Reporting standards for climate change up in the air

  • February 22, 2016
  • Doug Beazley

Like the hangover that follows the night before, media coverage of the Paris COP 21 climate accord in late 2015 seemed to shift suddenly from euphoria to pessimism, as critics turned their attention from the scope of the deal to its limits.

“Don’t worry,” one U.S.-based NGO tweeted on Dec. 14. “The Paris climate deal is non-binding — and ergo, toothless.”

Not entirely. It’s true that — unlike the Kyoto accord — the Paris accord includes no penalties for countries that fail to meet their commitments to reduce carbon emissions. But Kyoto’s penalties were effectively toothless as well; the Paris accord is a political document, and the mechanism, says Stepan Wood, professor of environmental law at Osgoode Hall, is “naming and shaming.”

Enforcement under Kyoto was top-down. If the Paris targets are to succeed where Kyoto failed, the approach must be bottom-up — which is where the courts come in.

Could private citizens and NGOs use the courts to hold governments and corporations to account for their carbon footprints? It’s happening already. Back in June the Hague District Court ruled in favour of the Urgenda Foundation in finding that the Dutch government had violated its duty of care to the environment by failing to take adequate steps to reduce emissions; it ordered the government to cut national emissions at least 25 per cent below 1990 levels. Three months later, the high court in Lahore held Pakistan liable for failing to implement its climate change policy.

While these decisions have generated a lot of interest in environmental law circles (especially the Urgenda case, since it involved a court ordering a government to implement its own policy), their direct relevance to Canadian law remains in doubt. One key problem, says John Terry — a partner at Torys LLP who teaches climate change law at University of Toronto — is the traditional reluctance of Canadian judges to get involved in matters they consider to be policy, or political.

“Maybe it’s because they’re operating in a country that is mostly below sea level, but the Dutch court seemed perfectly confident it could make a ruling in this area,” he says. “Urgenda is not the type of case that’s likely to be successful here.”

Another problem is proximity and causation. The Urgenda decision held the Netherlands liable for “acting negligently towards society” — a concept that doesn’t exist in Canadian law.

“The problem with going the court route is connecting cause with effect,” says Wood. “The science just isn’t there yet. Under Canadian law, governments cannot be found to have failed in their duty of care through their policies — only their actions.”

Urgenda also was based in part on a Dutch constitutional right to a clean environment; no such right in law exists here.

There are other potential avenues for litigating against governments and companies that neglect their climate responsibilities. Some have argued for using public nuisance law to hold governments and companies to account — which still would leave the problem of proving direct loss or injury. The U.S.-based NGO Our Children’s Trust is suing the U.S. federal and state governments to force them to do more to combat climate change, citing the public trust doctrine in American common law that holds governments to account for actions that affect common natural assets. But public trust has gotten very little traction in Canadian jurisprudence; it, like the public nuisance angle, is waiting for a test case.

In the meantime, Wood and others argue that the best approach to holding emitters to their climate commitments may be to exploit the most powerful force in human relations: money.

Climate change and corporate risk management is a hot topic in securities law circles right now. Last fall, Bank of England governor Mark Carney proposed the drafting of a voluntary corporate disclosure code to inform investors of the degree to which their investments are affected — or threatened — by climate change. As chair of the G20’s Financial Stability Board, Carney tapped former New York City mayor Michael Bloomberg to lead the project.

Climate change can affect a company’s value in many ways. Government-mandated emissions caps can cut into profits, or — in the case of energy companies — leave carbon assets “stranded” and unavailable for exploitation. Extreme weather can damage infrastructure, or make inputs — like water — harder to source.

Companies seen to be denying or downplaying the risks of climate change could find themselves targeted by divestment campaigns or lawsuits — which could affect share prices, which could lead in turn to class-action lawsuits by shareholders if there’s evidence corporate executives weren’t being candid with investors.

Laura Zizzo launched Canada’s first law firm focused on climate change in 2009. These days she runs a consulting firm, Zizzo Strategy, which advises companies on how to protect themselves from the effects of climate change. She says very few Canadian companies have a “robust understanding” of how climate change can affect their responsibilities to their shareholders.

 “There does seem to be broad interest in the idea of getting corporations to report on their (climate change exposure),” she says. “It could end up being a securities-related class action. Or we could see a provincial regulator take direct action.”

Corporations are broadly required in Canada to report material risks to shareholders’ investments, though what constitutes material risk due to climate change isn’t clear. The Canadian Securities Administrators issued a notice in 2010 reminding companies of the importance of disclosing material risk due to climate change — but securities law is provincial, not federal. There is no national standard, nor does there appear to be any immediate push at the federal level to negotiate one.

The energy industry itself seems to see some sort of binding national disclosure standard on the horizon. “It would need some alignment among the provinces,” says Alex Ferguson, VP policy at the Canadian Association of Petroleum Producers. “I think that having a set of rules across the country would be well accepted (by the energy industry). But we’d have to ask ourselves how that would compare with the (U.S. Securities and Exchange Commission) rules as well.”

Wood agrees: The problem calls for an enforceable national standard, he says, and the federal government needs to take the lead. “You don’t want to put companies that want to do the right thing in a position where they’re sticking their necks out.”

Doug Beazley is an Ottawa- based journalist.