On 20 November 2022, in Sharm El-Sheikh, Egypt, representatives of 198 countries concluded the United Nations (“UN”) annual climate change conference, COP27. With negotiations extending beyond the conference deadline, negotiators and heads of State made progress in key areas, which is likely to have wide reaching implications. One significant area of progress is the establishment of a funding mechanism to compensate vulnerable nations for ‘loss and damage’ from climate-induced disasters (the “Loss and Damage Fund”). At the same time, the binding legal obligations and the interaction between international and domestic laws and regulation require further progress.
This article covers the key takeaways from COP27 and their legal implications.
Limiting global heating to 1.5C above pre-industrial levels
At Glasgow’s climate conference last year, the mantra appeared to be “keeping 1.5C alive”; a goal agreed in the 2015 Paris Agreement. While the delegates at COP27 appeared to all but accept that this goal may now be unachievable, States have again been called on to urgently step up their emissions reductions, including ending fossil fuel expansion and accelerating the phasing-out of coal, oil and natural gas. Despite efforts by many States, the final COP27 text fails to directly address the phasing out of all fossil fuels.
One significant area of progress is the establishment of a funding mechanism to compensate vulnerable nations for ‘loss and damage’ from climate-induced disasters (the “Loss and Damage Fund”).
Legal implications
Keeping at or as little above 1.5C as possible would entail States regulating the emissions of businesses within their jurisdictions, as well as incentivising investment in transition technologies.
One significant area of progress is the establishment of a funding mechanism to compensate vulnerable nations for ‘loss and damage’ from climate-induced disasters (the “Loss and Damage Fund”).
The commitment to achieving the 1.5C target is likely to give rise to an increasing number of legal claims against States for not adequately addressing the impact of climate change or not reducing greenhouse gas emissions (“GHG”) thus violating human rights obligations. The case of Urgenda v State of the Netherlands (“Urgenda”) is an example where such a legal claim has been brought successfully. In Urgenda, the District Court in The Hague found the Dutch government had failed to fulfil its duty of care pursuant to Articles 2 and 8 of the European Convention on Human Rights by not taking steps to reduce emissions by at least 25% by the end of 2020.
In Germany, the Federal Climate Change Act 2019 (“FCCA”) – the instrument implementing the 2015 Paris Agreement – was challenged in the case of Neubauer and others v Germany. In April 2021, the German Constitutional Court struck down parts of the FCCA as incompatible with fundamental rights provisions; holding that the FCCA failed to make sufficient provision for GHG emissions cuts beyond 2030, thus prejudicing future generations and irreversibly offloading major emission reduction burdens onto periods after 2030.
Climate change disputes arising in the context of international investment arbitration and evolving climate change policies is discussed in our article.
Keeping at or as little above 1.5C as possible would entail States regulating the emissions of businesses within their jurisdictions, as well as incentivising investment in transition technologies.
Establishing a Loss and Damage Fund
Earlier this year, unusually heavy monsoon rains caused an estimated $30 billion of damages and economic losses in Pakistan. The floods were key in highlighting the need to bolster support offered to vulnerable States.
The concept of loss and damage first arose in 1991 when Vanuatu, a low-lying island nation in the Pacific, recommended the creation of an insurance structure to help pay for the consequences of rising sea levels.
Seen as a key achievement of COP27, the conference has resulted in commitments to create a specific Loss and Damage Fund. Whilst operational details remain to be ironed out, States have agreed to establish a transitional committee to make recommendations on how to operationalise the Fund at COP28.
Legal implications
There is no agreement on how contributions to the Fund will be provided. Whilst some States have made smaller, symbolic commitments, enforcement through litigation may prove challenging until specific commitments are announced by States. Despite this, there have been significant developments at a national level which demonstrate the financial impact litigation may have, and how it can indirectly impact government policy. An example is the Urgenda litigation against the Netherlands, following which the Dutch government announced that it was to invest over €6.8 billion on climate measures in addition to existing spending on climate policies.
