Do lawyers have an increased responsibility in averting a climate catastrophe? Vandana Chatlani reports
In August, the Intergovernmental Panel on Climate Change (IPCC), a UN body for assessing the science related to climate change, published a damning report on the climate crisis and warned of dangerous levels of global warming unless “deep reductions in CO2 and other greenhouse gas emissions occur in the coming decades”.
UN Secretary General António Guterres called the report “a code red for humanity” and offered a bleak summary: “The evidence is irrefutable. Greenhouse gas emissions are choking our planet and placing billions of people in danger … We must act decisively now to avert a climate catastrophe.”
The IPCC report confirms what we have known for years – we are destroying our planet. Nature is sounding its alarm with raging fires, floods, hurricanes, volcanic eruptions, scorching temperatures and lethal pollution.
“We are reaching our planet boundaries in terms of destruction of biodiversity, CO2 emissions, deforestation and much more,” says Philippe Joubert, the founder and CEO of Earth on Board, an ecosystem of organisations dedicated to educating company boards on sustainability and good governance.
Many argue that lawyers also have a vital role to play in protecting our planet and that failure to do so will have dire consequences.
“A lot of hate was initially directed at the oil and gas companies,” says one Asia-based law firm partner who wished to remain anonymous. “Then it started to shift to companies such as Nestlé and Mars, which were purchasing unsustainable palm oil leading to deforestation.
“Criticism was then levelled at banks and other institutions financing oil and gas, palm oil and coal projects. Even accounting and insurance firms have been targeted for facilitating destructive activities for social expansion. So it is only logical that law firms would get hit at some point.”
Global environmental movement Extinction Rebellion is an example of this. In August, the group splashed blood-red paint on financial institutions and law firms in London that they believed were liable for investing in and driving up fossil fuels since the Paris Agreement.
Lawyers could face severe consequences if they fail to speak up when companies engage in wrongdoing, even if this appears legal. “Lawyers must be sustainability literate and cannot stay silent,” says Joubert, who was formerly the CEO of Alstom Power. “They have to ensure their clients account for the cost of their emissions and invest in reducing these emissions. They cannot hide behind their responsibilities as advisers … otherwise they are culpable, too. They cannot say they did not know, or that they are neutral.”
Addressing the general assembly of the American Bar Association at its Hybrid Annual Meeting in August, the US special presidential envoy for climate John Kerry, stressed the urgent role that lawyers must play in averting further climate destruction. “You are all climate lawyers now, whether you want to be or not,” he said.
Kerry is not the first to highlight the vital role of the legal community in combating environmental risks and he is unlikely to be the last. Lawyers will be called on to aid those displaced by natural disasters, assist clients in planning for greener energy to lower emissions, and accelerate energy transition goals to make decarbonisation a reality.
Green policy initiatives
Governmental regulation and policy changes have been crucial to meeting climate and sustainability development goals. The Paris Agreement of 2015 was the first step towards multilateral co-operation on achieving climate neutrality.
This legally binding international treaty seeks to limit global warming well below 2 degrees Celsius, ideally to 1.5 degrees, compared to pre-industrial levels. A key goal of the agreement is for parties to reach global peaking of greenhouse gas emissions as quickly as possible.
Both India and China are parties to the Paris accord, along with 189 other countries. China, the world’s largest carbon emitter, has pledged to be carbon neutral by 2060, with an aim to reach peak emissions before 2030.
India, the world’s third-largest emitter, vowed to cut carbon emissions by 33-35% from 2005 levels by 2030 in its first nationally determined contribution submitted to the Paris Agreement. However, it has yet to submit an updated climate plan to the UN, commit to net zero targets or reveal its strategies for carbon reduction.
Environmental law charity ClientEarth has been working to support the Chinese government’s efforts to strengthen environmental governance. Its work has included building judicial capacity and co-operating with the Ministry of Ecology and Environment (MEE), the Supreme People’s Court and the Supreme People’s Procuratorate to provide support and expertise on policymaking and international experience relating to carbon peaking and neutrality.
The MEE has issued a series of carbon market regulations, a policy document on co-ordinating climate and environmental work, as well as a document on mobilising climate finance. The State Council has also issued a guiding opinion on building a low-carbon circular economy.
