Environmental Destruction and Blood: The True Price of Oil by Adaeze Chuckwugor and Dara Neylon-Marques

International Environmental Destruction & Blood: The True Price of Oil

By Adaeze Chukwuogor, (Culture of Denial, Activism, Growth of Resentment and Conflict) JS Law and Political Science and Dara Neylon-Marques, (Corporate Impunity), JS Law and Political Science

The oil and natural gas reserves found in the Niger Delta are both a blessing and curse for the Nigerian state and its people. While the oil extracted from this region positions Nigeria as the biggest oil producer in Africa, it also results in approximately 40 million litres of oil being spilled across the neighbouring areas. This has had devastating effects not only on the environment but also for the local community, whose livelihood depends on crops, that are growing weaker and a fish stock that has halved in quantity. Locals are forced to drink polluted water, while child mortality has doubled for children whose mothers were living near an oil spill. In addition, the region is home to many gas flaring plants which have led to acid rain, asthma, asphyxiation and skin corrosion. However, the shareholders and directors of oil companies like Shell or Eni have not only refrained from implementing safety measures and standards that could prevent the spillages, but they also have been slow to resolve these issues when they arise. For example, Amnesty International reported an instance in which Eni took 430 days to respond to a spill in Bayelsa State, claiming that “for more than a year, oil leaked out of the pipeline into nearby swampland and rivers, contaminating the water people drink and wash with.” This is not a problem of unforeseeable consequences or inevitable damage but rather a clear disregard for the environment and the livelihood of the citizens of the region. One may reasonably ask: How do they get away with it?

Corporate Impunity

In company law, the principles of separate legal personality and limited liability recognise that the company and its owners are distinct. Therefore, they should not be held liable for the company’s actions and debts, as established in the cornerstone case of Salomon v Salomon [1896]. However, at the time of the judgment, Lord Justice Lindley in the Court of Appeal pre-emptively warned about the danger of exploiting these privileges to use incorporation as a front instead of as a means to create valuable economic activity for society. This concern is particularly relevant to the situation in the Niger Delta. European multinational corporations such as Shell enjoy billion-dollar profits from its subsidiaries in Nigeria yet bear none of the responsibility for the negative environmental externalities they produce, as they are considered a separate legal entity. The legal separation between the parent and the subsidiary means that those affected by the oil spills can only seek remedies in the Nigerian jurisdiction as that is where the subsidiaries are legally based. This has two main implications. The profits of the subsidiary are commonly absorbed by the parent, so they will have a smaller pocket from which to pay reparations. Furthermore, it is easier for the subsidiary to avoid the rule of law in Nigeria due to the rampant corruption that links oil production and politics, as well as the loosened environmental protections in Nigerian law. This is exacerbated by the economic barriers that citizens might face in sourcing legal representation, especially considering the huge legal machineries that companies can afford. The parent/subsidiary strategy has become increasingly useful for multinational companies in an attempt to distance themselves from the human and environmental externalities they incur.

Nevertheless, it appears changes are arising. Following the case of Vedanta v Lungowe [2019], the UK Supreme Court recently accepted in Okpabi v Royal Dutch Shell Plc [2021] that those in Nigeria affected by the environmental harm caused by Shell could seek damages in the UK. By doing so, the Court recognizes that there is a triable issue in the claim that the UK parent company owed them a duty of care due to its control over the Nigerian subsidiary which was causing the environmental damage. While it remains undecided whether the duty did in fact exist in this particular case, another recent ruling leaves room for hope. In January of this year, the International Court of Justice ruled in favour of the plaintiffs in Four Nigerian Farmers and Milieudefensie v Shell [2021]. The Court held that Shell owed the plaintiffs a duty of care due to the activities of its subsidiary in the Niger Delta and that their

Page 51 International omission to effectively respond to the oil spills constituted a breach of such a duty. Consequently, the company has been required to provide compensation take responsibility for cleaning current spills and preventing future spills. While we can welcome the decision as a step towards holding companies accountable for their contribution to environmental damage, this is tempered by the court’s limited jurisdiction. It is up to Nigeria to enforce the ruling and considering the relationship between oil and politics in the country, there are still grounds for concern.

