The third quarter of 2023 has passed, leaving behind a stream of developments in contentious ESG. In this edition, we highlight some of the main recent stories in ESG disputes:

• several European airlines have been accused of greenwashing by way of formal complaint to the European Commission;
• some of the challenges in bringing individual liability actions, in light of two recent case developments;
• the state of California has launched claims against oil companies alleging coverup of climate change risks; and
• a new claim launched against Glencore regarding untrue and misleading statements.

European airlines hit by greenwashing claims

The European Consumer Organisation (BEUC) and its member organisations have filed a formal complaint to the European Commission and other consumer protection agencies against 17 European airlines regarding "misleading" claims around sustainable flying. KLM, Lufthansa and Ryanair are among the airlines listed as part of the complaint.

The complaint alleges that airlines mislead consumers by calling themselves "green" and specifically criticises the use of carbon offset schemes, with passengers being charged extra to "neutralise" their emissions or to contribute to the development of Sustainable Aviation Fuel (SAF). According to BEUC, any claims that passengers can "neutralise" the impact of their flight by contributing to carbon offset schemes is "factually incorrect" and airlines are creating a "fake peace of mind".

They claim that the benefits of climate offsetting remain uncertain and SAF is only currently available in small quantities, with mandatory EU targets being only 2% by 2025. What is certain, according to BEUC, is that regardless of customers paying extra sums (known as "green fees") towards offset schemes, flights will still continue to emit harmful emissions. As an alternative, BEUC has called for provision of high-quality long-distance rail as a more sustainable travel option.

In response, Airlines for Europe (A4E), the trade association representing major European airlines, has recognised the importance of transparent communications on sustainability. In a statement, it asserts that, while offsets currently play a role, "their significance will diminish as the industry brings in more fuel-efficient aircraft and invests in more SAF".

Under EU Regulation 2017/2394, the Commission must now assess the complaint and report any suspected infringements to the national authorities. If a widescale EU-wide infringement is confirmed, then national authorities will conduct appropriate investigations and start a coordinated investigation.

The BEUC complaint is one of the latest string of actions taken by European climate activists and consumers against the airlines industry. KLM is already subject to proceedings in Dutch courts regarding its "Fly Responsibly" sustainability campaign.

English courts deliver double blow to individual liability actions

In two recent case developments, the English courts have further highlighted challenges in bringing successful cases holding individuals (such as directors and trustees) to account for corporate climate strategy. Both cases demonstrate the high threshold for bringing claims against such individuals.

McGaughey & Davies v. Universities Superannuation Scheme Limited

In July 2023, the Court of Appeal (CA) dismissed the attempt by two members of a pension scheme to continue several multiple derivative claims (MDCs), on behalf of pension trustee company Universities Superannuation Scheme Limited (USS), against some of its directors and former directors. Among other things, the claim alleged that directors were in breach of duty to promote the success of the trustee company due to their failure to implement an immediate plan for divestment from fossil-fuel-related investments. In May 2021, USS had announced that it will seek to have carbon neutral portfolios by 2050, whereas the claimant contended that the directors have failed to create an adequate plan to deal with financial risks involved in such investments.

When dismissing the appeal, the CA emphasised that the derivative claim procedure is only available in exceptional cases. It is not for the purpose of enabling members to monitor every step taken by directors, nor to enable potential claimants to use it as an alternative to avoid other procedural hurdles. It upheld the earlier High Court decision that, to bring MDCs, the company must have suffered a loss which the claim seeks to remedy and the claimant must have suffered harm or loss which is reflective of it.

In this case, the CA found that the directors had ensured adequate diversification of assets and had exercised appropriate investment discretion along with seeking professional advice. The claimants could not evidence that the trustee directors had breached their duty under the Investment Regulations, or that they had suffered losses due to the alleged breaches.

This case is insightful regarding the extent of directors' freedoms when they discharge their statutory duties and the need to carefully consider ESG requirements and climate risk issues as part of investment decisions.

ClientEarth v. Shell plc: latest developments

Since our previous bulletin in which we reported on the decision in this case in the papers, in June 2023 the High Court dismissed ClientEarth's application to continue a derivative action on behalf of Shell plc following an oral hearing.

Mr Justice Trower dismissed the application on the basis that in oral argument ClientEarth had still failed to establish its case under the derivative claims procedure (s.261 Companies Act 2006). He remarked that courts should not interfere in the management of a business of the "size and complexity of Shell" and suggested that the court should not grant permission if the action has been brought for an ulterior purpose.

It is also noteworthy that, following this latest decision, the High Court ordered ClientEarth to pay Shell's costs for these proceedings on a standard basis. This was in divergence from the usual position applicable to the initial stages of a derivative action, where the company (i.e. Shell) would not recover its costs if it participated voluntarily (without invitation from the court).

ClientEarth has announced that it will request permission to appeal this decision to the CA. For further background on this case, read our insight.

California sues oil companies for covering up climate change risks

The state of California has filed a lawsuit against several of the world's biggest oil companies, including ExxonMobil and Shell, claiming they have deceived the public for decades about the effect of burning fossil fuels and its harmful impact on the planet. The claim alleges that executives at these companies were aware of the catastrophic impact of the use of fossil fuels on the climate, but have intentionally downplayed the risks to the public since the 1950s.

According to the lawsuit, this deception has now caused a "delayed societal response" and billions of dollars' worth of environmental damage, such as droughts and wildfires. The lawsuit does not seek damages for a single environmental event but rather to create a fund that would be used to pay for recovery from extreme weather events and towards other mitigation and adaptation efforts.

This comes after California recently passed a new law that requires major polluting companies to calculate and disclose carbon emissions linked to the supply and use of their products. The state of Montana also passed a landmark decision recently in favour of youth climate activists that they had a right to a "clean and healthful environment".

Investors claiming damages from Glencore over "untrue statements"

Nearly 200 investment funds are seeking damages from Swiss mining company, Glencore, regarding allegations that the company made misleading or untrue statements in past prospectuses to cover up corrupt activities. The claim, valued at nearly £2 billion and whose outcome could have a significant impact on the natural resources industry, is brought in the High Court by claimants including GIC, Kuwait Investment Authority and some funds managed by HSBC, Vanguard and Fidelity.

The claimants allege that, pursuant to s.90 of the Financial Services and Markets Act 2000, they suffered financial losses as a direct result of the "untrue statements" in Glencore's 2011 prospectus for its listing on the London Stock Exchange. In addition, they are also suing in relation to misleading information in the company's 2013 prospectus relating to its merger with Xstrata. The allegations state that Glencore senior management "knew of or were reckless as to the existence of" some (if not all) of the bribery, corruption and fraud.

This action comes after Glencore's admissions to bribery and market manipulation last year, following a probe by the Serious Fraud Office. The conviction at the time was one of the most high-profile cases against a major trading house and required Glencore to pay millions in fines and forfeitures to entities in the UK, US and Brazil. This latest claim against Glencore is not the first instance of investors holding large corporations and its management accountable for misleading statements. Similarly, the US Securities and Exchange Commission charged investment adviser, DWS Investment Management Americas Inc, concerning misstatements regarding its Environmental, Social and Governance (ESG) investment process.