Could a rock-star backed fiduciary duty/climate change legal test case ‘surprise’ be on its way?

Lawyers appear to be staffing up for litigation.

The fossil fuel divestment campaign has already taken many by surprise in its uptake by cities, university endowments and charitable foundations, including the widely reported decision by the $860m Rockefeller Brothers Fund to take steps to pull the legacy assets of the legendary Standard Oil company.
The astonishment appears to be mostly of the ‘how could they?’… ‘it can’t be done’ kind.
The first reflects the fact that we all play our part in fossil fuel propagation in the homes that we heat/cool and the vehicles that we travel in/on.
The second is more pragmatic: this is a political/social decision….can/should investors really divest from a sector that is a bedrock of returns? If you sell fossil fuel shares someone else buys them, so it’s tokenism.
All fair points for discussion.
Might an even bigger surprise though be if the warnings of scientists and governments on climate change were taken seriously and a genuine legal challenge made to fiduciaries based on their responsibility managing inter-generational capital over a timeframe during which the impacts of climate change are predicted to start costing large amounts of societal money and impacting on asset prices?
The idea of a lawsuit testing fiduciary duty around climate change is not a new one. But at least one law firm appears to be gearing up seriously for it amid increasing market chatter that plans are under way for a test case.
Client Earth, the London-based ‘environmental’ law firm, which counts the band Coldplay and former Roxy Music keyboard player Brian Eno amongst its high-profile supporters (link to Coldplay’s backing statement) is known for its advocacy, litigation and research on climate change themes.
In a notable new development, the firm is building a ‘climate litigation team’ with candidates expected to have “a strong understanding of UK company law and/or financial and investment law and the wider legal frameworks governing the regulation of, decisionmaking by, and legal liabilities affecting companies and those who invest in companies based in the UK”.
See the job ads here and here
I’m a journalist, and that smells like a test case in the offing. RI called Client Earth who politely declined to comment on their plans for the new team.
I’m not, however, a lawyer (although a career change based on fiduciary climate litigation could be tempting….), but transparency, I think, would be one necessity for any legal challenge to an institutional investor on its carbon exposure. The ‘Montreal Carbon Pledge’ launched two weeks ago by the UN-supported Principles for Responsible Investment (PRI), which commits investors to measuring and disclosing the carbon footprint of their portfolios annually, may be a step down this road, as is the Asset Owners Disclosure Project, which calls on pension funds to publish the carbon emissions of their investment portfolios.
Fourteen sizeable asset owners and managers with more than $500bn in combined assets have already signed up to the former, which aims to attract more than $1trn of portfolio commitments in time for the crunch COP21 UN climate conference in Paris next year.
Another legal hurdle might be whether a low carbon portfolio is achievable?
AP4, the €30bn Swedish government buffer pension fund is three years into a ‘decarbonisation’ strategy of reducing its exposure to heavy carbon polluters. At a forum held by RobecoSAM in Zurich recently, Mats Andersson, AP4 Chief Executive Officer, said the fund believed that some heavy C02 exposed fossil fuel companies would be – indeed, may already be – ‘stranded’ based on its expectations of an imminent carbon price introduction that would make extraction of part of their asset base economically unviable. He said the decarbonisation strategy had so far cost the fund nothing in returns and had actually added slightly to performance as the fund rebased to invest in different stocks. He said there was little problem in finding

alternative investments to fossil fuel companies.
It’s unwise to extrapolate the general from the specific. But AP4’s example does put the carbon divestment practicality question into perspective.
Asked at the same forum about the possibility of a legal test case, Nick Robins – not a lawyer either, but an experienced financial services professional – and now Co-Director of the United Nations Environment Programme-organised Inquiry into the Design of a Sustainable Financial System, intimated that he’d heard the same talk of a test case and suggested there could be truth behind it. Robins pointed out that the fiduciary duty of pension fund trustees is to assess risk, and said the question would likely benot whether a fund has divested or not, but whether it had looked at the risks to its beneficiaries, and if it hadn’t, did it therefore have a risk negligence case to answer? He said: “I think this is an idea with some credibility and I understand that some pension funds are building quite big war chests around this. Watch this space!”
If law firms like Client Earth were to take on a test case and make a song and dance about it on social media, etc. via their rock star supporters, we could have a fossil fuel legal surprise on our hands.
That might have a few pension fund managers checking their Directors and Officers insurance….

Additional reporting by Vibeka Mair.