By Pilar Perales Viscasillas

Beyond individual or private interests, strategic climate change litigation – accompanied by media campaigns – is a powerful device that is being used as a strategic and litigation tool when there is perceived insufficient action by governments and companies to enforce climate change obligations, to pressure and guide legislation or corporate climate policies, to increase ambition in climate efforts, and as an instrument to help debate and/or dialogue, internationalise and globalise the problem and correct behaviours. A growing awareness and internalisation of the “climate emergency” is turning strategic litigation into a tool to address climate change. This is illustrated by the numerous litigation cases listed in the Climate Change Litigation Databases of the Sabin Center for Climate Change Law at Columbia University.

As every action brings a reaction, we are seeing a coordination of responses and pressure movements on both sides of the chain that threatens some important initiatives in the area of sustainable finance and climate change such as the Gfanz alliances (Glasgow Financial Alliance for Net Zero), which was created in April 2021 under COP26 by Mike Carney, UN special envoy on climate action and finance, and is a coalition of financial institutions committed to accelerating the decarbonisation of the economy and which is subdivided into eight different strategic alliances, the following three of which are of particular interest: Net-Zero Banking Alliance (NZBA), Net-Zero Insurance Alliance (NZIA) and the Net-Zero Asset Owner Alliance (NZOA).

These initiatives are claiming their first victims, presumably under the guise of anti-competitive behaviours, which actually are being promoted by the lobbies of the coal, gas and oil industries in the states led by the Attorneys General of the states producing these energies (Republicans), and the political tensions inherent in the upcoming presidential elections between the two major parties in that country in favour (Democrats) and against (Republicans) climate policies. Not to mention the current geopolitical situation and the big business that the energy crisis in Europe resulting from the war in Ukraine represents for the oil and gas industries.

The accusations and allegations made by Texas Attorney General Ken Paxton in August 2022, who joined 18 other states in a letter to BlackRock CEO Larry Fink, denouncing the institutional investor’s over-reliance on ESG criteria instead of focusing on fiduciary duties to its participants in the management of state pension funds. ESG goals, in the attorney general’s view, while seemingly well-intentioned, make little economic sense and have a direct adverse effect on Texas’ oil and gas economies and the performance of state pension funds. As a consequence, and despite resistance from BlackRock, Larry Fink’s response, 6 September 2022, another large institutional investor, Vanguard, decided to exit NZAM (Net Zero Asset Managers) at the end of December 2022. This in turn provoked a reaction from 1400 individual investors who sent a letter in April 2023 to Vanguard stating that it is breaching its fiduciary duties in relation to the duty to mitigate climate change related risks.

The Prosecutors continued their lobbying actions by moving the focus to the banking sector. Thus, on 19 October 2022, the same Texas Attorney General, along with 19 others, announced the initiation of an antitrust investigation against six US banking institutions that are members of the Net-Zero Banking Alliance (NZBA). Although, for the time being, no banking institution has left the banking alliance for such reasons, at the end of October 2022, the membership rules of the different alliances were modified so that the obligation to comply with the minimum standards of the UN Race to Zero campaign is now only a mere suggestion. This decision did involve the departure of one NZBA member: the German bank GLS, which left the alliance on 3 January 2023.

In this context, climate activists have not stood still, as evidenced by the letter sent on 8 March 2023 by 37 NGOs to the NZBA President, asking the alliance’s financial institutions members not to grant financial support or any services to fracking gas infrastructure projects: Texas LNG, Rio Grande and Rio Bravo. These projects have a high ecological impact and do not seem to be in line with the Equator Principles.

Among these tensions, on 17 January 2023, 21 attorneys general sent a letter to voting advisors Institutional Shareholder Services, Inc. and Glass Lewis & Co. who responded by letter dated 31 January 2023; and on 30 March 2023, 21 Republican attorneys general wrote a letter to more than 50 US asset managers stating their intention “to “enforce [their] states’ civil laws against unfair and deceptive acts and practices and state and federal civil laws prohibiting agreements to restrain competition”. The letter expressly quotes the obligations undertaken by members of the Net Zero Asset Managers Initiative (NZAM) and Climate Action 100+ regarding the commitment of issuers on matters of climate change and decarbonisation. There is also no shortage of accusations of greenwashing or misleading information, as well as those directed at insurance companies.

The recent departures of several of NZIA’s founding members from late March to the time of writing: Munich Re, Zurich, Hannover Re and Swiss Re, Allianz, AXA and SCOR, Mapfre, Lloyd’s and QBE, although only the former refers to the (limited) risk of exposure to anti-competitive practices, confirm the tensions in this area and how the political risk, in this case, anti-ESG can be a determinant of corporate behaviour.

NZIA reacted by issuing a statement emphasising the importance of the alliance and declaring that all NZIA members will strictly comply with the competition rules and that under no circumstances will they share information or engage in conduct that may carry a risk of fines for potential non-compliance with the competition rules, in particular that members are free to set their individual objectives to achieve the alliance’s commitments and that NZIA will not instruct any of the members on how to achieve such objectives.

The letter sent by 23 attorneys general to NZIA and 28 of its members on 15 May 2023, so far the last one, which also highlights the membership of many of the insurance and reinsurance companies in the NZOA, thus becomes meaningful. In this letter, which is full of accusations of anti-competitive practices, especially following the publication in January 2023 of the Net-Zero Insurance Alliance, Target Setting Protocol, Version 1.0, and which sets out the various emission reduction targets, the prosecutors require the companies to provide certain documentation such as communications between the members of the alliance related to the commitments acquired under the alliance, or communications between the parent company and the subsidiary in the USA.

Beyond the political debates, the issue from a legal perspective is very interesting and has a broader perspective. Several countries are already announcing new regulations (the Netherlands, Greece, Austria and Hungary) and the European Commission within the objectives of the European Green Pact and those related to the UN Sustainable Development is working on far-reaching competition rules, in what concerns us now, on Guidelines on horizontal cooperation agreements (C(2022)1159) that will provide guidance on how the most common horizontal cooperation agreements will be assessed under Art. 101 TFEU when they pursue sustainability objectives, i.e. any type of horizontal cooperation agreement that actually pursues one or more objectives of sustainability, regardless of the form of cooperation. The concept of sustainability objective includes, among others, the objective of combating climate change (e.g. by reducing greenhouse gas emissions).

The draft regulation also contains guidelines for sustainability standardisation agreements. Alliances such as the ones we are dealing with in this post could fall into this category, although they fall outside Art.101.1 TFEU if the listed cumulative conditions are met, such as that the procedure for developing the sustainability standard is transparent and all interested competitors can participate in the selection process or that participating companies must remain free to individually adopt a higher sustainability standard than the one agreed with their competitors.