Culture of Denial, Activism, Growth of Resentment and Conflict

It would leave a lacuna in the story if we do not ask why oil companies haven’t been held to account in the very country they operate in. The following section will elaborate on the difficulties that arise in the Nigerian political system and the influence of corruption on the degradation of the environment.

The Nigerian elite, many of whom are politicians and community leaders gain from the production of oil in areas such as Niger Delta. Scholars such as Nane have highlighted the emergence of a culture of denial of the magnitude and effects of the oil spills. This undermines the damage and destruction caused by the activity of oil companies like Shell, while redirecting blame disproportionately towards militant groups, namely, MEND (Movement for the Emancipation of the Niger Delta ) who are dedicated to exposing and combatting the suffering of Niger Delta people caused by oil spills and gas flaring.These elite pocket a substantial amount of profit from the production of oil which withhold potential funding for the development of local communities. The citizens are then left to suffer in poverty, while their environment and their livelihood is destroyed by oil spills that seep into their crops and water supply.

Former President of Nigeria Ibrahim Babangida took approximately $12 billion from the windfall profits caused by the hike in oil price in the 1990s. This is not a unique case as other Nigerian officials have been found guilty of similar fraudulent activities. For instance, former Nigerian Petroleum Minister, Dan Eete who illegally facilitated the transfer of $1.1 billion from Shell to his company. Such officials are incentivised to protect oil companies causing damage to the environment and violating human rights.

Attempting to prosecute is often futile as the victims of these actions generally cannot afford to pursue legal action attempting to do so is a risky venture. Ultimately, the elite in concert with the oil companies strategically disguise the extent of damage caused despite ample evidence of the negative effects of oil production on the neighbouring communities. Likewise, they blame a significant proportion of the spillages on the militants who have tampered with the oil pipelines. According a to a UNEP investigation funded by Shell, found that only 10 per cent of the oil spills in Niger Delta were caused by Shell’s equipment failures. NGO’s such as Amnesty International have questioned the veracity of these claims.

Efforts to bring the oil companies and the government to justice have been continuously quashed. Resentment in the neighbouring communities in the Niger Delta area resulted in the emergence of resistance towards the oil companies. This was in the form of both peaceful protests and militancy. All of such were silenced. Environmental activist, Ken Sarowiwa spearheaded a non-violent movement, The Movement for the Survival of the Ogoni People (MOSOP). His goal was to highlight the human rights violations perpetrated by the oil companies and enabled by the Nigerian government. He was outspoken about the unwillingness of the Nigerian government to implement environmental protection laws. Amidst his campaign for justice, he was accused of inciting the murders of Ogoni chiefs and he, alongside eight other MOSOP leaders were executed, triggering international uproar. In response to militant action, the Nigerian government established a Joint Task Force that perpetrated sexual violence and killed innocent people in Niger Delta, a gross violation of human rights.

To this day, victims continue to seek adequate remediation and protection for their local environment. The environmental and human crisis in the Niger Delta is not a problem that can be tackled merely though the legal route given the absence of rule of law, often substituted by the rule of corruption. Until we see change in the political will to tackle corrupt norms and practices, Nigerian society will be plagued with injustices like the Niger Delta Oil crisis.

McVeigh v Rest - A Gateway to a New Era of Australian Climate Change Litigation?

By Katharina Neumann, JS Law and Political Science and Fergus Maclean, Contributing Writer, Bachelor of Arts and Bachelor of Business Administration at The Australian National University

Just as the amount of litigation concerning climate change disputes has risen, so have the avenues that enable such litigation. While areas such as international and national human rights law, tort law and consumer law have proven to be successful in jurisdictions around the world, the recent Australian case of Mcveigh v REST sheds light on an emerging avenue of climate litigation employing corporate disclosure. A route which has long lurked in the shadow of other more traditional climate litigation debates. As corporations around the world are becoming increasingly aware that the tangible and transitional risks of climate change pose a genuine threat to current business models, and companies, shareholders and consumers are responding. Corporate action on climate change and acting in shareholders’ best interests are no longer considered to be mutually exclusive aims.

