In an increasingly eco-conscious world, the use of carbon credits has become a popular tool for companies looking to offset their environmental footprint. However, banks are now being advised to err on the side of caution when considering the use of these credits, with lawyers warning that they could potentially expose these institutions to legal risks.
Climate change reporting and regulation is a highly complex area where missteps can bring about significant litigation. Indeed, it is a legal field that is experiencing growth, as highlighted by an overall rise in climate-related litigation. Bloomberg reports that this truly intricate sector is marked by the inherent intricacy of carbon offsetting. All of this makes the bank’s claims to eco-responsibility harder to substantiate.
The role of carbon credits in this scenario is far from simple, as these instruments themselves introduce an additional layer of complexity, with multiple interconnected parts. Tom Black of Eversheds Sutherland, a lawyer specializing in financial services disputes, aptly describes the situation. “If you’re then relying on offsetting,” he said, “it’s another link in an already very complicated chain,” chiefly since “offsetting can have links within links within links.”
This advisory comes not long after significant developments in the field. Regulatory changes in Europe are set to make ‘greenwashing’ lawsuits considerably easier to bring to court. Consequently, it would appear that any misrepresentation in a bank’s environmental conservation efforts could now be far more readily pursued in a legal setting.
In light of such complexities, it is clear why legal professionals are advising banks to carefully consider their approach to carbon credits. While the intention behind these credits is undoubtedly noble, it is also crucial that banks and their legal advisors thoroughly understand the potential legal pitfalls they may encounter.