A massive wave of action is coming for ESG claims

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Lawyers are gearing up for an increase in ESG-related cases as corporate disclosure requirements around the world tighten.

A survey by the law firm Norton Rose Fulbright found that 28% of more than 430 general counsel and internal litigation leaders said their exposure to so-called ESG litigation increased in 2022, and 24% expect it to increase over the next 12 months. The main reasons are the lack of clear environmental, social and governance standards and requirements, and the stricter regulatory scrutiny of the importance of ESG.

The issue has joined employment and labor litigation, cybersecurity and data protection in what Norton Rose calls “class action areas of future concern.”

The growing attention of corporate litigators in industries ranging from financial services to technology is consistent with the growing number of class actions related to greenwashing. This is due in part to the fact that the California plaintiffs’ bar “has come up with the blueprint for filing these cases,” according to Norton Rose. In a nutshell, this means that companies that make general ESG statements will sometimes be targeted for product-specific issues.

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“Across industries, our clients are feeling pressure from customers, shareholders and regulators, among others, to better disclose their ESG goals and performance,” said Rachel Roosth, litigation partner at Norton Rose. “If these disclosures are perceived to be false, misleading or inadequate, litigation may follow.”

The Norton Rose report found that while only 8% of those surveyed said they were actually involved in ESG-related class actions last year, about 37% of those who said they were wary of future class actions identified ESG as ” considered an important driver”.

So while types of process risk may vary by industry, companies across all industries can benefit from assessing their ESG-related process risks and how to mitigate them, Roosth said.

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The problems vary by industry. While a senior attorney at an unknown science and technology company focuses 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 Roos.

“Many people think of climate change and the energy industry when they think of ESG,” said Roosth. “But the physical risks and transition risks of climate change are not limited to one sector, and stakeholders are pushing for more information on a variety of other ESG topics, such as waste management, [diversity, equity and inclusion] efforts and risk management practices.”

The food and beverage sector had the highest percentage of respondents (40%) who expect more exposure to ESG litigation in the coming year, Roosth said. That may reflect litigation around lawsuits related to recycling and single-use plastics, she said.

The U.S. 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 from a changing climate, as well as greenhouse gas emissions in their manufacturing and supply chains. The market regulator is expected to finalize the proposal before the end of March.

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The rule will almost certainly be pushed by industry groups before it can take effect, meaning many US-traded companies will continue to set their own parameters for climate-related disclosures for some time to come.

But that probably won’t last forever.

Photo: The Thurgood Marshall United States Courthouse, which hears cases from the United States District Court for the Southern District of New York and the United States Court of Appeals for the Second Circuit, is located in Lower Manhattan. (Photo by Drew Angerer/Getty Images)

Copyright 2023 Bloomberg.

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