The reality of running a business in a world that continues to experience dramatic climate-related events has spawned an increase in climate litigation across the globe that should be concerning to corporate board members. Lawsuits against companies that do not engage in climate change mitigation strategies are on the rise.
According to a report by the United Nations Environment Programme and the Columbia Law School Sabin Center for Climate Change, there were 2,180 climate change related lawsuits filed between 2020 and 2022. Of those 2,180 cases, 1,522 were filed in the United States.
Inside Climate News reports that according to the Sabin Center, over five years, these lawsuits have more than doubled with filings expanding from 24 jurisdictions to 65. The lawsuits raised material issues, such as the reduction of greenhouse gas emissions, preparations for the impact of extreme heat or intense storms, or scientific evidence that suggests a company’s pollution may have contributed to an extreme event. Corporate boards must prepare their companies to deal with the possibility that they could be hit with climate change-related lawsuits sometime in the future.
Heatwaves with temperatures above 100 degrees, more powerful storms with destructive winds, record rainfalls that cause flooding, or the impact of increasing of ocean temperatures on fish and wildlife, can affect the operations of an organization or its suppliers in ways that can result in company losses. Many corporate boards may need to consider how these types of events could impact their company’s current operations and future growth.
At the very least, corporate boards may want to begin assessing how extreme climate-related events or climate related regulations might impact the current risk management assumptions and crisis management protocols and procedures that their company has in place. If hit with a climate change lawsuit, companies will likely have to prove that they have not ignored climate related laws or neglected to anticipate the impact of climate change related events on the company’s operations and profitability.
Some considerations for boards could include:
• Create a climate change sub-committee to the board. Issues around climate change will be ongoing. Creating a board subcommittee to monitor any new international laws, regional regulations, or local concerns related to climate change that affect the company could be advantageous.
• Communicate relevant crisis management strategies related to climate events with shareholders. Engaging with climate advocates and interested investors about the company’s comprehensive action plans for climate related events may dissuade shareholders from filing lawsuits against a company. Also, articulating how the company is complying with climate regulations can demonstrate that the company is working to address the risks climate change poses to everyone. This shows that the board is working to protect shareholders and can go a long way toward mitigating some of the damage a climate change lawsuit can cause. This information can be delivered in a sustainability report or in the company proxy statement.
• Get ahead of climate change impacts, if possible. Creating a climate change subcommittee to the board could provide the board with relevant intelligence that could help some companies prepare for climate related changes that could affect their company and industry. For example, companies reliant on fossil fuels are being sued for not moving away from fossil fuels fast enough. Companies that use fossil fuels will need to develop sensible business strategies incorporating the use of alternative energy sources that allow the company to remain efficient and profitable. Corporate boards will need to ask questions about the use of alternative energy sources and explore options regarding changing suppliers and/or source materials that may be impacted by climate change related events.