Investors Face Rising Renewables Litigation Risk
A tracking tool from the Business & Human Rights Resource Centre highlights an increase in number of cases and geographical spread.
Investors and companies are subject to increased litigation from Indigenous people and local communities over human rights and environmental abuses, which could slow down progress on the energy transition.
A new ‘just transition’ tracking tool for litigation released by the Business & Human Rights Resource Centre (BHRRC) has documented, tracked and analysed 60 legal cases launched globally by Indigenous peoples, or by communities and workers directly subject to human rights harms associated with grownig the renewable energy value chain.
“Companies and investors have the power to help ensure a fast energy transition, but only if it’s fair,” Elodie Aba, Senior Legal Researcher at BHRRC, told ESG Investor. “Proper consideration of core human rights responsibilities from the initial phases of any project can offer powerful protection against legal cases, potential costly delays that have implications for shareholder returns, reputational damage, and more importantly – contribute to building public trust in the global transition to renewable energy.”
According to the BHRRC, a “disturbing trend of systemic abuse” against communities and workers in renewable energy value chains has meant strategic litigation has become necessary for those impacted to defend their rights.
Lawsuits against renewable energy and transition mineral mining firms have resulted in project delays, stop orders and escalating costs – creating risk for investors and companies. Almost 80% of the cases have sought to permanently or temporarily halt projects because of alleged human rights and environmental abuses.
“What this research shows is that the transition will only be fast if it is fair,” said Aba. “[It] highlights rising resistance by communities and workers against a business approach that leads to human rights abuse. This is slowing down projects and, collectively, risks slowing the transition.”
Cases will continue to be added to the BHRRC tool to portray the global evolution of litigation trends going forward.
Investor attention required
The tool focuses on cases brought against the private sector and states involved in transition-mineral mining, across three renewable energy sectors: solar, wind and hydropower. The cases target a wide range of harms, including environmental abuses (77%), water pollution or access to water (80%), and abuse of Indigenous peoples’ rights (55%).
Of the cases tracked, 73% were filed from 2018 onwards, highlighting an uptick in this type of litigation in line with the acceleration of the energy transition. Litigation has been on the rise globally, with most cases filed in Latin America (35), followed by North America (9), and another 16 spread across in Africa, East Asia and the Pacific, Europe, and the Caribbean.
“As the renewable sector grows, we’re starting to see different types of disputes evolve in that space,” noted Christopher Moore, Global Co-head of International Arbitration at international law firm Cleary Gottlieb. “Supply disruptions fairly recently have led to disputes in the solar panel sector, which several years ago was fairly nascent but now less so.”
BHRRC’s 2023 renewable energy and human rights benchmark found that the renewable energy sector was not ready to deliver a fair energy transition, identifying “dangerous shortcomings” on Indigenous peoples’ rights, land rights, and forced labour.
“Investors should be very focused,” said Moore. “ESG-related matters are becoming increasingly important to our clients both for the regulatory and litigation risks that they pose.”
Indigenous peoples are sometimes affected by just transition projects, such as the extraction of transition minerals or the development of renewable energy on their land. An estimated 50% of the lands needed for energy transition projects are located on Indigenous peoples’ or peasant lands.
Last year alone, the BHHRC’s transition minerals tracker identified 91 allegations of human rights abuse against mining firms connected to the extraction of seven key critical minerals.
“Investors should commit to rights-respecting investments in the transition-mineral mining and renewable energy sectors, including by evaluating risks and impacts of investee companies on people and the planet,” said Aba. “[They should also assess] financial materiality, adopt stewardship and responsible investment policies, and engage with investees to close any gaps in human rights policies and practice.”
The Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science recently highlighted 2023 as a significant year for international climate litigation, particularly in relation to human rights.
“Everyone will win if we address these issues with urgency: the climate, the planet, people – and the private sector,” Aba added. “Companies and investors have the power to help ensure a fast energy transition, but only if it’s fair.”
Aba underscored that mandatory human rights and environmental due diligence legislation was developing globally, urging investors to publicly support such requirements or risk corporate liability for failing to adhere to them.
Sector-specific laws prioritising the rights of frontline communities in the transition have also been approved in Canada, Kenya, Mexico, New Zealand, and Sierra Leone.
“These legislative trends should be changing discussions on risk and business models in the boardrooms of both transition-mineral mining firms and renewable energy companies across the globe,” said Aba.
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