28 Feb 2022

Litigation trends in England, 2022: ESG Issues

by Imogen Winfield, Associate at Brown Rudnick

One fascinating trend we can expect to see more of this year is litigation as a means of holding companies to account and forcing behavioural change in relation to ESG issues. The Environmental, Social and Governance framework encompasses matters of sustainability and ethics, such as climate change, environmental management, supply chain management, human rights and modern slavery, health and safety, employee and customer relations, diversity and inclusion, financial crime and data protection.

Climate change litigation has gained rapid momentum over the past several years, particularly in other parts of the world. Most significantly, the Dutch government was ordered to reduce greenhouse gases in 2019 and the same has since been required of companies by courts in the Netherlands and other European jurisdictions. An Australian court recently ordered disclosure of documents concerning a bank’s decision to finance fossil fuel projects in view of its climate commitments.

To date, ESG litigation in the English courts has primarily manifested as judicial review challenges of government policies or decisions, but actions against companies (and in particular financial institutions) are likely to become more mainstream, driven by increased shareholder activism and regulatory attention. These may arise as follows:

Securities litigation by investors against PLCs for losses resulting from untrue or misleading statements or omissions in prospectuses or other publications. Claims under s.90/90A FSMA have largely arisen out of financial wrongdoing but scrutiny of broader ESG issues will add further fuel to the fire.

Claims in misrepresentation for mis-selling or ‘greenwashing’ products, where marketing of ESG credentials is false or overstated. Green products such as sustainability-linked bonds which set measurable KPIs may be easy targets if issuers do not keep on top of them.

Parent company litigation: the English courts have made clear they are willing to hear proceedings against English domiciled corporations for the tortious acts of their overseas subsidiaries. The extent of management or control by the parent company will be key in establishing a direct duty of care.

Supply chain litigation: last year the High Court allowed a claim by exploited tobacco farmers in Malawi to proceed against BAT and Imperial Brands, who are alleged to have facilitated unlawful and dangerous conditions while profiting from the low paid workers.

Claims against company directors for breach of duties under the Companies Act, particularly if s.172 is updated to put considerations about profit on an equal footing with the planet and society.

Contractual disputes will inevitably develop between counterparties as ESG standards are incorporated into agreements.

Claimants will face challenges along the way but successful outcomes may be engineered without winning at trial.

Next, We’ll look at the rise of group actions in the English courts.

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