Learning to part from coal
Chinese President Xi Jinping has just announced at the UN General Assembly that China would no longer invest in coal overseas. “China will step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power projects abroad,” said Xi said in a video address at the September summit.
ClientEarth, along with other organisations, provided extensive advice and support to the government on a coal replacement policy for Belt and Road Initiative (BRI) investments.
“So far in 2021, China has not invested in any new coal projects overseas,” says Fan Danting, who is responsible for finance-related environmental work at ClientEarth in Beijing. “This is a great improvement and shows China’s climate ambition.”
However, Dimitri de Boer, who heads ClientEarth’s China office, says many companies are slow to come to terms with the fact that the policy will be irreversible. He says companies should be examining how they can adjust to this new reality.
“In five to 10 years, what sort of capacity will they need and what kind of projects will they have in their pipeline and portfolio to be successful and ahead of it all?” he asks. “I think very few top managers at these institutions are spending enough time thinking about that. This is an area where lawyers can play a vital role in implementing preparatory measures and mitigating risk.”
A big part of the argument in halting coal in the BRI is that both governments and private investors across Western countries are rapidly turning away from it. Some Asian countries such as Pakistan and Vietnam are also following suit.
While nations must be able to demonstrate concrete commitments to carbon reduction, they also have to account for the practical realities of energy needs and transitions. Both China and India are heavily dependent on coal, and while renewable options such as solar or wind power offer cleaner alternatives, their production is climate dependant and intermittent. This is problematic when a predictable baseload of energy is needed to sustain a huge population.
“The idea to bluntly immediately stop coal is an overly simplistic idea of people not understanding the reality of the energy market and electricity importance for development and security in certain developing countries,” says Joubert. While nations must begin straight away to halt emissions from coal, this is very different to stopping coal altogether immediately.
“There are technological solutions such as carbon captured storage and an increase in efficiency or mixed fuel, which can decrease the impact of coal and prepare for an orderly transition,” he says. “But the consequences of stopping coal at the moment are huge, especially in countries where the electricity sector relies so heavily on it.”
For the moment, India is banking on its success in renewable energy. “India may not have voluntarily committed to any compulsory emission targets, but our wind and solar energy capabilities are phenomenal,” says Sudhir Mishra, an environmental lawyer and the managing partner of Trust Legal in New Delhi. “The price of these renewable power sources has reduced substantially because of mass participation.”
Until China stops building thermal plants, India will continue on its coal journey, says Mishra. “We have to catch up to the West,” he admits,” but a course correction is happening and we are seeing companies commit to voluntary environmental management and investments in clean tech.”
India’s enforcement woes
Mishra believes India has a robust environmental protection regime, but its machinery needs to be better lubricated in order to function properly. “Our environmental laws and regulations are among the best in the world,” he says. “But our regulators – the Ministry of Environment, Forest and Climate Change, the CPCB [Central Pollution Control Board] and the SPCBs [State Pollution Control Boards] lack complete teeth and the resources for adequate monitoring. As a result, corporates misuse the law, try to bulldoze the system, cut corners, and then, through some faulty mechanism used, they are able to get environmental clearances.”
Training these officials is essential, says Nawneet Vibhaw, an environment law specialist and partner at Shardul Amarchand Mangaldas & Co in New Delhi. “SPCBs vary widely. In certain states you have a very stringent pollution control board where they expect a high level of compliance, and in others they may not be as strict on similar aspects. All cases across states should be dealt with in a similar issue-based manner to ensure consistency and clarity, and avoid discretion or arbitrariness.”
Vibhaw points to the National Judicial Academy in Bhopal, and the state judicial academies, where judges receive training and updates on the latest developments from subject matter experts in various disciplines of law. This, he says, is a model that could be replicated for pollution control board officials and other environmental authorities. “You need experts who are passionate about environmental protection and don’t only show up because they are getting paid for the job.”
Another problem is compensation. Vibhaw argues that the government must offer incentives and lucrative pay to attract high-quality officials, promote meritocracy and efficiency, and reduce corrupt practices, if any.
