vehicle to which BHP would divest its shares in mining company Ok Tedi Mining.
The plaintiffs alleged that PNG owed a fiduciary duty to the affected communities, and sought some US$1.5 billion that had been earmarked for the sustainable development of Papua New Guinea.
However, Singapore’s High Court struck out the claim in 2021, and the Court of Appeal upheld the decision in 2022.
“The case itself had its own specific facts but as a representative action relating to climate damage, it was probably a first of its kind in Singapore,” says Chugh.
Disputes over carbon credits
In the short and medium term, the likelihood of strategic ESG-focused litigation by private actors intended to influence policy or development is “not high”, according to Chun. “What may be relatively more likely is conventional commercial litigation between private actors, narrowly focused on recovery of loss, [such as those] arising from alleged non-compliance with ESG-related contractual obligations, misrepresentation of ESG claims or negligent rendering of professional ESG-related services.”
There may also be litigation against insurers to recover ESG-related losses under insurance policies, adds Chun.
More likely than being the theatre for climate change litigation, Singapore will be the seat for arbitrations related to renewables projects, carbon trading and other projects and transactions relating to sustainability, says Lees.
As an aspiring carbon services and trading hub, Singapore must also be prepared for disputes involving credits, “given the lack of standardised carbon accounting practices, the difficulties in measuring the impact of carbon reduction projects and the variety of carbon reduction projects, often in poorly-governed jurisdictions”, adds Lees.
Mainboard-listed real estate company Frasers Property TQ5 , for one, was found to have purchased carbon credits from a controversial forest conservation project in Zimbabwe, which has been accused of overstating the impact of its projects.
Frasers had purchased the credits from South Pole, a carbon consulting firm and credit seller that counts among its minority investors GenZero, a Temasek Holdings subsidiary.
In early 2023, Dutch investigative journalism publication Follow The Money and British daily The Guardian published exposés on South Pole and carbon credit certifier Verra respectively, accusing the two firms of exaggerating the impact of carbon credits.
But disputes over carbon credits could be more tepid than expected. Rather than going to court, many carbon credit standard bodies have incorporated arbitration into their standard templates, says Lees.
This means parties may opt to resolve disputes privately. “Arbitration is well-suited for these disputes given that often carbon credits are being used cross-border,” adds Lees. “There will be a reliance on expert evidence both to challenge and support claims about carbon credits.”
Aside from carbon credits, Chugh points to the “biggest building blocks to the green revolution” — metals like copper, aluminium and nickel, which are used in batteries and solar panels.
However, extracting them requires carbon-intensive mining activities, which could become a potential target of greenwashing allegations. “The focus now is trying to make mining a lot more ESG-compliant.”
Besides environmental concerns, Janice Tay, partner at Wong & Partners, notes emerging social and governance concerns in Malaysia, where she is based. “It covers things like data privacy, and certainly in Malaysia, we are seeing a lot more enforcement action when it comes to personal data breaches, corruption, bribery, and also the fact that Malaysia is looking to amend the laws surrounding cybersecurity.”
ESG funds, in particular, are another risky area, says Bhinder, “if they misrepresent the exact nature and mix of their asset location”. “There is a great deal of interest in raising finance on green-linked initiatives, but the most important thing is to keep the discipline to ensure the products correspond to the label on the box.”
Companies might be tempted to make sweeping claims about the sustainability aspects of their business or products as part of this sweeping movement towards decarbonisation, he adds. “But investors, shareholders and consumers are rightfully holding companies to account when companies make these statements.”
Bhinder charges company directors with the responsibility of managing the emerging risks of greenwashing litigation. “Directors, as the final gatekeeper of the company’s actions, should take a step back and continually be alive to the robustness and veracity of statements being made by the company. Structurally, in today’s world, ESG and risk committees would have to work hand-in-glove to ensure a company doesn’t expose itself to allegations of greenwashing while making inroads with ESG initiatives.”
Mitigating such risks involves all staff, and companies should instil a “proper” compliance programme, says Tay. “Make sure that the tone from the top is not just mere platitudes, but there is real action to back it up. The programme should have things like clear guidelines, public, regular assessments and follow-up training for all levels of staff, not just directors.”
Tay adds: “Make sure that statements are factually clear, correct and supported by scientific evidence. Avoid vague descriptions, such as ‘best practices’ or ‘substantial practices’, and show that there is reason to believe in the truthfulness of statements that are made. Keep a record of the verifications that are done and have a strong whistleblowing programme so that staff are actually looking at all these internal issues.”
Photos: Albert Chua/The Edge Singapore, King & Wood Mallesons, OCBC, Joseph Chun, Baldev Bhinder
