Climate pledges put companies in crosshairs of consumer litigation
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Fossil fuel majors Shell, BP, Exxon and TotalEnergies, as well as airline KLM and Nivea-maker Beiersdorf are among a growing list of prominent companies that will soon have to defend the legitimacy of supposedly “climate neutral” products and net zero targets in courts, as climate activists are suing them for consumer deception.
As consumer protection law makes it illegal for companies to mislead citizens, climate lawyers are now applying this type of law to the claims companies are making about their efforts to fight climate change.
Campaigners stress that some companies’ dubious climate pledges are not a victimless crime but have a real impact on the fight against climate change.
“Communication affects what people do,” says Jonathan White, a lawyer specialising in climate accountability for ClientEarth, an NGO focussing on using the law to enforce environmental action. “Thus, we see these cases as very much about climate action and the practices of unregulated greenwashing as a systemic barrier to achieving climate goals.” [Read the interview with White here.]
A wild West of climate claims
The absence of closer regulatory scrutiny of companies’ climate pledges has resulted in a bewildering array of corporate claims. That’s why activists are now turning to the courts to enforce companies’ legal obligations.
“It has been a wild West in terms of the claims that companies are making,” says Rasmus Valanko of the We Mean Business Coalition, a nonprofit working with companies to take climate action. “Lots of different terms are out there – ‘CO2 zero’, ‘net zero’, ‘neutrality’, ‘climate positive’ – and as a consumer you have no idea really about what all these mean.” Products advertised as “climate neutral” also mislead consumers because the vast majority of people don’t understand what the claim means, according to surveys.
However, Valanko believes that only a small minority of companies are consciously misleading consumers. Firms feel a huge pressure to communicate “a positive, engaging story about the efforts they are making” even if the story doesn’t quite match reality, he told Clean Energy Wire.
Even companies who want to attract customers with strong sustainability agendas struggle to communicate them in a responsible way, says John Newton of the Carbon Trust, a net zero advisory. “The problem is these are often multi-year projects which limit communication opportunities in initial years until sustainability progress is made. Not all companies are prepared to wait that long. Some might take short cuts or exaggerate their achievements to maximise communication opportunities in the shorter term,” Newton told Clean Energy Wire.
Making climate claims – whether substantiated or not – can make business sense in the short term, as many consumers want to go green even if it costs a little extra. In a recent survey of over 10,000 people across 17 countries, over a third of respondents said they are willing to pay more for sustainable products. In addition to consumer demand, other stakeholders such as investors and employees also contribute to the pressure on companies to make exaggerated claims about their climate action. In a recent analysis, the NewClimate Institute and Carbon Market Watch found that the “net zero” and “carbon neutral” pledges of 25 of the world’s largest companies only amount to emissions reductions of 40 percent on average, not 100 percent as suggested by the term “net zero”.
High chance of success, indirect impact
Campaigners are optimistic that the pending consumer protection cases against climate greenwashing, with first judgements expected in 2023 or 2024, have a strong chance of success. [This factsheet provides an overview of pending cases]
But they say that the direct impact will be much smaller than in landmark climate cases which were based on duty of care and human rights law, such as the Urgenda case that forced the Dutch government to make more drastic emissions cuts, or Friends of the Earth Netherlands (Milieudefensie) v. Royal Dutch Shell, which extended it to a private company.
“If we win the consumer protection cases the impact on climate protection is more indirect, but the chance to win is high because we have a well-known legal basis for that,” says Remo Klinger, a lawyer for NGO Environmental Action Germany (DUH). “The duty of care/human rights cases have a much bigger impact if they win but the chance to win is lower. So we are doing both.” [Read an interview with DUH’s director here.]
Clémentine Baldon, who represents Greenpeace in a case against TotalEnergies in France, concedes that consumer law cases don’t tackle emissions directly. “It’s not about what TotalEnergies is doing; it’s about the inconsistency between what TotalEnergies is doing and what it is claiming to do. So through this kind of case you cannot directly change the strategy of a company, but at least you can change the way the company is presenting its strategy to consumers.”
But ClientEarth’s Jonathan White warns against underestimating the impact of pending cases. He points to the latest IPCC report which identifies consumers as important drivers of change. “Having the right policies, infrastructure and technology in place to enable changes to our lifestyles and behaviour can result in a 40–70 per cent reduction in greenhouse gas emissions by 2050,” stated Priyadarshi Shukla, co-chairperson of the third working group at IPCC. With this in mind, White considers it vital that people are armed with the correct information when making decisions about what to buy.
The rulings could not only influence future consumer choices, but also impact firms in unexpected ways. If campaigners win more cases this will have a knock-on effect on corporate insurance costs, reports the Financial Times. Underwriters are increasingly nervous about the risk of litigation, making careful checks of companies’ net zero strategies and policies before they are willing to give them liability cover.
