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Canadian Youth File Climate Risk Lawsuit Against CPP Investments

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Four young Canadians have launched a legal claim against the Canada Pension Plan (CPP) Investment Board (CPP Investments), Canada’s largest pension fund manager, alleging that it is mismanaging and has underestimated climate-related financial risks to the $732B in assets under management of the CPP. The claim alleges that by underestimating and failing to disclose climate-related financial risks, CPP Investments could expose Canadians to dramatically reduced retirement benefits, the need for substantially higher contribution rates, or both. This bulletin briefly summarizes key information regarding the claim. Overview. The claim notes that CPP Investments has publicly recognized climate change as a significant investment risk, but “backtracked” on its net-zero commitment earlier this year. The applicants allege that this reversal, combined with ongoing fossil fuel investments, demonstrates an absence of sufficient measures to manage climate-related financial risks in the best interests of younger contributors. The youth applicants, which are all anticipated to receive pension benefits after 2050, argue that by severely underestimating and failing to disclose climate-related financial risks, CPP Investments is failing to: properly manage climate-related financial risks, thereby jeopardizing the long-term value of the portfolio and the security of contributors’ benefits; and adequately identify and assess climate-related financial risks to CPP funds, including in its use and reporting of the MSCI Climate Value-at-Risk model without describing how it applies judgement to the results despite the alleged uncertainty regarding the model’s ability to adequately capture systemic risks from higher degrees of warming. The claim relies on the latest research on the severe impacts of climate change (including the triggering of tipping points and cascading risks) on society and financial systems beyond 1.5°C of warming. According to Ecojustice, the claim is the first climate case against a pension fund investment manager “anchored in the duty of impartiality and even-handedness in a multi-generational context” and is also…

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UK High Court Dismisses Shareholder Climate Lawsuit Against Shell’s Board of Directors

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The UK’s High Court (the Court) has denied the world’s first climate-related derivative action against a board of directors to hold them personally accountable over their alleged failure to properly prepare for the energy transition.   Background. On February 9, 2023, environmental law organization ClientEarth filed a derivative action, brought by shareholders on behalf of the company, seeking permission to bring a claim against Shell’s board of directors (the Board), alleging breaches of legal duties under the UK’s Companies Act 2006 (the Act). ClientEarth alleged that the Board was mismanaging material and foreseeable climate risks in breach of the Act and had failed to adopt and implement an energy transition strategy that aligns with the Paris Agreement. Specifically, ClientEarth alleged that the Board breached its duties under: s. 172 of the Act, which requires directors to act in a way that they consider will best promote the success of the company for the benefit of its members as a whole; and s. 174 of the Act, which requires directors to exercise reasonable care, skill and diligence in the discharge of their duties. ClientEarth had requested that the Board be required to adopt a strategy to manage climate risk in line with its duties under the Act, and in compliance with the 2021 Dutch Court judgment requiring Shell to reduce CO2 emissions of the Shell group by net 45% in 2030, compared to 2019 levels, through the Shell group’s corporate policy (see our earlier bulletin here).   Judgment. Mr Justice Trower of the UK High Court denied permission to ClientEarth to bring its climate-related derivative action against the Board in the UK. In dismissing the lawsuit, the judge determined that ClientEarth’s action sought to “impose specific obligations on the directors as to how the management of Shell’s business and affairs should be conducted, notwithstanding the well-established principle that it is for directors…

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Global Risk Institute Publishes Paper on Climate-Related Risks for Financial Institutions

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The Global Risk Institute (GRI) yesterday published a paper titled “Climate-Related Legal Risks for Financial Institutions: Executive Brief” (the “Paper”), authored by Dr. Janis Sarra with the Canada Climate Law Initiative and Resilient LLP’s Lisa DeMarco. The Paper provides an overview of the many risks now faced by the financial sector including regulatory liability, securities law litigation, fiduciary duty risk, professional indemnity insurance risk, “greenwashing” litigation, commercial contract risk, litigation against governments, and civil lawsuits. The Paper also provides “best practice tips” for financial institutions, risk managers, and board risk committees to consider and implement as a means to limit their liability and reduce their climate-related risks. These recommendations include, among others: Undertaking a high-level assessment of litigation exposure across loan and policy books, investment portfolios, and operations; Embedding management of climate-related risks as part of core business risk management; Investigating and disclosing climate-related vulnerabilities in investment portfolios; and Creating an action plan to reduce Scope 1, 2, and 3 carbon emissions as evidence of a financial institution’s due diligence in addressing climate-related financial risk. The first page of the Paper appears below. The full text of the paper is available on the Global Risk Institute website here. For further information or to discuss the contents of this bulletin, please contact Lisa DeMarco at lisa@resilientllp.com.

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