Increasing risks of climate litigation and controversy to sports organisations
In the past, climate litigation in England was typically brought against the giants of the fossil fuel industry, often under environmental legislation or the laws of negligence or nuisance. The introduction of the Companies Act into English law in 2006 saw the imposition of a requirement on directors to have regard to the impact of their company’s operations on the environment when fulfilling their overriding duty to promote the company’s success. This requirement can be used as a foundation for climate litigation, and there is an expectation that it will lead to more “climate litigation” in the near future.
ClientEarth’s derivative action against the board of directors of Shell Plc is just one example of climate litigation founded in English company law. ClientEarth intimated that Shell’s directors had breached company law by failing to manage the climate risks facing the Company, thus compromising the Company’s future success. Last July, the High Court refused to give ClientEarth permission to continue its claim against the board of Shell Plc, finding that ClientEarth did not have a prima facie case. The court noted that climate concerns are just one of a number of factors directors must have regard to when fulfilling their statutory duty to promote the company’s success such that it was for the directors to decide, having regard to all appropriate factors, on the strategic direction of their organisation.
In November, the court of appeal dismissed ClientEarth’s appeal against the High Court’s decision, meaning the end of the road for this litigation. Even though this case failed at the permission stage, the adverse publicity on Shell Plc surrounding the case demonstrates clearly that the risks of climate litigation and controversies are far reaching. The implications are not limited to legal and subsequent financial concerns, but reputational concerns too. What’s more, the personal risk of a claim being brought against directors individually (rather than against the company itself) raises concern for those working in organisations rather than just for the organisations themselves.
The increase in climate litigation
Now, climate litigation is on the rise. And it’s not limited to climate activists bringing claims against fossil fuel companies. Private individuals, business owners and investors, environmental groups and other civil society organisations, and public authorities are all involved in the recent increase in climate-related litigation. Moreover, a broader range of organisations are now finding themselves the target of climate litigation and subject to climate-related criticism.
Whilst heightened public engagement with and concern about climate-related issues means that an increase in climate litigation and controversy comes as no surprise to many, this does not mean that sports organisations can be complacent. The threat to sports organisations of being subject to climate-related legal action or controversy is real, and the impact of this can run deep.
Sports organisations are a likely target for climate activist groups and other complainants for a variety of reasons. Their public profile means that claims, complaints and controversies are likely to hit the headlines, increasing the exposure around the relevant climate issues, whether a legal claim is actually brought or not. The public-facing nature of sports organisations also means that many expect that they should lead the way on climate related issues. Indeed, the powerful platform at the disposal of sports organisations means that they have the ability to raise awareness of climate-related issues and set a precedent for positive and responsible action.
In fact, we have already seen some climate litigation in the sports industry. The lodging of advertising complaints across a range of European nations including the UK, Switzerland and the Netherlands against FIFA’s Qatar World Cup’s carbon neutrality claims is just one indicator of the growing focus on sports organisations’ climate-related actions and commitments. In the Swiss example, a report by the Swiss advertising regulator has now held that FIFA’s claims could not be proven and therefore breached rules against unfair competition and has instructed FIFA (who are based in Switzerland) not to make such claims in future.
The fact that climate issues have been thrown into the spotlight means that sports organisations’ policies and partnerships are under scrutiny and any misstep can cause significant backlash on the organisation – even where no laws or regulations have actually been broken and legal action is not brought. British Cycling’s announcement that it had agreed an eight-year partnership with Shell Plc in October 2022 drew considerable criticism from high profile climate activist groups and others including Greenpeace and Friends of the Earth. Amid the controversy, then-CEO of British Cycling, Brian Facer, stepped down from his role. Critics questioned whether a company such as Shell Plc would really be able to help British Cycling to fast-track its route to net zero, as had been suggested by the governing body in its press release about the partnership. The adverse media attention this deal attracted further reiterates that there is an intensified gaze on how sports organisations approach their own climate commitments and the track record of those organisations sports organisations choose to work with or seek investment from.
The risks: why does it matter to sports organisations?
The potential impact on sports organisations of failing to manage their approach to the climate properly is (at least) threefold: legal, financial, and reputational. These consequences are inherently interlinked and the presence of one can exacerbate or trigger the others. For example, if a legal claim is brought against a sports organisation, it faces obvious legal implications. Defending the claim is also likely to be expensive (financial implications). Due to adverse press relating to the claim, it may suffer reputational harm in respect of its public image, and may even see a subsequent reduction in the appetite of potential sponsors to provide backing or investment or even fan engagement (further financial implications arising out of reputational harm). Further, defending legal claims and dealing with other controversies connected to climate change is burdensome from a time perspective. Senior management might be drawn in and unable to devote time to their day-to-day roles.