Could climate consumer cases backfire?
Activists argue the courts must take a hard line on companies whose product claims don’t accurately reflect their climate actions. But Rasmus Valanko of the We Mean Business Coalition warns these cases could backfire, and even delay climate action, if they scare companies from trying to do the right thing in case they get it wrong. “If there’s one thing that bothers me about the conversation happening today around greenwashing, it is that there is nobody paying attention to the companies who aren’t doing anything or even trying to make any claims – and those are the millions of companies out there.”
Valanko argues that businesses often depend on inspirational leaders who set ambitious targets for their companies, and then expect their teams to find the means to meet those goals. Without ambitious target-setting at the outset, companies may not develop the solutions necessary to reduce their climate impact. This applies to communication too: If companies become nervous about communicating their ambitions for fear of being scrutinised and taken to court, there’s a risk they will lack the incentive to try, Valanko warns.
Troubles with carbon accounting and offsetting
Many companies are simply out of their depth when it comes to proper climate strategies, and communicating them, according to Valanco. “For the vast majority of companies caught in the crossfires of greenwashing, there is a poor understanding of what they should be doing.” To put together a plan on which to base a climate commitment, companies must know their exact carbon footprint, but in most cases it’s impossible to measure all emissions precisely, he says.
Another difficulty is the evolving science on carbon sequestration, which complicates companies’ reliance on carbon offsets to compensate remaining emissions. Valanko says that it is hard or even impossible to find a carbon offsetting project that is without any risk. He believes that most are "selling hot air," but nonetheless believes responsible offsetting can and must be done. He points to the Voluntary Carbon Markets Integrity Initiative as an example of what’s been missing for companies – a reliable rule book on what can and can’t be claimed. This recent initiative, along with the Science Based Targets Initiative (SBTi), marks a significant improvement in terms of the support and information available to companies when it comes to making commitments and claims, according to Valanco.
But many activists take a much dimmer view of the widespread company practice of using carbon offsets as the basis for climate pledges. Jutta Kill, an expert consultant in four cases being brought by Environment Action Germany (DUH) against TotalEnergies, BP, Shell and Beiersdorf, has little patience with the argument that companies can’t be expected to know if they are communicating inaccurately to consumers, and certainly not when they are using offsetting as the basis of their claims.
Each of the companies DUH is taking to court advertises products as “climate neutral” and buys carbon offsets to compensate for emissions. But the corresponding compensation projects invariably involve reforestation or forest protection. This common practice is highly controversial because of the associated risks that emission reductions do not materialise or are only temporary. Some compensation companies, such as German atmosfair, have stopped using forestry projects altogether because of the associated uncertainties.
According to Kill, “offsetting claims to neutralise very real, very measurable emissions, while the offset is not measurable or verifiable because it is based on a counter factual.” If, for example, a company argues that it is compensating for emissions by protecting a forest from being chopped down, they are tacitly claiming that the forest would definitely have been chopped down without their investment - a claim that is impossible to verify.
For DUH, the carbon credits bought by TotalEnergies, BP, Shell and Beiersdorf to justify their carbon neutrality claims are also flawed in other ways: “we consider the compensation of CO2 emissions via emission credits in forest or reforestation projects in the global South to be completely unsuitable,” say DUH. This is for several reasons not least the mismatch in time scales between fossil carbon and the carbon stored by trees, especially in a world where trees are increasingly vulnerable to forest fires, droughts and floods.
For lawyer Clémentine Baldon, the issue of offsetting is peripheral in the case where she is representing a group of French NGOs headed by Greenpeace who are challenging TotalEnergies’ overall claim to being a “major player in the energy transition,” sparing no efforts to meet “climate neutrality” by 2050. The NGOs base their argument on the disparity between these claims and TotalEnergies’ overall business strategy: “We started by analysing all the paths consistent with the Paris Agreement based on the IEA [International Energy Agency] net zero scenario. Against this research, we demonstrate that it’s impossible for TotalEnergies with a plan to increase gas production to reach carbon neutrality,” says Baldon. (TotalEnergies did not respond to a request for comment.)
EU set to tighten greenwashing rules
Given the confusion and uncertainties surrounding company climate claims, regulators are beginning to step in to provide more clarity and prevent greenwashing. Many experts anticipate that pending changes to consumer laws in the European Union will have a major impact on environmental claims in advertising.
Perhaps most significantly, it is proposed that environmental impact be counted amongst the product characteristics that companies must represent accurately when they advertise to consumers, alongside price. This would also make it easier for companies to be taken to court in Europe in the future.
“This reform sends a very important signal: misleading about environmental impact is just as illegal as misleading about the price of a product,” says Jonathan White of Client Earth. “This reform is key to making sustainability advertising puff a thing of the past through the law.”