A Polish state-controlled energy company is believed to be the first in the world to be sued over its management of climate-related financial risk.
Legal advocacy group ClientEarth filed a case against the energy firm Enea last week over its decision to build a new coal power plant, named Ostrołęka C, in northeast Poland. ClientEarth claims the project poses an “indefensible” financial risk to investors due to rising carbon prices, increased competition from cheaper renewable energy and the European Union’s move to reduce subsidies for coal.
A parallel action was launched a week later by Enea’s trade union Synergia, which highlighted the climate risks as well as concerns about workers’ job security and pay.
The challenges are an uncomfortable development for Poland, which will host the next United Nations climate conference, COP24, in Katowice in December.
Currently, about 80 percent of Poland’s energy is generated from coal, but the country recently promised to reduce that to 50 percent by 2040. The plans for a new coal plant with 1 GW capacity raised questions about that commitment.
A resolution authorizing the controversial plant was passed at an Enea shareholder meeting in September. The Polish state treasury has a controlling interest in the company. ClientEarth, which is based in London but has an office in Warsaw, filed the challenge as a minority shareholder.
Enea, together with its project partner Energa, maintains that Ostrołęka C will have lower carbon emissions than other comparable coal plants and calls it essential for Polish energy security. It did not respond to a request for comment from Climate Liability News.
But energy industry experts do not believe these claims stand up to scrutiny. In July, European credit rating agency EuroRating downgraded Energa, citing the signing of its construction contract for Ostrołęka C as the main reason. The plant is expected to cost $1.4 billion.
Global asset manager Legal & General Investment Management, which invests in both Enea and Energa, has expressed concerns about the project’s “very high financial risks” and said the companies should not proceed with the project until they provide evidence of its financial viability.
Analysts at UK-based financial think-tank Carbon Tracker have concluded that Ostrołęka C makes no economic sense, saying it will be permanently unprofitable without subsidies to offset operational losses. The European Union plans to reform its subsidy rules based on carbon emissions, which would effectively exclude coal power.
ClientEarth lawyer Peter Barnett described the coal plant as a “stranded asset in the making.”
“We’re challenging the resolution [to proceed with the project] on the basis that it is not in the economic interest of the company,” Barnett said. “There are also broader duties under Polish company law requiring directors to act with due diligence and in the best interests of the company.”
Companies have previously been challenged for their failure to disclose climate risks, most recently in a suit filed by the New York Attorney General against Exxon. Another case in which shareholders in Australia’s Commonwealth Bank filed suit over non-disclosure of climate risks was dropped last year.
But this is believed to be the first time a company has been sued for its failure to actually manage material climate-related risks in the specific context of a major investment decision.
It is also the first time an NGO shareholder has launched a challenge against a specific project on climate risk grounds. “We would expect to see more litigation of this type in time, both by NGOs and increasingly by activists and institutional investors,” Barnett said.