ESG Weekly Update – July 27, 2022

27 July 2022

UK: High Court Orders Government to Show How it Plans to Achieve Net Zero

On July 18, 2022, the UK High Court found that the government’s Net Zero Strategy does not comply with the legal requirements because it did not specify any data showing how planned emission cuts will achieve the reduction targets. The application for judicial review was made by Friends of the Earth Limited, ClientEarth and the Good Law Project in relation to decisions made by the UK Secretary of State for Business, Energy and Industrial Strategy.

Under the Climate Act 2008, the UK Secretary of State is required to approve proposals and policies to enable the UK government’s obligation to meet its carbon budgets. The Secretary of State is also required to publish the government's Net Zero Strategy, which was done in October 2021 through the Net Zero Build Back Green report (available here).

The High Court found, among other things, that the Net Zero Strategy report did not set out any quantitative assessment of the contributions expected to be made by individual policies to emissions reductions, nor did it reveal that there was a 5% shortfall in the carbon budget. It should have done so in order to comply with the language and statutory purposes of the Climate Change Act 2008.

The claimants asked the High Court to order the UK government to comply with the legal requirements, but not to quash the Net Zero Strategy. The Court therefore ordered the Secretary of State to present to Parliament a new Net Zero Strategy report before the end of March 2023 specifying how the policies will achieve the emissions targets.

The judgment follows a series of international court decisions scrutinising governments’ climate strategies. In the case of Urgenda v Netherlands, a Dutch court found that the government’s failure to reduce greenhouse gas emissions by 25% before 2020 had breached its duties to protect the right to life and the right to private and family life under the European Convention on Human Rights. More recently, in 2021, the German Constitutional Court ordered the government to improve its Climate Protection Act to ensure that the 2030 greenhouse gas reductions goals are compatible with the strategy to reach net zero in the period from 2031 onward. More legal actions may follow.

R. (on the application of Friends of the Earth Ltd) v Secretary of State for the Business, Energy and Industrial Strategy [2022] EWHC 1841 (Admin)

Germany: Government Codifies Increase in Renewable Energy Development

This month, Germany’s Parliament passed major legislation designed to ensure that clean energy sources will meet 80% of the country’s demands by 2030.

Notably, the new laws include plans to double solar power and boost onshore and offshore wind power by 115 GW and 30 GW, respectively, by 2030. This is consistent with a pact reached by Germany, the Netherlands, Belgium and Denmark in May of this year to invest €135 billion in offshore wind energy. The countries’ goal is to deliver most of the power required for the EU to achieve climate neutrality, thus making the North Sea the “Green Power Plant of Europe.”

In late 2021, the then-incoming German government reached a coalition agreement to increase efforts to address climate change and hit a 2045 climate neutrality target by accelerating the country’s phase out of coal-based energy. The recent legislative package is a culmination of the government’s efforts in its clean energy strategy.

Robert Habeck, Germany’s Vice-Chancellor, noted, “The sheer number and scope of the bills alone show how important energy and energy security have become for Germany and for Europe – how important they are for the security, freedom and prosperity of our republic.”

The EAC is accepting submissions until June 30.

ESG Today

EU: KLM Targeted by Environmental Groups Alleging Greenwashing

On July 6, 2022, a group of environmental NGOs filed a lawsuit in the Amsterdam District Court alleging that KLM is misleading the public about how sustainable the airline’s flights really are.

The company’s “Fly Responsibly” campaign asks flyers to promote a sustainable future for aviation by paying towards reforestation projects or by contributing to greener aviation fuel costs through KLM’s CO2ZERO program. They argue that these advertisements give the false impression that KLM’s flights will not aggravate the climate crisis, therefore violating the EU’s Unfair Consumer Practices Directive. The Directive is the overarching EU legislation enabling countries to curb unfair commercial practices, including “untruthful information to consumers or aggressive marketing techniques to influence their choices.”

In a statement to Reuters, KLM responded to the allegations reiterating their commitment to “make future travel as sustainable as possible” and that they believe their “communications comply with the applicable legislation and regulations.” Although the allegations filed against KLM are the first involving the airline industry, this lawsuit is part of a trending increase in corporate greenwashing accusations in recent years.

EU Unfair Commercial Practices Directive

International: Financial Stability Board Reports on Progress on Addressing Climate-Related Financial Risks

On July 14, 2022, the Financial Stability Board (FSB) published its one-year progress report on the roadmap for addressing climate-related financial risks endorsed by the G20. The FSB noted the “increased frequency and intensity of extreme weather and climate-related events” and the “intense debate” about energy policies, which emphasize the need for international coordination to ensure risk management and financial system resilience.

The roadmap reports “encouraging progress” across four blocks:

  • firm-level disclosures, in relation to which the FSB hailed the draft disclosure standards published by the International Sustainability Standards Board, as well as the initiatives launched by the United States and the European Union, and further urged the adoption of a global baseline for climate reporting. The FSB noted a “growing recognition of the importance of global assurance standards”;
  • data, where the FSB marked as a priority to establish common metrics for financial risks (including open access data repositories) and to develop forward-looking metrics;
  • vulnerabilities analysis, where the FSB noted the progress in ongoing monitoring, development of conceptual frameworks and of scenario analysis; and
  • regulatory and supervisory practices and tools, where the FSB recommended integrating the supervision of climate-related risks into overall risk management and prudential frameworks, in addition to sectoral measures. The FSB also pointed out climate scenario analysis and stress testing as the tools best placed to identify cross-sectoral and systemic risks.

The report further attaches a comprehensive list of actions and deliverables that jurisdictions and international bodies indicated they intend to undertake as part of the roadmap.

The FSB delivered its findings to the G20, as an input to policy considerations developed by the G20 and its Sustainable Finance Working Group, G7 and the United Nations.

FSB Roadmap for Addressing Financial Risks from Climate Change