Users guide

Why the Principles on Climate Obligations?

Climate change is the defining issue of our time. The window of time to come to grips with the looming catastrophe if we cannot keep the increase of global temperature well below 2C is swiftly closing. The coming five to ten years will be decisive. Without a contribution by the corporate community and a few other key players, the commonly accepted goal cannot be achieved.

An increasing number of enterprises and investors pledged to scale up their measures to avert cataclysmic global warming. However, they face a problem: it is in the clouds which steps they have to take and why.

At the same time, NGO’s and activists argeu that enterprises and investors are obliged to take action on climate change. Some have started litigation against enterprises to force their hand. However, there is no broad, international agreement on what exactly the obligations of enterprises and investors are.

Our Principles aim to fill this knowledge-gap by mapping the legal obligations of enterprises and other key players. That is important because:

  • enterprises cannot comply with unknown obligations. Non-compliance may come at a very high price: far-reaching liability or reputational damage;
  • investors, accountants, credit rating agencies, (re)insurers, attorneys, NGOs, and supervisory institutions cannot assess whether an enterprise complies with its obligations if they do not have a clue what they are;
  • they can serve as a source of inspiration for shaping the law.

Some – hopefully few – enterprises may believe that compliance is a heavy burden to them. In quite a few instances, compliance does not need to come at significant costs; though compliance with some Principles may. In the mid-long term, taking a sit-and-wait position will be much more expensive: exposure to liability, reputational risk, or even running out of business. As the world transitions to net zero, compliance can be expected to increasingly become a competitive advantage.

 

Are the Principles enforceable law?

The Principles are based on the expert group’s interpretation of the law as it stands or will likely develop. This interpretation is based on a myriad of legal sources: human rights, environmental, corporate, and liability law, codes of governance and conduct, case law, authoritative reports and other sources of soft law. They align with the almost commonly accepted view that the increase of global temperature must be kept well below 2 C.

Precisely because the Principles are not law (the expert group is not a legislator), time will tell whether they will be accepted by courts, or inspire legislators to translate them into enforceable obligations. The prefaces by eminent experts from various backgrounds, and many endorsements from distinguished experts – among them top judges from around the globe – we hace recieved, strengthen us in the believe that it would be a serious mistake to bet on the idea that climate change is a lawless realm until the legislator has enacted detailed and pertinent legislation. That is not how the law is administered. If the law is unsettled, or only offers open norms, courts have to interpret these norms. That is what they have done over the centuries, keeping pace with the changing demands of society.

The commentary provides general information about the legal basis of the Principles (p. 70-107) and specifically in the commentary to the respective Principles.

 

How to use the Principles?

The Principles contain a series of “obligations” ranging from the equitable division of the remaining Carbon Budget, the rate at which specific enterprises should reduce their GHG emissions, the selection of suppliers, emissions caused by products and services, governance, disclosure, and impact assessments. They also map “obligations” of investors, (re)insurers, credit rating agencies, accountants and attorneys.

We believe that it is not overly fruitful to challenge that enterprises and the other key players covered by the Principles do have discernible legal obligations. That leaves untouched that one or more of the Principles can be challenged. In that scenario enterprises, or their legal advisors, would be well advised to enquire what, in the challenger’s assessment, these entities are required to do instead.

Obviously, those covered by our Principles may apply the Principles that appeal to them and ignore the others, or opt for taking less demanding measures. Although that may not legally suffice, but it will reduce the liability and reputational risk and contribute to the universally adopted imperative to avert global catastrophe.

Unavoidably, parts of the Principles contain “open norms” because they cover a wide range of possible scenarios. In those instances they have to be tailored to a case in point. The commentary explains what the drafters had in mind, often illustrated by means of examples. They require action which, in quite a few instances, will come at a price. As a rule, they do not aim to make doing business impossible or unreasonably burdensome. “As a rule”, because GHG emissions must be reduced to (net) zero. In the overwhelming majority of cases that will be doable at an affordable price.

No doubt the Principles and the commentary will not answer all questions, nor deal with all real-life scenarios, which is not any different with legislation. They should be applied with common sense. We are open to discuss concrete questions and are avalaible to deliver presentations; please contact Prof. Dr Jaap Spier, j.spier@oudleden-hogeraad.nl.

Website

This website provides links to the Principles, the commentary, the members of the group and the endorsers. 

