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Director Tom Davey discusses competition and collective action claims against polluters in ThoughtLeaders4 Competition Magazine

Director Tom Davey examines recent competition and collective action claims against water and sewage companies, and argues that class actions can be a powerful tool in the drive towards net-zero.

Tom’s article was published in ThoughtLeaders4 Competition Magazine, 25 September 2023, and can be found here.

Many companies are harnessing technological innovation to help mitigate climate change and achieve net-zero, primarily through clean energy production. Although industry has been responsible for most historic greenhouse gas pollution, it is also delivering the mechanisms to minimise its future impact.  The rapid evolution of green energy and transport may surprise cynics, who are rightly suspicious of false promises but now see tangible evidence of positive change.

Climate change disproportionately impacts many of the world’s poorest people, whose plight is often under-reported. Meanwhile headlines are dominated by events affecting Western countries, such as the recent smog that engulfed the US East Coast, posing a major health risk to 100 million Americans as smoke from myriad Canadian wildfires blanketed the region, or indeed the ongoing heatwave in the Mediterranean with record breaking temperatures expected of over 45 °C in some parts for unprecedented period.

It remains to be seen whether national governments will voluntarily reform at sufficient speed to save vulnerable countries from the worst effects of climate change.  Accordingly, litigation may help the process: bypassing political power structures, forcing polluters to pay compensation for their actions and altering their behaviour to avoid further financial penalties.

Environmental actions have a long track record of success including a 2007 class action against Trafigura on behalf of 30,000 victims following the unloading of a toxic waste shipment at the Ivory Coast port of Abidjan. Trafigura paid out $45m in compensation: a powerful deterrent against illegal pollution, both for Trafigura and other operators.

Another successful class action was brought against Union Carbide, following the 1984 Bhopal disaster which affected more than 500,000 residents in central India. The lawsuit resulted in Union Carbide being ordered to pay $470m in compensation to the victims, who were exposed to highly toxic gas following a chemical accident at a pesticide plant.

While Trafigura and Bhopal were after the event actions, brought once damages could be demonstrated to flow from the event and liability could be established, they proved highly significant as litigation milestones against big multinationals, albeit at a local level.

Given the common absence of political will, class actions against offending companies can be a powerful tool in the drive towards net-zero emissions and a comprehensive environmental clear-up thanks to the ‘polluter pays’ concept.  Last year, the Grantham Research Institute’s annual report examined global trends in climate litigation and found that 2,000 climate related lawsuits have been started since 2015. [Global trends in climate change litigation: 2022 snapshot – Grantham Research Institute on climate change and the environment (lse.ac.uk)]

Such actions deliver twin benefits, allowing affected communities to receive compensation and deterring polluters from future environmental breaches through significant financial penalties that dent the share price of listed companies. This year’s Grantham report revealed the deleterious impact of climate litigation on publicly-quoted polluters, whose market capitalisation dropped in the wake of suits being filed, or following adverse trial verdicts.

Competition claims are also being brought against UK water and sewerage companies, arising from their alleged unlawful discharges of untreated sewage and wastewater into British waterways. Such collective action competition claims enable groups of affected individuals to bring claims against companies that break competition rules.

Despite their apologies for dumping billions of litres of sewage into UK rivers, and their pledges to invest £10bn to reduce waste outflows, progress is slow. The government’s storm overflows taskforce – set up in the wake of revelations about the scale of sewage dumping – has met only once in the past year.

Water companies operate in a febrile atmosphere. Notwithstanding the sewage dumping scandal, firms such as Pennon have caused outrage by making sizeable dividend payments to shareholders and paying large bonuses to executives.

Although localised campaigns and targeted lawsuits still play a key role in bringing polluters to book, the wider ambition of climate litigation is increasingly global: taking on the biggest multinational climate culprits who operate in multiple jurisdictions.

Such actions carry a steep cost. These international litigations face multiple challenges including proving causation and liability, which can be more challenging on a global scale. Many of the world’s largest polluters operate in Asia: another hurdle for claimants, since bringing claims is invariably difficult in the region’s more challenging jurisdictions.

Rather than a showstopping global win, perhaps litigators are better served chipping away at a local level to effect change by the sheer volume of actions brought against offending firms.

For example, a class action was launched in May against Delta Airlines claiming that the company misled consumers by marketing itself as carbon-neutral, despite allegedly not living up to its promises. This came shortly after the Dutch carrier KLM was sued in April for alleged “green-washing” in its advertising campaigns.

Whilst the scientific facts of manmade climate change are accepted by most people,  they are nevertheless challengeable by defendants in litigation, posing an obstacle to claims brought by litigants.

Another issue facing claimants is whether the effects of climate change have yet been severe enough to warrant compensation, and – if so – whether direct causation by a defendant can be sufficiently established.

Sometimes, top-down approaches can be heavy-handed and ineffective, particularly with cross-jurisdictional action running up against domestic political and economic considerations. Counterintuitively, focus on local action can effect change on a bigger scale. For example, the smog crisis of 1950s London led to enduring change through legislation.

Likewise, China’s experience of urban smog has led to the mass adoption of electric cars on a scale not yet replicated in the UK, with more than one in five new vehicles sold in China being fully electric. Yet as these vehicles solve one problem, the manufacturing and recycling of their batteries – made from environmentally toxic materials – creates another. As electric vehicle sales surge across Europe, a potential battleground awaits for environmental actions. The mining sector, no stranger to charges of environmental damage, may come under the spotlight for the environmentally damaging extraction of metal ores used by green manufacturers.

As commercial interests drive corporate decisions to meet consumer demand for greener products and solutions, strong localised climate and environmental litigation can play its part in forcing more recalcitrant firms to change for the better.  Such actions could also ensure that new technologies, burnishing their green credentials, stand up to scrutiny and are truly environmentally-friendly rather than swapping one  pollutant for another.