A Class-Action Wave Is Coming for 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.

–With assistance from Lydia Beyoud.