Giving Legal Advice on Climate Risk in 2024
Photo by Quinn Pocock
I have recently seen lawyers struggling to determine what is relevant to their advice on climate risk. The debate focuses on the appropriate extent of enquiry. Each of these has been in relation to property related matters.
Advising on climate risk may be new for property lawyers, but it is an appropriate question, especially in relation to those clients who are not large enough to have been confronted by climate risk disclosure obligations, and who may previously have only been interested in their project-enabling legal responsibilities.
Practitioners can expect to face the issue when advising property developers, funders, infrastructure providers, valuers, real estate agents, landlords and others, perhaps in the following circumstances:
Property developers wanting to understand if their liability is limited to compliance
with the current law – even if they build in places that flood, their houses don’t cope
with the expected increase in temperature, the emissions embedded in their buildings
are higher than they could be, or their infrastructure doesn’t cope with medium-term
climate needs;
Funders understanding any potential for liability if they fund such projects;
Valuers considering whether to account for the expectation of damage through flood
or subsidence - and whether to do that based on historic or expected weather;
Lessors regarding their responsibility to provide safe and liveable homes and places
of work in the context of flooding and overheating;
Agents keen to understand what risk they face around climate related “defects”;
Buyers (and their funders) wanting to understand what problems they might inherit,
including insurance difficulties, and unexpecting costs;
Client in the supply chain of an entity with climate risk disclosure obligations wanting
to understand how disclosures impact them.
This may be work a property lawyer would prefer to brief out, but even scoping the question for a barrister requires an assessment of the breadth of the opinion needed. My view is that an opinion based on the current law only will provide an entirely different response to one that accounts for trends and legal developments and may be inadequate.
I have written before about the fact that people aren’t good at taking risk into account unless they have already lived the problem. Their lawyer, as an objective, informed advisor may need to push for a range of new factors to be considered in the risk assessment although that will require those lawyers getting beyond their own cognitive bias. Whatever the outcome, good practice dictates the careful crafting of an engagement letter to reflect the expected breadth of enquiry.
Here are some of the issues to be considered in addition to the consideration of any non-compliance (or potential non-compliance) with the existing law. Many of them I have written about before in more detail, but this article attempts to bring them together in some type of checklist to review when advising.
Greenwashing
Greenwashing litigation is on the rise.
As I write this the New Zealand High Court is considering greenwashing claims by Consumer New Zealand, and others against Z Energy. Amongst other things, the statement of claim describes how Z Energy promoted itself as “in the business of getting out of the petrol business” and moving “away from its reliance on selling fossil fuels and becom[ing] a true ‘transport energy’ company”. It describes how Z has, through various statements and images, given the impression of active climate mitigation and in fact an intention to get out of the supply of fossil fuels. These impressions say the plaintiffs, are in breach of the Fair Trading Act.
Granted this is not a property related case, but it illustrates the willingness of the consumer watchdog and climate activists to call greenwashing out. On the Consumer website you will find a portal to send in examples of greenwashing. They are actively looking for examples so they can stamp it out.
Although not immediately impactful on the property industry in Aotearoa, legislative changes in Europe illustrate the interest in protecting against greenwashing. Earlier this year the EU adopted legislation targeting generic environmental claims that are used without robust and verifiable supporting information. This includes claims that a product has a reduced impact based on off-setting.
“It is particularly important to prohibit the making of claims, based on the offsetting of greenhouse gas emissions, that a product, either a good or service has a neutral, reduced, or positive impact on the environment in terms of greenhouse gas emissions. Such claims should be prohibited in all circumstances”.
It may be difficult for you as a practitioner to recognise greenwashing, and you may need to comprehensively understand the impact of activity, or the life cycle of the product i.e. the building or the infrastructure. Besides that, greenwashing comes in many forms and may not only relate to climate change. Responsibility for accurate descriptions will be relevant to impacts on all sustainability issues (biodiversity, oceans, housing supply, poverty).
You may have heard of:
green shifting (shifting responsibility onto the consumer),
green crowding (hiding in a group and moving only as fast as the slowest)
green hushing (under reporting to avoid closer examination)
green rinsing (changing targets to disguise failure to achieve them)
green lighting (focussing on one area of activity that is green, but not talking about
others that are not)
green labelling (portraying something as green (through words or otherwise) without
enough accurate background information)
Changing social licence
Changing social licence may encourage authorities and members of the public to look for tools to enforce or encourage better environmental outcomes. Smith v Fonterra Co- Operative Group Ltd [2024] NZSC 5 illustrates clearly the potential for new and novel causes of action.
Just this week the Gisborne District Council sought to use enforcement orders under the Resource Management Act describing it as a “watershed moment”. The order was to stop the discharge of forestry debris from a forest block that was felled 5-10 years ago in the Waimata Valley. It was sought because of the environmental impact of the debris. The defendants were a Chinese forestry company and one of its directors. In court a representative of the forestry manager accepted that the forestry industry had “lost its social licence”.
Understanding the science of climate change impacts and the timeframe within which action is required, will be important to recognising the potential for change in social licence. The Intergovernmental Panel on Climate Change regularly prepares scientific reports that are readily available. If those are too heavy reading, the United Nations website on climate change offers more easily accessible information.
Two aspects of this information are important in analysing risk - both understanding the information itself and understanding that it is readily available and able to be considered in commercial decision-making - even if regulation does not require that.
A few other things to consider/keep an eye out for
Other risks that are closely related to environmental outcomes and may impact the breadth of your legal advice include:
the availability or otherwise of insurance and the consequent impact on funding
the timeframe over which the legal advice will have impact e.g. a lease term, period
of ownership, life of the infrastructure
any international requirements that might impact business viability of the client or
their stakeholders including environmental responsibilities under free trade
agreements
the potential for class actions or representative actions (which whilst not common in
New Zealand are expected to be an avenue of climate related litigation in the future)
the risk of stranded assets
reputation risk; and finally,
the fundamental risk of contributing to the damage to Earth and its inhabitants.
A version of his article first appeared in The Property Lawyer in August 2024 and is published with the consent of the NZ Law Society, Property Law Section.
© Debra Dorrington 2024.