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ESG and Climate Change Disputes

The transition to a more sustainable economy presents challenges and opportunities. Businesses need to be mindful of the liability risks that may arise in connection with both, so that appropriate environmental, social and governance (ESG) risk management practices can be implemented.

As ESG concerns continue to capture the world's attention in the public, political and legal spheres, the trend of ESG and climate change disputes is gathering pace. ESG disputes continue to be on the rise (see our quarterly ESG Disputes Bulletin), often as a tool to push organisations to engage with the net zero transition with greater ambition, and to improve their ESG performance (e.g. in relation to human rights). Claimants are submitting novel claims, with varying degrees of success, alongside a shifting regulatory landscape offering further opportunities to bring proceedings. “Greenwashing” is clearly a priority globally for both financial and non-financial regulators. Focus on corporate disclosures and product claims are only likely to increase as requirements tighten, and regulatory findings in relation to disclosure failures can encourage follow-on investor claims.

Our multi-disciplinary ESG team advises on a wide variety of ESG-related issues and can assist businesses facing, or potentially at risk of facing, ESG disputes (including greenwashing claims) or regulatory investigations.

Categories of Disputes

Greenwashing and disclosure related claims
Alleging insufficient or misleading disclosure or breach of duty in relation to under or misleading reporting or alleged insufficient consideration of climate risk. Actions have been threatened or brought against financial institutions, corporates, trustees and auditors. Note also regulatory focus on greenwashing which may result in follow-on claims.

Individual accountability
Increased claims aiming to establish breach of director duties and therefore increasing scrutiny on the potential for personal responsibility for climate and other ESG harms.

Public law challenges to Government policy
Government policy on climate change continues to be challenged, Challenges to national or local policy or enforcement practices on the basis of failure to achieve government climate change mitigation commitments. A number of competing trends in the United States, including at the state level, add an element of operational complexity to the ESG landscape.

Claims challenging specific licences/permits Claims
Claims also brought using environmental, planning or other regulatory legislation to challenge project-specific authorisations, including challenges to permitting decisions based on failures of impact assessments to appropriately consider climate change/apply required methodology. Note also, where governments change policies to meet the green agenda, foreign investors materially adversely affected by changes in regulatory frameworks may seek to pursue investment treaty claims for compensation against states.

Accountability for past ESG harms 
Where stakeholders consider that ESG standards have not been properly met, claims may be brought based on negligence, non-compliance with certain laws (e.g. Modern Slavery Act), breach of public commitments and breach of fiduciary duties. Developments in case law relating to ‘parent company litigation’ is increasing the scope of potential liability for multinational organisations.

Soft law mechanisms
Using OECD Guidelines for multinational enterprises, UN or national human rights forums as the basis for non-judicial claims against corporates and financial institutions whose business operations are alleged in reality not to align with their commitments.

Trends in defence Disputes

Equality of expectation
Defendants have called out plaintiffs for conduct similar to that alleged against themselves (e.g. failure to disclose information on climate risks).

In response to applications for disclosure of historic GHG research, defendants have challenged “abusive law enforcement tactics” and alleged claimants are stifling their right to participate in dialogue about climate change and policy. Privilege is also sometimes claimed.

While accepting current science, defendants have highlighted the uncertainties in previous research. Defendants have positioned themselves as moving in concert with research acknowledging that they are now in a position to address climate risks.

Applying to join third party defendants on the basis they also used and promoted the use of fossil fuels and should contribute to remediation.

Key issues

The requirement in some jurisdictions to show the claimant has suffered a loss capable of sufficient particularisation.

Difficulties lie in drawing a clear causal link between an individual company’s contribution to global climate change and localised harm suffered by the plaintiff. The science of attribution is developing. Activists have also suggested weakening causation tests (e.g. as for asbestos) for example by adopting a “doubling the risk” principle.

Statutory authority
Where plaintiffs seek to rely on common law tort claims, they face the challenge of the displacement principle. This means where an area of law is codified in statute, common law relating to the same facts may be pre-empted.

The high costs involved in climate litigation operate as a deterrent for many potential claimants, though activist funding is becoming more common.

Judicial will
Climate change can be perceived as a political issue and some judges have declined to engage.

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