The climate crisis: act now to survive and thrive

Jemima Jamieson
Net Zero Lawyers Alliance, London
jemima.jamieson@netzerolawyers.com

Thomas So
Net Zero Lawyers Alliance, London
thomas.so@netzerolawyers.com

Lara Douvartzidis
Net Zero Lawyers Alliance, London
lara.douvartzidis@netzerolawyers.com

On 21 June 2024, the Net Zero Lawyers Alliance (NZLA) held a law and climate symposium: ‘Transition to Survive and Thrive’. This inaugural event brought lawyers, clients and partner organisations together for strategy sessions and convened expert panels on pressing climate issues and their relevance to practitioners and clients.

Transition to survive and thrive

The symposium’s two keynote speakers, Fiona Macklin (Global Optimism) and Wendy Miles KC, provided a call to arms, highlighting the potential for law to shape the behaviour of governments, businesses, finance leaders, citizens and, ultimately, the future that we will live in.

While the media frequently highlights instances of the transition stalling and businesses going back on their commitments,[1] Macklin noted that the opposite is also true and emphasised that there is room for optimism, for instance:

• fossil fuel demand in the power sector is already falling in half of the world’s economies,[2] meaning that the transition is closer than we think;
• in 2020, one in 25 cars sold globally were electric. In 2023, the number was one in five,[3] meaning that the transition is happening faster than we think and that consumers are calling for it; and
• global investment in clean tech is now double the investment in fossil fuels,[4] indicating that the transition is also what financial leaders are calling for.

Macklin encouraged lawyers to actively consider how they can enable their clients to get ahead of the curve and make the most of the opportunity that people are clamouring for across business, society and finance.

Miles drew on Jeremy Bentham’s address,[5] emphasising the systemic role of commercial law and lawyers in achieving the global transition to net zero.

She framed the implementation of the Paris Agreement as the ultimate public–private partnership and urged lawyers to seek to understand how various systems of law, including the rule of law, public international law, domestic law and private international law, interact to produce tangible and lasting change.

Miles' address highlighted the value of lawyers in Bentham’s reframing of the energy transition as ‘a series of fast, opportunity-rich, cost-effective, and demand-led tipping points, rather than a single, slow process’.

Like Macklin, Miles highlighted the changes already underway and the need for lawyers to keep up. More specifically, she encouraged lawyers, their clients and other service providers to note the progress in key sectors and the rapid proliferation of laws to implement the transition, and to consider whether they should move now, or risk being left behind. She also pointed to the integral role of lawyers in enabling the flow of finance from developed to the least developed and most vulnerable countries within the new collective quantified goal (NCQG) on climate finance; an issue that will be discussed at the 29th Conference of the Parties meeting, known as COP29, the annual climate summit of the United Nations.

The keynote speeches set the scene for a series of panel discussions, which explored legal solutions to challenges posed by the transition.

Transition framework: firms must future proof their businesses and legal services

To survive and thrive commercial law firms must adapt their business practices and legal services and help their clients navigate changes in their operating environments.

Bringing together representatives from standard setters, commercial law firms and climate finance, the panel began by highlighting the NZLA’s Framework for Net Zero Alignment.[6] Designed for commercial law firms, the framework sets out the steps firms can take to future proof their businesses and navigate the risks and opportunities posed by the climate crisis, both for firms and their clients.

Climate-related risks typically fall into three categories: physical risks, transition risks and liability risks. However, the panel highlighted the need for firms to engage with the detail and the specific risks for them. This involves looking at offices that may be affected by the climate crisis, the suppliers that they need to deal with and the particular opportunities for the clients and sectors that they work in. This is when the risks become real for firms and they can begin to take action.

When asked what it means to integrate net zero and climate science into a law firm’s policies and governance, the panel reiterated the need to be practical. They suggested that firms think about the actions they are taking – for example, to implement the best practices that they recommend to their clients, to set and meet net zero targets and to monitor the firm’s transition – and institute additional measures if existing actions are insufficient.

The panel also highlighted that the climate crisis is fundamentally relevant to lawyers’ existing professional duties, including the requirement to warn clients of adverse risks that may affect their interests. It is essential that lawyers understand how the climate crisis is impacting different practice areas and the advice they provide to their clients, as well as the connection between the climate crisis and other global issues, such as human rights.

Finally, the panel underscored the power and impact that lawyers can have by bringing climate crisis considerations into their advice on commercial transactions. In the words of one panellist, ‘most advocates would kill for that kind of impact’.

Transition risk: company accounts must accurately reflect climate-related risks

Financial accounts represent the most fundamental information that companies provide about their performance and solvency. Investors need this information to make informed decisions, analysts rely on this information when deciding how a company should be valued and chief executive officer (CEO) bonuses often depend on them.

