Beyond Sharma: when community expectations exceed the law

Last week, in Minister for the Environment v Sharma [2022] FCAFC 35 (Sharma), the Full Federal Court overturned the decision to impose a novel duty of care on the Federal Minister for the Environment to avoid personal injury or death to children arising from carbon dioxide and subsequent global warming when exercising her power to approve the extension of a coal mine. 

This case raises serious questions about the ability of tort law to protect against prospective human rights breaches arising from the future impacts of climate change.  Just as significant, it highlights the gulf between heightened community expectations that governments and businesses will respond to climate change and their legal obligations to do so. While tort law was not able to address the human rights consequences of climate change in this case (subject to any High Court appeal), it may yet have a chance to do so, in a different context, when the case of Pabai Pabai & Anor v Commonwealth of Australia is heard later this year. 

This Insight explains why government and business should remain alive to the potential for human rights to be breached when climate change risks are not addressed, and why business should look to implement integrated ESG practices to manage the attendant legal, transitional and reputational risks. 

Our summary of the legal reasoning for overturning the decision and its implications for future ESG litigation is available in the Sharma appeal decision Insight.

Putting human rights at the centre of climate action

Global developments

In October 2021, the United Nations Human Rights Council (UNHRC) recognised for the first time a human right to a clean, healthy and sustainable environment. At the same time, the UNHRC established a ‘Special Rapporteur’ to focus on the human rights impacts of climate change, and called on Member States to take bold action to give effect to the right to a healthy environment.

Just three months later, the Special Rapporteur released a report urging national governments to engage in robust regulation of corporations, cease subsidies for high polluting industries and take positive actions to not only protect the right to a healthy environment from being violated by businesses, but also to fulfil it.

While these are significant developments, jurisdictions with constitutional or legislative protections of human rights have already seen human rights relied on to hold governmental decision makers and corporations to account. We have written about climate change litigation that strongly draws on human rights obligations, but of particular note is the action initiated in the Netherlands:

• The Dutch Supreme Court’s decision in Urgenda recognised that harms caused by climate change fell within the scope of Article 2 (the right to life) and Article 8 (the right to family life) of the European Convention on Human Rights (ECHR).[1] The Dutch Constitution requires Dutch courts to apply the provisions of the ECHR in accordance with the European Court of Human Right’s interpretation of those provisions. In doing so, the Dutch Supreme Court confirmed that the State had a duty of care to protect the human rights of its citizens, by taking appropriate action to mitigate the existential threat of climate change. The final orders made required the Dutch Government to implement an action plan to reduce greenhouse gas emissions by 25% by the end of 2020. Urgenda has inspired similar litigation in Belgium, Canada, Colombia, Czech Republic, France, Germany and a number of other jurisdictions.
  
  
• In 2021, in the case of Milieudefensie et al. v Royal Dutch Shell plc [2] the applicants, relying upon the Netherlands’ commitment to the Paris Agreement targets and the existing body of evidence surrounding the impacts of climate change, alleged that Royal Dutch Shell has a human rights obligation to reduce its greenhouse gas emissions in alignment with international climate change agreements. The applicants successfully argued that the company had a positive obligation to significantly reduce the aggregate greenhouse gas emissions generated by its business and its customers’ use of its products (i.e. scope 1, 2 and 3 emissions) as failure to do so would breach the standard of care owed by persons and corporations to protect the human rights of others, specifically the right to life, as set out in the Dutch Civil Code.

Impacts in Australia

Today, the national constitutions of more than 150 countries recognise a substantive or procedural right to live in a healthy environment.[3] Australia is not one of them. It is one of only 15 countries without the right to a healthy environment enshrined in its constitution or federal laws.[4]

Australia is the only OECD country that does not have a bill of rights which left the children in Sharma arguing for a novel duty of care instead. While the common law was unable to accommodate the ‘new seed variety for a sustainable duty of care’[5] that Sharma argued for, the Full Federal Court did not absolve the Minister or the executive of responsibility for considering ‘the proper response to the present risks, future dangers and potential harm to the world, humanity, and the Children’, with Chief Justice Allsop opining:

“To the extent that the evidence and the uncontested risks of climate catastrophe call forth a duty of the Minister or the Executive of the Commonwealth, it is a political duty: to the people of Australia.”[6]

As for the ability of tort law to address climate-related human rights harms, the Pabai case may yet show that tort law can afford victims of climate-related human rights breaches access to remedy even if it does not protect against the breach itself. In a Federal Court hearing on 17 March 2022, the applicants argued that the Federal Government owes Torres Strait Islanders a duty of care to protect them from the effects of climate change. The applicants contended that such a duty arises from the terms of the Torres Strait Treaty, and by reason of the ‘native title rights and interests of the applicants, the vulnerability to climate change, the risk of damage to them and the Commonwealth’s knowledge and control of that risk’.