McVeigh v REST nudges financial institutions and businesses in the right direction, indicating that in regard to the increasingly pressing climate emergency the consideration of climate change in the context of businesses’ strategic and operational risk management should be established as industry best practice. In 2018, Mark McVeigh commenced proceedings against REST (Retail Employees Superannuation Pty Limited). He claimed that the superannuation fund, one of the largest in Australia, failed to adequately disclose its strategy to manage climate change risks and breached its statutory disclosure requirements as well as its fiduciary duties by failing to adequately consider the risks of climate change when managing large financial assets. Although McVeigh v REST was settled three days before the federal court hearing and thus does not create legal precedent, the settlement of this case indicates that there is merit to the legal argument that there is a link between climate change-affected asset management and shareholder rights. Does McVeigh v REST usher in a new avenue of Australian and potentially international climate litigation? And how will this case affect Australian and possibly global business?

In Australia, superannuation funds (“super”) are a part of a mandatory retirement scheme in which 9.5 per cent of a person’s salary is deposited each working year. Individuals typically choose a fund based on factors such as performance and commission. The fund will then pool these financial resources into various investments over time, using compounding through dividends, interest or capital gains to grow the overall balance. As a mandatory retirement scheme, “super” is closely regulated by the government to ensure the consistent and appropriate use of funds and to reduce risk, which can be roughly defined as the methods of control used to mitigate the negative externalities of uncertainty. There remains little understanding of the risks and opportunities posed by climate change for these funds, as the market and the world more broadly are currently undergoing significant changes in areas such as electric vehicles, carbon conversion strategies, as well as international and domestic climate policy. However, generally speaking climate change presents two specific types of risks to the economy: physical risks resulting from increased frequency of extreme weather events, rising temperatures and sea levels causing disruptions to business and enterprise; and transition risks stemming from the rapid repricing of financial assets resulting from changes in policies or shifts in consumer and investment speculation, affecting market capitalisation and the overall stability of industries. Mr McVeigh leveraged the uncertainty in the connection between financial risk and climate change and a lack of risk mitigation strategy by his superannuation fund as a basis for his case against

Page 53 REST.

The claim was grounded in the fund’s obligations under the Corporations Act 2001, and the Superannuation Industry (Supervision) Act 1993. Under the Corporations Act 2001 super fund beneficiaries are entitled to request information needed to make an informed decision about the management and financial condition of the fund. The plaintiff alleged that the information provided by REST on knowledge of, opinion on and actions responding to REST’s Climate Change Business Risks did not fulfil the obligations established under the Corporations Act. Additionally, it was alleged that the defendant had violated the Superannuation Industry (Supervision) Act 1993, requiring trustees to act with care, skill, and diligence, and to perform their duties and exercise their powers in the best interests of their beneficiaries. Mr McVeigh argued that a prudent superannuation trustee would have required its investment managers to provide the type of information requested.

The nature of the case at hand is particularly interesting in the light of the broader climate litigation framework as it does not involve a direct demand for action on holding business accountable, but is rooted in the disclosure of climate-related information; establishing an indirect avenue where reputational concerns regarding unsatisfactory environmental standards lead to the adoption of environmental standards. The outcome of the case exemplifies the efficacy of this mechanism. Although the case was settled before a trial was held, REST acknowledged that “Climate change is a material, direct and current financial risk to the superannuation fund across many risk categories, including investment, market, reputational, strategic, governance and third-party risks.” To address this risk, REST agreed to implement a net-zero carbon footprint by 2050 goal for the fund, to measure, monitor and report climate progress in line with the Task Force on Climate-related Disclosures, to ensure investee climate disclosure, and to publicly disclose portfolio holdings, among other commitments.

The case sets a ground-breaking foundation, as members of Australian superannuation funds may now feel empowered to demand more from their super funds in terms of disclosure and assessment of climate-related risks on their investments. Businesses are likely to come under increasing pressure from internal and external stakeholders to have appropriate measures in place to manage climate change and ESG risks in order to continue to benefit from super investment. Although sustainability risk is a relatively new concept, referring to environmental, social and governance events or conditions, the case clearly signals enhanced disclosure of climate change and ESG risks, as

“The nature of the case at hand is particularly interesting in the light of the broader climate litigation framework as it does not involve a direct demand for action on holding business accountable, but is rooted in the disclosure of climate-related information.”