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The ESG class-action wave
By Tim Quinson
Class action litigation risk rises on ESG claims
Lawyers are bracing for an increase in ESG-related cases as corporate disclosure
requirements stiffen around the world.
A
survey by the law firm
Norton Rose Fulbright found that 28% of more than 430 general
counsel and in-house litigation leaders said their so-called ESG
dispute exposure increased in 2022, and 24% expect it to deepen over
the next 12 months. The key reasons are the absence of clear
environmental, social and governance
metrics and requirements, and the heightened regulatory scrutiny on
the importance of ESG.
The issue has joined employment and labor disputes, cybersecurity and
data protection in what Norton Rose refers to as “class-action areas
of future concern.”
The growing attention of corporate litigators in industries ranging
from financial services to technology corresponds with the growing
tide of class actions tied to greenwashing.
This is partly due to the California’s plaintiffs’ bar having “figured
out the blueprint for how to bring these cases,” according to Norton
Rose. In a nutshell, this means companies that put out generalized ESG
statements will sometimes find themselves as targets in
product-specific cases.
“Across industries, our clients are feeling pressure from customers,
shareholders and regulators, among others, to increase their
disclosures of their ESG goals and performance,” said
Rachel Roosth, disputes partner at Norton Rose. “If these
disclosures are perceived as false, misleading or insufficient,
litigation may ensue.”
The
Norton Rose report found that while only 8% of those surveyed said
they were actually involved in ESG-related class actions last year,
roughly 37% of those who said they are wary of future class
actions view ESG as “a major driver.”
So
while the kinds of litigation risk may vary across industries,
companies in all sectors can benefit from assessing their ESG-related
litigation risks and how to mitigate them, Roosth said.
The issues vary depending on the industry. While a senior lawyer at an
unidentified science and technology company is focused on topics such
as supply-chain management and fair labor, the general counsel of a
large nonprofit health system says the organization is concerned about
health disparities among different community groups, according to
Norton Rose.
“Many people think of climate change and the energy industry when they
think of ESG,” Roosth said. “But the physical and transition risks of
climate change aren’t limited to one industry, and stakeholders are
pushing for more information on a variety of other ESG topics, like
waste management, [diversity, equity and inclusion] efforts and
risk-management practices.”
The food and beverage sector had the highest proportion of respondents
(40%) who expect increased exposure to ESG disputes in the coming
year, Roosth said. That may reflect litigation concerns around
lawsuits tied to recycling and single-use plastics, she said.
The US Securities and Exchange Commission is still reviewing
thousands of comments on its proposal to force publicly traded
companies to disclose more about the risks they face due to a changing
climate, as well as the greenhouse gas emissions in their production
and supply chains. The market regulator is expected to finalize
the proposal before the end of March.
The rule is almost certain to be litigated by industry groups before
it can go into effect, which means many US-traded companies would
continue to set their own parameters for climate-related disclosures
for some time.
But that’s unlikely to last forever.
Bloomberg Green
publishes Good Business every week, providing unique insights on ESG
and climate-conscious investing.
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