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ESG drive opening door to flood of high-cost legal battles against companies and CEOs

·2 min read
 (AP)
(AP)

As the climate emergency increasingly demands urgent action on the part of national governments, civil society and the business community, the use of litigation as a tool for compelling behavioural change continues to grow in significance - writes James Whitaker, Partner at global law firm Mayer Brown.

James Whitaker, partner (Mayer Brown)
James Whitaker, partner (Mayer Brown)

We are seeing on an almost-daily basis the extent to which shareholders and investors, including some of the world's largest funds and asset managers, increasingly bringing pressure to bear on their portfolio companies to take substantial and rapid steps towards transitioning towards net carbon neutrality, promoting biodiversity and improving sustainability.

The increasing pressure from stakeholders is unmistakable.

The willingness of such stakeholders to litigate their grievances in costly, often high-profile, national courts is also increasing.

It remains a source of some surprise that the rapidly developing frontier of climate litigation has, thus far, not impacted this jurisdiction as much as it has in others, notably in continental Europe.

That said, whilst the Netherlands and Germany are perhaps some way ahead of the UK as the venue or forum of choice for such litigation, the position is changing fast.

Over the past couple of years, the English courts have demonstrated a willingness to entertain claims targeting companies and their directors for climate transgressions.

The volume of such claims based on sometimes new or unusual case theories will likely increase.

A broader range of claims has started to emerge.

For example, in additional to conventional tort theories targeting English-domiciled companies directly, claimants have founded claims on the environmental and other practices of overseas subsidiaries following highly significant Supreme Court decisions enabling such claims in recent years.

Similarly as regulatory requirements continue to grow, often augmenting the pressures being imposed by stakeholders to improve and comply with the various regimes governing both voluntary and mandatory climate-related disclosure requirements; perceived misstatements in this regard will increasingly be subject to close scrutiny.

This means that the potential for claims based on misrepresentations continues to grow.

Putative claims targeting company directors for alleged breaches of duties – for example in failing to consider the impact of the company's operations on the environment – may start to emerge.

A key distinguishing feature of this type of litigation is the motivating factor; the aims of claimants – be they climate activists, activist investors or other interested stakeholders – are often not simply the recovery of monetary damages; it is often based on promoting, or indeed compelling, behavioural change.

This dynamic makes proactive, transparent, engagement with stakeholders, long before litigation even becomes a possibility, critical.