A Shift in US Climate Change Law and Litigation – Impacts on Business Take Shape
US federal courts have been sceptical about their authority to compel action on climate change. However, other arms of government are introducing measures, shifting the legal landscape.
Climate Claims in US Federal Courts
Claims for climate-related harms have to-date met with limited success in the US federal courts. In the most recent of these, Juliana v. United States, 947 F.3d 1159 (9th Cir. 2020), 21 young people sued the US government, alleging that its failure to act on climate change violated their rights under the US Constitution and asking the courts to require the government to develop a climate action plan. Although the district court found the plaintiffs' arguments persuasive, in January 2020, the US Court of Appeals for the Ninth Circuit ordered the case dismissed on the basis that the plaintiffs lacked standing to pursue the claims. The court reasoned that no court order could redress the plaintiffs' injuries because it is beyond courts' power to supervise the political branches in developing a climate plan. On February 10, 2021, the Ninth Circuit refused to rehear the case en banc, essentially ending the case unless the Supreme Court decides to take it up.
Juliana follows a consistent trend of federal courts turning away climate-related claims. In the last year, the Fourth, Ninth, and Tenth Circuits have held that federal courts lack subject matter jurisdiction over climate change cases. For example, in City of Oakland v. BP, 969 F.3d 895 (9th Cir. 2020), the Ninth Circuit held that a lawsuit brought by California cities against energy companies for their emissions' role in climate change belonged in state court, because the cases were based on state public nuisance laws, which did not raise a substantial federal question and were not pre-empted by the federal Clean Air Act. The Supreme Court is currently considering where such suits belong, in a case brought by the City of Baltimore against major energy companies alleging infrastructure damage due to climate change. BP PLC v Mayor & City Council of Baltimore, No. 19-1189.
Other Avenues Towards Change
Nonetheless, federal and state institutions—and potentially state courts—appear ready to act on climate change, increasing legal risks and requirements for companies.
Executive Orders and Federal Agencies
As President-Elect, Joe Biden announced his incoming Administration's plan to use the entire Executive Branch to pursue climate goals. In the first month in office, President Biden has issued multiple Executive Orders that will likely effect a transformation of the US regulatory landscape around climate change.
On his first day in office, January 20, 2021, President Biden signed a sweeping Executive Order requiring federal agencies to immediately review regulations that had been promulgated during the prior administration and bring them in line with the Administration's policy to "confront the climate crisis". This review includes the US Department of Labor's rule that prohibits fiduciaries from selecting investments based on non-pecuniary considerations and requires them to base investment decisions on financial factors, which became effective in early January. The Administration re-joined the Paris Agreement and issued another wide-ranging Executive Order that laid out plans for a government-wide approach toward and international cooperation on climate. These broad changes together resemble the type of climate plan that the plaintiffs in Juliana sought.
The Security and Exchange Commission ("SEC") also has been active. On December 1, 2020, the ESG Subcommittee of the Asset Management Advisory Committee recommended that the SEC require the adoption of standards by which corporate issuers of securities disclose material ESG risks. On February 1, 2021, the SEC announced the appointment of its first dedicated ESG policy advisor. And the Biden Administration has expressed its intention to make disclosure of climate risks and greenhouse gas emissions mandatory. SEC officials have spoken recently about leading creation of an ESG disclosure system.
The US Federal Reserve
The US Federal Reserve stated for the first time in its 2020 Financial Stability Report that it "expect[s] banks to have systems in place that appropriately identify, measure, control, and monitor all of their material risks, which for many banks are likely to extend to climate risks". On December 15, 2020, the Fed announced that it was joining the Network of Central Banks and Supervisors for Greening the Financial System ("NGFS"), and on January 25, 2021 it announced the creation of a Supervision Climate Committee to study the impact of climate change on banks and financial markets.
State Attorneys General are increasingly taking action using state law. Seemingly undeterred by the New York Attorney General's loss in litigation against Exxon in 2019, the Connecticut, Delaware, Massachusetts, Minnesota, and Washington, DC AGs have each filed suits alleging that Exxon and other energy companies violated state consumer protection laws through deceptive advertising and public information campaigns while knowing of fossil fuels' adverse impacts on climate.
On the private litigation front, in another "children's lawsuit", the youth plaintiffs in Aji P. v. State of Washington have squarely raised the question whether the Washington Constitution provides a right to a healthy environment, or at minimum a right to a stable climate system. In 2018, the lower court held that there were no such individual rights in the Washington Constitution; rather, they are a "shared aspiration". The Washington Court of Appeals heard oral argument in September 2020.
As for state agencies, in 2019, the New York State Department of Financial Services ("DFS") joined the NGFS. In 2020, DFS hired its first Director of Sustainability and Climate Initiatives and issued two letters outlining its expectations for regulated banks, insurers, and financial institutions relating to addressing financial risks from climate change.
Across the board, companies doing business in the United States face a changing landscape for legal risk related to climate change. Especially as federal agencies begin to implement the Biden Administration's executive orders, companies should consider their strategies to address anticipated regulatory expectations around climate change risks. Businesses with cross-border operations in particular will face increasingly complex requirements, depending on the level of coordination between the United States and the regimes imposed, for example, by the European Union. These issues are here to stay, and companies should prepare themselves with a comprehensive strategy for adapting.