In terms of reputation management, sound environmental sustainability strategy and policy is critical. It’s been clear for some time that a majority of consumers choose to adapt what they consume based on concerns about climate change. In the sporting context, there’s a particular focus on the travel footprint of sports organisations and the events they run (for example, how do attendees and participants travel to the event?). Particular attention is paid to clubs’ or organisations’ own travel arrangements, as exemplified by the criticism levelled at Premier League football teams taking short flights to games. The controversy surrounding FIFA’s decision to host the 2030 men’s world cup across 6 countries, raising obvious climate concerns just months after it was found to have made misleading sustainability claims about the Qatar World Cup, demonstrates the increased level of expectation on sports organisations to consider (and attempt to minimise) not just its direct impact on the environment, but the indirect impact it has on the climate (such as emissions resulting from spectators and participants travelling to events). And, close attention is paid to the commercial relationships forged between sports organisations, and their investors and sponsors. The controversy surrounding the British Cycling and Shell Plc partnership is a stark example of the reputational implications that can arise from ill-perceived partnerships. Organisations that make strong environmental claims themselves are likely to be under even greater scrutiny when forging partnerships or seeking investment. Investment in the oat milk brand, Oatly, by private equity firm Blackstone attracted fierce criticism from a range of groups due to Blackstone’s apparent links with deforestation in the Amazon, and both Oatly and Blackstone subsequently had to put out statements in defence (and an explanation) of the relationship and the accusations. This risk translates to sports organisations who have made bold environmental commitments.
Amidst a backdrop of financial issues in sport, especially in the wake of Covid-19, these impacts can place sporting organisations at break point. In the UK, a range of sports teams and governing bodies are already facing real financial difficulty, and some – including English rugby clubs Wasps, Worcester and London Irish – have even gone insolvent. At a time when it is vital for sports organisations to bring in enough revenue (such as from commercial partnerships and sponsorship deals) to sustain their operations, blows such as litigation or adverse press can be devastating. For this reason, it’s crucial that sports organisations ensure they manage their reputation and reduce the risk of backlash against climate-related concerns.
The solutions: what can sports organisations do about it?
There are a range of potential commercial solutions available to sports organisations to reduce their risk of facing climate-related litigation and controversies, whilst also ensuring they are carefully considering their environmental impacts and perhaps even contributing to positive change in the industry.
Environmental sustainability policies and climate commitments
Many sports organisations have created some form of environmental sustainability policy and commitments. These policies and commitments should be carefully thought through, and the plans for implementation mapped out to ensure they are achievable. That’s not to say that organisations cannot have ambitious goals, but it’s important to ensure that promises are backed by evidence as to how they will be executed and are actually followed through with. Further, due diligence should be carried out in advance of an organisation selecting a particular means of offsetting and organisations should follow up to ensure their offsetting requirements have been met.
Some organisations’ environmental sustainability policies and commitments might need to address both internal and external impacts. Governing bodies and regulators might not only wish to consider their internal operations, but also to think about setting a standard for the sports organisations under their direction to adhere to. The Premier League’s recent announcement of its own Environmental Sustainability Commitment, under which Premier League clubs have agreed to develop robust sustainability policies by the end of the 2024-25 season, is one example of this.
Sports organisations should look at their operations as a whole when devising and considering how to implement their climate strategies. Using and promoting sustainable transport options is a key consideration, which could include encouraging their athletes to travel more sustainably (like many employers do) and incentivising the use of sustainable transport for spectators. Brighton & Hove Albion FC, for example, provides park and ride options and a free matchday travel scheme to home and away fans. Taking a holistic approach to tackling climate-related issues might also include thinking about sustainable options for other operations such as stadiums and event spaces, training facilities, food, kit and waste. Forest Green Rovers FC is one example of a sports organisation taking such action: the club is fully vegan (both in terms of food provided to players at club facilities and food for sale on matchdays) and its kits are made from recycled materials. Arsenal FC’s review of how to deal with matchday waste and pitch waste further highlights the methods sports organisations can adopt in order to take a comprehensive approach to addressing climate impacts.
Due diligence process for commercial partners
Carefully selecting commercial partners and investors is crucial for sports organisations. It helps to minimise their indirect impacts on the environment as well as to reduce the risk of climate litigation and climate-related controversy. When sports organisations make environmental sustainability commitments, they should seek to ensure that those businesses they enter into partnerships with or receive investment from have environmental sustainability goals consistent with their own. This can be managed by way of a vigorous due diligence process prior to entering into any partnerships or receiving investment.
The due diligence process prior to deciding to move forward with a prospective partner should consider the partner’s environmental impact. Assessing a potential partner’s emissions is one crucial part of this, which should involve an assessment of each of scope 1, 2 and 3 emissions. The sports organisation should also assess whether the prospective partner’s decarbonisation strategy and general approach to environmental sustainability are sufficiently in keeping with its own. Whether that prospective partner has any involvement with fossil fuel or other companies seen to be causing destruction to the natural environment is another key factor to take into account.
After deciding to engage with a partner, there are a range of steps sports organisations can take to protect themselves. Environmental sustainability considerations should form part of contract negotiations. Contractual clauses can be used to legally bind the partner or investor to obligations on environmental sustainability and provide recourse to the organisation should those obligations not be adhered to. Duration and termination clauses should be well drafted to allow organisations to exit agreements if required to protect their reputation or cut ties in the event of controversy or enable them to elect better-suited partners should the parties’ approach to climate issues become misaligned.
Conclusion
Whilst the increasing trend of climate litigation and controversies poses a serious threat to sports organisations, there are a range of commercial solutions that can be applied to minimise the related risks. This, coupled with the opportunity for sports organisations to drive meaningful change in how other organisations approach environmental sustainability, means the case for the industry to tackle its climate footprint is strong.
This article first appeared in Sports Litigation Alert