A proactive approach
Environmental challenges present important opportunities for lawyers on both contentious matters and general advisory.
Mishra says clients have moved away from the reactionary approach of the past where they would act in response to a public interest litigation (PIL) or writ petition filed against them. At that time, general counsel would seek legal support only when they were in trouble, hoping that law firms would defend them at the National Green Tribunal (NGT), or before the environmental benches of the high courts and the Supreme Court.
“Environmental law advisory and pre-litigation advice has increased considerably today compared to 10-15 years ago, whether it is about plastics, hazardous waste, power plants, ports, etc.,” says Mishra. Companies that are inadequately informed about environmental regulations and risks can incur excessive spending and losses further down the line. “Obtaining environmental clearances based on false data can lead to a huge rupture of due diligence costs and unnecessary litigation,” says Mishra. “If general counsel are more proactive, they can ensure considerable savings while also protecting their companies and shareholders.”
The NGT was hailed as a tremendous development when it came into force in 2010 to expedite the disposal of cases relating to environmental protection. Vibhaw believes the tribunal has done a commendable job in environmental protection. He also praises the Supreme Court for correcting NGT orders wherever needed and even sending matters back for reconsideration as and when required.
But Vibhaw laments the instances where parties are not heard and orders are passed solely on the basis of the reports submitted by expert committees constituted by the NGT. “Unfortunately, you don’t have lawyers being heard in many cases, which is sad for any form of litigation,” he says. “The pandemic is partly to blame for this development, but it is not ideal in any adversarial system to disallow parties from presenting their sides.”
Proof in the pudding
Lawyers across Asia who are new to environmental law can take inspiration from the Chancery Law Project, where lawyers globally collaborate to develop new contracts and model laws to help fight climate change. The project offers contractual clauses, which can be incorporated into law firm precedents and commercial agreements, standard climate-related definitions to help lawyers draft climate-aligned contracts, and new model laws intended to inspire lawyers and policymakers when advising clients and creating new policies.
Learning to proactively introduce a green perspective in contract drafting and agreements is a great way that lawyers can make a difference in the climate crisis, says Annette Magnusson, a co-founder of environmental consultancy Climate Change Counsel.
“We have seen, for example, with the Shell case earlier this year at The Hague, that it’s not enough for a corporate to say it has ambitious climate change goals,” says Magnusson. “They must be able to demonstrate how that happens in practice. Lawyers need to start thinking of themselves as part of the frontline workforce when it comes to the climate change transition.”
Magnusson emphasises the importance of future-proofing contracts to account for possible environmental risks that a company may encounter, for example, once they acquire or divest a project, or if a new sustainable policy is implemented in their particular industry.
“Lawyers could discuss what role their client, or the client’s industry, has in the transition,” says Magnusson. “If the company doesn’t have an active role today, what is its potential role? How could they contribute to reducing emissions? If they are to work towards a reduction, where does that need to happen? For that to happen, how can their lawyers contribute in terms of setting up the legal frameworks for that, or accelerating that? These are concrete issues, which businesses and their legal counsel can begin to address.”
Lawyers also have an educative role to play in ensuring companies see environmental compliance as a meaningful exercise, rather than simply ticking a box (see below, Culture change).
Joubert says company boards must also honour their role in tackling climate change. Board members have the same main responsibilities worldwide, regardless of jurisdiction, he says. Broadly speaking, the first concerns loyalty – taking care of company interests, which cannot be simplified or reduced to shareholder primacy; then due care and diligence for the company and its stakeholders; and third, communicating about the company in a fair way.
“Acting in the company’s interest is the crucial point,” says Joubert. “If you don’t carry out these duties, you are being negligent and putting your company in danger. If you are a board member, you are responsible if a company states it is net zero or carbon neutral, and that isn’t true or proven. We already have directors at risk of going to jail because they have been accused of hiding the truth.”
Volkswagen is a prime example. In 2017, Oliver Schmidt, a senior Volkswagen executive, was sentenced to seven years in jail by a US court after he was found guilty of using software to deceive environmental regulators in the US and Europe in relation to the emission levels of its vehicles.