With expertise in accounting, auditing and law, the panel examined existing obligations for companies to include climate crisis risks in their financial accounts, the low levels of compliance to date and how this can be improved.

The panel stressed that existing accounting standards demand that, where material, companies should disclose how they deal with climate risk in drawing up their financial accounts. This is clearly the case in the guidance provided in the International Financial Reporting Standards (IFRS). However, an analysis of Climate Action 100+ focus companies’ financial accounts suggests low levels of compliance. This includes a failure to adhere to fundamental requirements for companies to consider material climate risks when drawing up the numbers and ensure that their narrative reporting is consistent with the numbers.

Reporting on climate-related risk will support efforts to align finance flows with net zero and help companies avoid potential liabilities associated with failing to comply with relevant accounting standards. The panel briefly explored these potential liabilities, noting that responsibilities may rest with either the company and/or the individuals responsible for preparing the accounts. The panel also commented on the possibility of private law actions in regard to negligence, misrepresentation or fraud.

The panel noted movement in the courts on related matters, specifically citing the UK Supreme Court’s recent landmark decision in R (on the application of Finch on behalf of the Weald Action Group v Surrey County Council and others [2024] UKSC 20. In this case, the Court ruled that granting planning permission for oil production was unlawful because the Council failed to assess the ‘downstream’ Scope 3 greenhouse gas emissions.

While most regulators have taken a gentle approach to enforcement to date, preferring to use supervisory oversight to encourage compliance over taking enforcement action, the panel believes that this will probably change in the near term.

Transition investment: lawyers are uniquely positioned to facilitate international renewable energy and energy efficiency goals

Article 28 of the COP28 UAE Consensus includes a commitment to triple renewables and double energy efficiency by 2030.[7] Increasing renewable energy capacity from 2,880 GW in 2020 to over 11,000 GW by 2030 will require efforts to be dramatically scaled up and expert legal advice at every stage of the process.

In the panel discussion, experts from the legal and finance sectors examined how lawyers can help to facilitate energy projects that deliver on the Article 28 commitment and add value for their clients. While acknowledging that regulatory/legislative certainty would be beneficial, the panel noted that lawyers could be doing more under existing legal frameworks.

Lawyers were encouraged to build their capacity around climate-related risk analysis and dispute resolution in order to better anticipate and advise on risk factors across the lifecycle of green energy projects. The panel noted the need for a ‘paradigm shift’ in how lawyers consider the ‘urgency’ of project disputes. We can expect that an increased rate of project origination will probably lead to increased litigation. Lawyers should prepare for an escalation of disputes by creating risk allocation frameworks that maximise certainty for project stakeholders.

Recent global events such as the Covid-19 pandemic and the ongoing war in Ukraine have led to project contracts being stress tested due to unforeseen external risks. Lawyers should draw immediate lessons to increase clarity on drafting and build in risk allocation measures in future contracts.

Lawyers are well-placed to ease risk appetites and curate the risk allocation process at each stage of a project transaction by outlining areas of concern to their clients, who may not be aware of the potential risks.

Just transition: local needs and perspectives should be considered as part of international net zero investment

The NZLA is working with counsel across Africa to develop a toolkit for green investment into each of Africa’s 54 nations. The toolkit outlines the investment opportunities and legal and regulatory frameworks in each country and ultimately aims to better align finance flows with net zero, while also meeting local and global climate needs in a just and equitable manner.  

To complement this work, a panel comprising experienced legal practitioners across the legal and non-governmental organisation (NGO) sectors in Africa and the UK explored how climate finance across Africa can ensure a just transition and the importance of understanding local needs and perspectives.

Philanthropic funding was explored as a means of providing adaptation finance. The panel identified the high levels of accountability required by grant deliverables as the main challenge, noting the shortage of funding and the bureaucratic processes that often make it difficult to access the funding that is available. Funds will need to rethink their strategies to ensure that finance flows to the community level and to address the trust deficit.

The panel also warned against viewing environmental issues through a single lens. Global initiatives that involve Africa must also take traditional customary law into account, as it is widely practiced across the continent.[8] Failing to consider this system of law risks leaving a wide swathe of the global population behind.

Panellists recognised a need for philanthropic funds to ensure clear dialogue with community representatives. Local voices for indigenous and local solutions can often have a significant impact but are frequently overlooked. Lawyers can help to remedy this by acting as intermediaries and creating enabling environments for local community representation.

Issues surrounding climate justice were also discussed, with the panel flagging that vulnerable communities can be left shouldering the burden of extreme weather events that are caused by the climate crisis and exacerbated by activities in the Global North. It is important to guard against these outcomes by promoting sustainability laws to ensure justice is served. It is also imperative that discussions around loss and damage continue, including at COP29.