Fulfilling the promise of $100 billion a year on climate finance and adaptation funding
Through the Cancun Agreements in 2010, developed States committed to a goal of jointly mobilising $100 billion a year from 2020 onwards to address the needs of developing countries for climate change mitigation finance and adaptation funding (the “$100 billion Pledge”). This goal was confirmed in the Paris Agreement, however States have not fulfilled the $100 billion Pledge. In the run up to COP27, there were renewed calls for States to deliver on their promise, following which several EU member States vowed to increase commitments. The last version of the COP27 text “expresses serious concern” that the goal had not been met and “urges” developed States to achieve the pledged commitments¹. The goal is to enable vulnerable States to adapt to climate risks through providing funding for the building of infrastructure such as flood defences and seawalls, or strengthening natural resources such as mangrove forests and protecting water-related ecosystems.
The final COP27 text “[n]otes with serious concern the existing gap between current levels of adaptation and levels needed to respond to the adverse effect of climate change“². Nonetheless, COP27 saw some progress on adaptation with States agreeing on the way to move forward on the Global Goal on Adaptation, which will conclude at COP28 in Abu Dhabi. New pledges of more than $230 million were negotiated to the Adaptation Fund at COP27 and negotiators provisionally committed to a “road map” to doubling adaptation funding by 2025 including for better flood defences, more drought resistant crops and other measures.
Legal implications
While the Paris Agreement is a legally binding international treaty, the $100 billion Pledge in Article 9.3 merely states that “developed country Parties should continue to take the lead in mobilizing climate finance” without imposing specific obligations on individual States. This makes enforcement of funding pledges challenging until and unless States have agreed to a specific contribution.
Nevertheless, the commitments made not only have implications on the States which have made them, but also will likely influence commercial litigation against companies involved in climate impacting activities. For example, in the German case of Luciano Lliuya v RWE AG attempts were made to seek compensation for RWE’s GHG emissions by reference to the cost of flood defences. In the case, a Peruvian farmer, Luciano Lliuya, sued German energy company RWE for the role RWE’s emissions played in melting a glacier above his hometown in the Peruvian Andes. Arguing that RWE’s emissions put thousands of local residents at significant risk of flooding, he claimed 0.47% – RWE’s estimated contribution to global industrial GHG emissions – of the cost of flood protection measures.
In 2016, the District Court of Essen dismissed the claim. Mr Lliuya has since obtained permission to appeal this decision to the Higher Regional Court of Hamm and the case is ongoing.
As climate change mitigation and abatement projects attract greater international investment, the applicability of bilateral and multilateral investment treaties and the protections available to investors will also be increasingly relevant.
A further significant development in this context is Vanuatu’s initiative seeking a UN General Assembly mandate to ask the International Court of Justice (“ICJ”) to issue an Advisory Opinion on the right to be protected from adverse climate impacts. Whilst not strictly legally binding, an ICJ Advisory Opinion carries moral and legal weight, and is expected to strengthen developing States’ calls for compensation or climate change mitigation finance.
The commitment to achieving the 1.5C target is likely to give rise to an increasing number of legal claims against States for not adequately addressing the impact of climate change or not reducing greenhouse gas emissions (“GHG”) thus violating human rights obligations.
How can we help
Working across our international offices and drawing on expertise from our highly ranked public international law and dispute resolution practices, we can assist companies, States, investors and affected individuals or communities to:
- advise on the structuring of planned investments to ensure protection through international treaties;
- protect and seek compensation for stranded assets;
- draft and review States’ national (environmental) action plans and policies to ensure they are in line with ever involving international standards and commitments;
- initiate legal proceedings brought by affected individuals or communities;
- design and implement bespoke ESG strategies for companies;
- review companies’ existing ESG policies and frameworks to ensure these remain fit for purpose;
- assist with litigation and dispute resolution; and
- manage any related reputational issues.
For further information, please contact:
Robert Kovacs, Withersworldwide
robert.kovacs@withersworldwide.com
1. Sharm el-Sheikh Implementation Plan, 20 November 2022, para 33, available at https://unfccc.int/documents/624444 (last accessed 22 November 2022).
2. Sharm el-Sheikh Implementation Plan, 20 November 2022, para 17.