“The Securities and Exchange Commission in New York and several others regulators are organising themselves to check the accuracy of a company’s statements,” says Joubert. “They are doing this because they know the flow of money is being directed towards green initiatives and practices. This is changing the market price of shares, the liquidity of debentures, and ultimately the value of a company. If you lie about this, you are indirectly manipulating the price of assets and contributing to bad behaviour.”
“I strongly believe that business is the solution. But to be part of the solution, businesses must change. No business can survive a world in shambles.”
Why aren’t companies taking environmental compliance more seriously?
Obtaining environmental clearances and committing to greener business models has been an afterthought for many businesses around Asia. While a number of companies – especially those that have faced criticism over emissions – are becoming more alive to their responsibilities in building sustainable practices and reducing their carbon footprint, others ask why they should bother at all, particularly when they struggle to connect environmental commitment with revenue generation.
“Environmental social and governance (ESG) lawyers are going to play a very important role, not just in terms of emphasising compliance, but also in educating the boards and management of these companies,” says Nawneet Vibhaw, a partner at Shardul Amarchand Mangaldas & Co in NewDelhi. “That is where the sensitisation and change need to start. The problem is with small and mid-sized Indian companies, many of which are family run. Larger companies are very well informed … many have had a chief sustainability officer for years. They know what is required to be done.”
An Asia-based law firm partner speaking on the condition of anonymity has observed a similar pattern. “The big corporate leaders are convinced and they win awards for sustainability,” he says. “Other companies don’t see what all the fuss is about, and the only reason they comply is because the regulator says so.”
The partner says lawyers have huge opportunities to convert the second group, where the attitude is: How do I comply with these provisions at the cheapest cost? “They want to do the absolute minimum to keep the government happy.”
In India, many companies consider ESG as “a compulsory compliance that they needed to get out of the way”, says Vibhaw. “It is very difficult for such people to change their mindset … it won’t happen overnight.”
But now, companies are slowly realising that they risk losing access to crucial capital and investment opportunities if they fail to demonstrate high environmental standards. Financial regulators and institutions, and international companies, are increasingly selecting business partners with a credible commitment to sustainability and climate consciousness.
“We’re seeing overseas clients and investors asking for an environmental section in an M&A due diligence,” says Joseph Chun an environmental law partner at Shook Lin & Bok in Singapore. “They are keen to know whether their potential partners and targets are adhering to strong environmental principles.”
India’s financial market regulator, the Securities and Exchange Board of India (SEBI), has mandated India’s top 1,000 listed companies to disclose their ESG frameworks. Disclosure is voluntary for the 2022 financial year, but will become mandatory for the 2023 financial year. Companies are expected to provide an overview of their material environmental, social and governance risks and opportunities, and outline plans to mitigate or adapt to these risks while also highlighting the financial implications.
“With SEBI, the banks and investors pushing for it, companies will have to get their house in order,” says Vibhaw. “In a lot of transactions that I am a part of, investors are very particular about environmental compliance and ESG standing. Now you have the regulator adopting the BRSR [Business Responsibility and Sustainability Reporting] format, in addition to overseas investors who have always been sensitive to these issues. Companies have no option but to ensure complete compliance. Now it’s a market requirement … not just a regulatory one.”
The Chancery Lane Project is doing valuable work to create green precedents that can be used by law firms and their clients to achieve more environmentally friendly and sustainable business operations.
“They look at ways to ‘green’ covenants thereby changing precedents that will change the world,” says Chun. “The next thing is to sell these clauses to clients through gentle suggestions rather than force. This appears to be a more palatable way forward for those who are still hesitant to commit to climate goals. It’s a business opportunity for us to tell our clients that the context is changing and that we can help them draft these clauses.”
Annette Magnusson, the co-founder of the Climate Change Counsel, advises lawyers to work outside their silos by consulting other experts.
“When we talk about climate change, it is not about environmental law in isolation, but instead about the entire business and how it functions as a whole,” says Magnusson. “Consultancies like ours lay out the land to highlight the regulatory, physical, financial or litigation risks which may be relevant. Armed with this knowledge, companies and their legal counsel can take concrete steps to mitigate and prepare themselves, applying what they have learned to their own business model.”