CLIMATE LITIGATION: A LANDMARK CLIMATE CASE – CLIENTEARTH V. ENEA

Understanding Climate Litigation & ESG in the Legal Spectrum

Climate litigation refers to the burgeoning wave of global lawsuits aimed at compelling governments and corporate entities to mitigate climate change, enforce environmental accountability, or adapt to climate risks.

In Malaysia, specialized Environmental Courts were established within the Magistrates’ and Sessions Courts pursuant to Practice Direction No. 3 of 2012 (Circular No. 189/2012). While these courts primarily adjudicate regulatory offenses such as industrial pollution, illegal logging, and wildlife poaching, direct corporate climate lawsuits remain relatively rare compared to Europe and North America.

Nonetheless, Malaysian superior courts increasingly apply the overarching framework of Environmental, Social, and Governance (ESG) principles when exercising judicial discretion. For instance, when evaluating whether to grant interlocutory injunctions, courts assess potential environmental disruption and broader community welfare.

The Global Landmark Precedent: ClientEarth v. Enea (The Ostrołęka Case)

Unlike jurisdictions where environmental cases focus solely on state policy, the landmark European case of ClientEarth v. Enea, decided by the District Court in Poznań, Poland in 2019, directly targeted corporate governance and board decision-making.

The dispute arose after Polish state-controlled energy utility Enea SA entered into a joint venture with fellow utility Energa to construct a massive €1.2 billion, 1,000 MW coal-fired power plant (“Ostrołęka C”) in northeastern Poland. Despite overwhelming evidence of a global transition toward clean energy, the majority shareholders passed a formal corporate resolution approving construction.

ClientEarth, a non-profit environmental law organization that purchased shares in Enea to become an activist shareholder, filed a historic legal challenge seeking to have the shareholder resolution declared null and void.

The Core Arguments: Climate Risk Is Financial Risk

ClientEarth argued that the board and majority shareholders breached their fiduciary duties to the company because the resolution failed to account for severe, foreseeable climate-related financial risks:

• Surging Carbon Prices: Rapidly escalating carbon emission allowance costs under the European Union Emissions Trading System (EU ETS);
• Phase-Out of Subsidies: Major regulatory reforms across the EU eliminating capacity market subsidies for fossil fuel power generation; and
• The Threat of Stranded Assets: High risk of the multi-billion-euro plant becoming an unprofitable, non-performing “stranded asset”, directly imperiling shareholder capital and the company’s solvency.

The District Court Ruling

The District Court in Poznań ruled entirely in favor of ClientEarth, declaring the corporate resolution authorizing construction of Ostrołęka C to be legally null and void. This marked the world’s first court ruling striking down a corporate fossil-fuel investment on grounds of financial climate risk and fiduciary prudence.

Strategic Takeaways for Malaysian Directors & Companies

ClientEarth v. Enea established a transformative legal principle: boards of directors can no longer ignore climate risk under the shield of the business judgment rule.

In Malaysia, under Section 213 of the Companies Act 2016, directors are statutorily required to exercise their powers in good faith, in the best interest of the company, and with reasonable care, skill, and diligence. As Bursa Malaysia and the Securities Commission mandate enhanced ESG reporting and sustainability governance, Malaysian directors who commit corporate capital to carbon-intensive projects without evaluating transition risks, carbon taxes, and stranded asset liabilities expose themselves to potential breach-of-fiduciary-duty claims by minority shareholders.

Disclaimer: This article is for informational purposes only and does not constitute formal legal advice. If you require legal counsel regarding ESG compliance, director duties, or sustainability governance, please contact Hasrina Hakimi Advocates & Solicitors directly.