See the Homepage for Information about and reactions on the Update (second edition)

 

About the first Edition

The Climate Principles for Enterprises are a follow-up project to the Oslo Principles, launched at King’s College London in 2015. Whereas the Oslo Principles chiefly formulated the obligations of States in the face of climate change, the Climate Principles for Enterprises focus on enterprises and investors. Both projects aim to further the discussion on what specific entities must concretely do in the face of climate change from a legal perspective.

Comprised of experts in international, environmental, tort, human rights and company law, the Expert Group on Climate Obligations of Enterprises has worked over several years to formulate the Principles based on its interpretation of the law as it stands or will likely develop. In doing so, it hopes to spur a concrete debate on the responsibilities of individual entities and therewith contribute to addressing the threat climate change poses to life, the environment and the economy.

Typhoon Ondoy AftermathAccording to the Expert Group, enterprises are under four kinds of obligations:

  1. Reduction of greenhouse gas (GHG) emissions from enterprises’ own activities;
  2. Reduction of GHG emissions from enterprises’ products and services;
  3. Consideration of suppliers; GHG emissions; and
  4. Procedural obligations on disclosure and impact assessment

In general, enterprises should reduce the GHG emissions of their own activities to the same extent as the country or countries in which those activities take place. That means that the burden will primarily be carried by enterprises in developed countries.

Investors can and many already do play an important role to stem the tide of climate change. The Climate Principles for Enterprises also aim to provide a legal basis for active investment management and investor engagement with enterprises on climate. The Principles aim to strike a balance between the need for investors to operate from a long-term perspective, which includes taking responsibility in addressing climate change, and achieving an adequate return for current beneficiaries.

NASA Irma

 

Reactions:

“The Climate Principles for Enterprises are a valuable initiative which can help in achieving the Paris Agreement’s objectives and ultimately tackling climate change. I sincerely hope that this project will enjoy broad support.”
Laurent Fabius, President of the Constitutional Council of France, Former Prime-Minister of France, Former Minister of Foreign Affairs and International Development of France during COP-21

“Climate change may be the greatest challenge that currently faces mankind. If it is to be solved it requires collective action. That creates a problem, because if collective action is to be successful, each individual needs to understand what his or her contribution is to be. And if that contribution is to be made, it needs to be, and to be seen to be fair amongst all participants. Scientists agree that we need to keep the temperature rise to two degrees. But what does that mean for way we run those enterprises that are the engine of the global economy? If we leave it for every company to invent their own rules, it will take enormous effort, and it is unlikely that all will agree that each has contributed their fair share. That is why this document is of such importance. Here in less than 3,000 words, some of the world’s most eminent lawyers have laid out a simple set of rules.”
David Pitt-Watson, Former Chair UN Environment Program Finance Initiative

“The Climate Principles for Enterprises provide a very explicit and easy to follow mandate for corporates to incorporate the imperatives of reducing carbon emissions into their planning, management and reporting. The simplicity of the document serves only to highlight the sophistication of its drafting and the power of its message.”
Ashok Khosla, Chairman, Development Alternatives; Past Chairman, UN’s International Resource Panel; Past President, IUCN and the Club of Rome

The Climate Principles for Enterprises “provide a solid framework for identifying the obligations of all businesses to reduce their greenhouse emissions in line with national targets that are sufficient to meet the two degree goal. Businesses that reduce their total emissions in line with these principles are likely to avoid the risk of future litigation and liability for contributing to the loss and damage from climate change.”
James Thornton, CEO of Client Earth

“The Principles on Climate Obligations of Enterprises are impressive, well-conceived, and well-constructed. I am glad to endorse them.”
Parvez Hassan, Senior Advocate of the Supreme Court of Pakistan; President of the Pakistan Environmental Law Association; former Chairman, IUCN World Commission on Environmental Law

“Finally, the Oslo Principles, although not endorsed by the UN or binding on any states, contain a useful framework for conceptualizing state obligations in this context [domestic mitigation obligations]. The principles explicitly reference the need to protect human rights and clarify the obligations that states have to reduce GHG emissions, taking into account cost and other factors”
“[I]t is worth noting that non-state obligations with respect to human rights are also outlined in the Oslo Principles (which deal specifically with climate change)”
UN Environment in cooperation with the Sabin Center for Climate Change Law at Columbia University, Climate Change and Human Rights, 2015, p.24-29