The applicants are seeking a court order requiring the Federal Government to take steps to prevent harm to Torres Strait Islanders by reducing Australia’s greenhouse gas emissions. This class action is modelled on the Urgenda case discussed above, and is supported by the applicants in that case (the Urgenda Foundation) and Grata Fund, an Australian not-for-profit public interest advocacy group and litigation funder which supports the use of strategic litigation to address climate justice and compel climate action. Regardless of the outcome in this case, it is indicative of the mounting pressure on the Federal Government to consider whether there exists a political duty to protect against the ‘uncontested risks of the climate catastrophe’ in Australia.[7]

Responding to the weight of expectation 

Responsible government

Despite the failure to find a legal duty of care in Sharma, it remains to be seen how the political duty identified by Justice Allsop will manifest. Certainly, community expectations indicate that the government should consider its obligations to properly respond to climate change risks.

Recent polling by YouGov in January this year is instructive of the current societal views on climate change action, finding 60% of those surveyed are unconvinced that the Federal Government’s commitment to net zero by 2050 is enough action. The survey also found that a majority of people in every federal electorate now believe the long-term economic benefits of climate action outweigh the costs involved. In addition, the 2021 ‘Climate of the Nation’ benchmark report found 82% of Australians support the phase-out of coal fired power stations.

What is evident is that community expectations far exceed what is required of the Minister in discharging her legal obligations when considering an environmental approval in connection with a mining expansion and is likely to be seen as disappointing in the current pressure cooker of climate action.

Responsible business

Community expectations that business will act responsibly across a range of environmental, social and governance issues also exceed standards imposed by law. The Responsible Investment Association Australasia (RIAA) From Values to Riches 2022 report recently found that:

• 84% of Australians believe it is important for their super fund or bank to reduce greenhouse gas emissions within their fund;
  
  
• 72% believe banks and investors can impact climate change through investment decisions;
  
  
• 52% of investors want to avoid human rights abuses in their investments; and
  
  
• 50% want to avoid environmental damage.

Some financial institutions have taken proactive steps to both mitigate their financial exposure to climate change risks and meet community expectations. For example, major Australian and international insurers have refused to insure new thermal coal projects and have adopted divestment strategies aimed at phasing out investments in fossil fuels, on the basis that those investments now pose unacceptable financial and reputational risks due to their contribution to climate change. This goes well beyond any express legal obligation to mitigate climate change risks.

In 2017, community activism, not the law, resulted in Australia’s big four banks refusing to fund or withdrawing from funding the Adani Queensland coal mine on the basis that carbon emissions from coal mining are incompatible with global efforts to keep global warming below 2°C. In 2021, the Australian Council of Superannuation Investors (ACSI) published an updated climate change policy indicating that from 2022 it would consider recommending that its members, who make up some of the largest institutional investors in Australia, vote against the re-election of directors where the company is failing to adequately manage its climate risk.

While regulatory expectations in Australia are clear – companies must take steps to address the financial risk that climate change presents for companies – community expectations that governments and businesses will act responsibly to address society’s most pressing environmental and social issues far exceeds this.

Beyond legal compliance

The indivisibility of human rights and the environment is well established even if those rights are not enforceable under Australian law. The UNHRC Special Rapporteur offers the following guidance to business:

As a first step, corporations should comply with the Guiding Principles on Business and Human Rights as they pertain to human rights and climate change.

The five main responsibilities of businesses specifically related to climate change are to:

• reduce greenhouse gas emissions from their own activities and their subsidiaries; 
  
  
• reduce greenhouse gas emissions from their products and services; 
  
  
• minimize greenhouse gas emissions from their suppliers; 
  
  
• publicly disclose their emissions, climate vulnerability and the risk of stranded assets; and 
  
  
• ensure that people affected by business-related human rights violations have access to effective remedies. 

In addition, businesses should support, rather than oppose, public policies intended to effectively address climate change.

Australian businesses are becoming increasingly transparent in their assessment of climate vulnerabilities and reporting against the Taskforce for Climate-Related Financial Disclosures (TCFD) framework. They are making net zero commitments and taking steps to limit their scope 1 and 2 emissions. The Special Rapporteur shows there is more to be done.

What next?

Responsible business means looking beyond the law to the risks that environmental, social and governance (ESG) issues might pose to the business and as well identifying the spectrum of potential and actual positive and negative impacts a business has on the society in which it operates. Climate change and the associated human rights risks, while a major part of this and a focus for many organisations, is just one part of the puzzle.

Having identified those risks, organisations should establish ESG principles and design and adopt a clearly articulated ESG strategy. An ESG strategy, integrated across the business with clear identification of responsibilities, metrics and transparent reporting against commitments, will position the organisation well to meet community expectations across the range of ESG issues. 

***

ESG: A guide for General Counsel assists General Counsel (GCs) to identify, assess and capitalise on ESG opportunities and to develop a leading ESG risk and compliance culture across their organisation.