The second quarter of 2024 saw multiple historic rulings in the world of ESG disputes. In this edition, we look at some of these important developments from across the globe, including a ruling that the UK's climate action plan is still unlawful (the second time the court has come to this conclusion). Also in the UK, the energy world has very recently been hit by the Supreme Court's ruling that when assessing the environmental impacts of oil and gas extraction projects for consent purposes, the relevant public body cannot ignore the effects the eventual end-use of fuels has on the environment (known as "Scope 3 emissions").

This quarter also sees a focus on the impact of the effects of climate change on human rights. Themes present in the European Court of Human Rights (ECtHR) ruling that Switzerland had breached the right to private and family life also appear in Latin America as the Inter-American Court of Human Rights (IACtHR) has heard evidence in an application for an advisory opinion on the human rights impacts of the climate emergency, which will be issued later this year. We also look at a novel upcoming class action against American Airlines, brought by one of its pilots who claims that its investments in ESG-focused funds breached its fiduciary duties.

UK climate action plan once again ruled unlawful

Friends of the Earth Limited v. Secretary of State for Energy Security and Net Zero

The English High Court has issued a landmark judgment following a legal challenge to the government's revised Carbon Budget Delivery Plan adopted last year (the Revised Plan). Following the challenge by campaign groups ClientEarth, Friends of the Earth and the Good Law Project, the Revised Plan has once again been found to have breached the Climate Change Act 2008 (the Act). The same groups successfully challenged the previous budget set by the government in 2022, following which the Revised Plan was issued, which the claimants asserted was also unlawful because it provided too little information on the government's assessment of the risk of policies not being delivered.

The Act requires the government to prepare proposals and policies to meet five-yearly carbon budgets that will allow the UK to stay on course for net-zero carbon emissions by 2050 and the Revised Plan outlines how the UK will achieve targets set out in the sixth carbon budget, which runs until 2037. The Revised Plan attempted to address the issues of the earlier proposal by including greater detail on how the policies would contribute to achieving their legally-binding carbon emissions targets.

On 4 May 2024, Mr Justice Sheldon found that the Revised Plan was "based on reasoning which was simply not justified by the evidence". The judge agreed that the Secretary of State had been given "incomplete" information about the likelihood that proposed policies would achieve their intended emissions cuts, in particular because it had been approved on the incorrect assumption that all the policies would achieve 100% of their intended emissions cuts and did not account for possible under-delivery of proposed reductions. The judge therefore found that the government had breached section 13 of the Act, which compels the Secretary of State to prepare policies which are achievable.

The government will now be expected to draw up a further revised plan within 12 months.

UK Supreme Court rules grant of planning permission unlawful for not assessing eventual greenhouse gas emissions of oil project

R (on the application of Finch on behalf of the Weald Action Group) v. Surrey County Council and others

By a three to two majority, on 20 June 2024 the Supreme Court held that Surrey County Council's grant of planning permission for an oil production project was unlawful because, in its environmental impact assessment (EIA), it did not include the emissions that will occur when the oil produced is burnt as fuel (so-called "Scope 3 emissions").

The Town and Country Planning (Environmental Impact Assessment) Regulations 2017 (the 2017 Regulations) require an EIA to be carried out before planning permission can be granted for any development project which may have a significant effect on the environment. The EIA is required to identify and assess the likely "direct and indirect significant effects" of the project on the environment.

In this case, the scope of the EIA was confined to releases of greenhouse gas (GHG) emissions from within the oil well during the project but not the "downstream" GHG emissions of oil eventually being burnt. As such, the GHG emissions for the lifetime of the project were described as "negligible" and planning permission for the project was granted. This prompted local resident Sarah Finch to apply for judicial review of the Council's decision which made its way all the way up to the Supreme Court after both the High Court and the Court of Appeal dismissed the challenge. The High Court held that the combustion emissions were not within the legal scope of the 2017 Regulations and that, in the alternative, it was for the Council to decide whether to include the downstream emissions in the EIA (and it was within its legal rights to exclude them). The Court of Appeal upheld that decision (albeit on slightly different reasoning).

The Supreme Court disagreed with both the earlier decisions and found that downstream combustion emissions constituted an "indirect" effect of the project within the meaning of the 2017 Regulations because "it is known with certainty that if the project goes ahead, the oil extracted from the ground will be inevitably burnt, thereby releasing greenhouse gases into the earth's atmosphere in a quantity which can be readily estimated" and the downstream emissions "could not have been dismissed as 'negligible'".

The ruling is potentially of great significance to future planning decisions and arguably is not limited to the oil and gas context, but could also apply for instance to emissions from carbon-intensive construction projects and more widely, particularly where indirect emissions are inevitable and broadly quantifiable.

