As of late, ESG-related issues have captured the attention of corporate litigators and state lawmakers, becoming an increasing area of concern as they pertain to class-action lawsuits. The anticipated rise in ESG-related litigation cannot be attributed to any single factor since ongoing issues vary depending on the industry. That said, ESG disclosure, environmental and social topics stood out as the most frequently litigated issues in 2022.
Best Lawyers recognized law firm Norton Rose Fulbright recently conducted a survey that reported an increase in overall ESG dispute exposure, among both general counsel and in-house litigation, according to Insurance Journal and Bloomberg. The survey also revealed that ESG dispute exposure is expected to grow by as much as 24% in the next year.
“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,” a recent Insurance Journal article stated. Norton Rose also reported that 8% of their surveyed batch of companies admitted to actual involvement in ESG-related class actions in 2022, with as many as 37% still confident that ESG will be the driving force behind corporate-based class action litigation going forward.
Rachel Roosth, a partner at the New York-based firm, noted that the firm’s clients are currently “feeling pressure from customers, shareholders and regulators, among others, to increase their ESG goals.” Though ESG is often associated with issues such as climate change or mounting energy concerns, Roosth went on to explain that stakeholders are keenly aware of other ESG topics that require attention, “like waste management, [diversity, equity and inclusion] efforts and risk-management practices.”
In fact, there are several key areas of ESG litigation risk that corporations and other private organizations should consider in 2023:
- Liability for Foreign Operations
Although common law tort claims based on alleged harms suffered in a foreign jurisdiction will generally be determined under the laws of that foreign jurisdiction, there are countries—including Canada—where the conflict of laws rules allow a court in that jurisdiction to decide a case based on the substantive law of a foreign jurisdiction. Although the alleged ESG violations occurred on foreign soil, the offending corporation may be subject to liability in accordance with the laws of the jurisdiction where it is located.
- Director and Officer Liability for ESG Violations
Claims relating to a corporation’s efforts to address ESG-related issues internationally can be brought against that corporation’s officers and directors.
- Disclosure Claims related to Statements about ESG
Issues companies may face ESG claims related to disclosures made in securities filing or other statements, including public commitments to advance ESG issues. Organizations may also face disclosure claims related to the ESG conduct of the companies in which they invest.
Mitigating Risks
Considering the proliferation of ESG-related issues, with an ever-present societal focus on the importance of environmental protection and the rapid development of disclosure obligations surrounding it, an increase in ESG-related class-action suits will likely continue. While no corporation is “bullet-proof,” the risks of ESG-related litigation can be mitigated through the implementation of regular audits of foreign operations, internal training and meaningful grievance and remediation protocols. Additionally, corporate leaders in every industry, from legal to the food and beverage sector, should also engage in ESG-specific due diligence to ensure that risks are proactively identified, addressed and resolved.