Historic ruling by the European Court of Human Rights

KlimaSeniorinnen Schweiz and Others v. Switzerland

In April 2024, the ECtHR delivered an historic ruling which, for the first time, considered the relationship between climate inaction and human rights. The court held Switzerland's failures to mitigate climate change violated the right to a private and family life and the Swiss courts' failure to hear challenges to the government's inaction breached the right to a fair hearing. The case was brought by a non-governmental association engaged in climate mitigation activities on behalf of elderly women living in Switzerland, as well as a number of individual members of such association. The group alleged that the effect of global warming was particularly profound on them as older women, breaching their right to life under Article 2 of the European Convention on Human Rights (ECHR), and to a private and family life under Article 8, which they argued included personal autonomy and the right to age with dignity.

After finding that the applicant association had standing to bring the claim on behalf of its members (but finding the individual applicants did not meet the high threshold for "victim" status), the ECtHR confirmed that Switzerland has a positive obligation to protect ECHR rights. It held that Switzerland had breached Article 8 of the ECHR by its failure to quantify national limitations on GHG emissions and that the Swiss courts' refusal to grant standing to the claimants breached Article 6. However, it rejected the claim based on the right to life under Article 2 because it considered it "more questionable" whether the adverse effects of climate change had life-threatening consequences.

It is now incumbent on Switzerland, pursuant to Article 46 of the ECHR, to take appropriate measures to remedy the breach and its effects. Our full coverage of this seminal ruling, as well as two related judgments handed down on the same day, can be found here.

Latin American court hears landmark climate case amid growing global litigation

A landmark advisory opinion is sought by Chile and Colombia from the IACtHR outlining states' legal responsibilities to take steps to tackle climate change in order to avoid breaching human rights. Since the request was lodged in January 2023, the court has heard a wealth of evidence regarding the effects of the climate crisis and aims to issue its opinion by the end of the year. In their request, the applicant countries specifically highlighted the rights of children, women and environment defenders, and inequality in the impacts of climate change in different parts of the world. The advisory opinion, when handed down, will form part of a growing body of jurisprudence around climate change and human rights. For example, in March 2024, the IACtHR issued a judgment against Peru, holding that it had breached its obligation to uphold a community's right to a healthy environment, when failing to protect them from pollution emitted from a metal smelter. This case built on earlier case law and an earlier advisory opinion (also requested by Colombia) by the court that recognised the right to a healthy environment as a fundamental human right, affirming that states must protect human rights affected by environmental harm. In this most recent request, Chile and Colombia are looking for more detailed guidance on states' obligations in guaranteeing human rights in the face of climate emergencies, specifically requesting a ruling on:

• what actions states should take against climate damages, particularly in relation to protecting vulnerable communities, and the differentiated obligations to protect children and future generations;
• the scope of substantive obligations to preserve the right to life against the climate emergency;
• the obligations of states to pursue judicial action to protect and compensate those whose rights are affected by the climate emergency;
• the protection of environmental campaigners under the America Convention, particularly indigenous people and women; and
• clarification of the expectations between states to cooperate in confronting climate change.

The case before the IACtHR is the largest to date, with more than 600 participants taking part in hearings held in Brazil and Barbados, and involving 262 written submissions including from indigenous groups and scientists. Following the court's ruling, the 20-plus Latin American and Caribbean countries under its jurisdiction will need to align their laws with the opinion.

Class action certified against American Airlines

Spence v. American Airlines Inc.

In an interesting backlash against corporate ESG policies, a case in the US challenging American Airlines' ties to investment funds with ESG goals has been certified as a class action covering up to 100,000 people.

In June 2023, American Airlines pilot Bryan Spence filed a lawsuit alleging the company breached its fiduciary duties under the Employee Retirement Income Security Act 1974 by investing pension contributions with funds that have non-financial motivations which they pursue through proxy voting and shareholder activism. Spence's lawsuit alleges that American Airlines failed to monitor or stop asset managers with ESG objectives from pursuing objectives harmful to the members' and pilots' retirement plans.

Rejecting American Airlines' motion to dismiss the complaint, the judge found that Spence had a "plausible theory" for how the airline had breached its duty of loyalty by allowing its corporate goals to influence its fiduciary duties to its pensioners and ruled earlier this year that the case could continue. The airline has subsequently requested a summary judgment on the merits of the case which is yet to be ruled upon.

Further momentum behind the case came on 22 May 2024, when the judge certified the case as a class action. Spence's suit will be allowed to cover all participants of both the airline's retirement plan for its pilots and its pension fund for other employees. While different members suffered different damages, this does not erase the fact that "all class members allegedly suffered the same core injury". The judge agreed with Spence's allegation that "the systemic presence of ESG activism in the plan…harmed plan participants and beneficiaries" and creates a common question applicable to all members that would allow a single resolution to all claims.