ESG-related litigation has rised over the past few years, and more new cases will likely stem from alleged greenwashing, data-privacy breaches and worker issues, according to a recent report.
The paper Litigation Is a Growing ESG-Related Risk from Sustainable Fitch outlined the risks to publicly traded companies, particularly in the US. Among more than 1,800 known lawsuits globally over climate change issues, about 75% were filed in the country, Fitch noted, citing data from the Grantham Institute and Sabin Center for Climate Change Law. Much of that litigation was brought by companies and groups against their governments over climate regulations, but numerous cases have also targeted the petroleum industry, utilities and auto manufacturers.
One of the major risks, at least for now, is reputational, as investors suing over climate issues often seek policy changes or are aimed at prodding corporations into positive action, the report noted.
“The main risks to issuers from the rising incidence of climate-related, or more broadly ESG-related, litigation are not financial but strategic and operational, as many ESG lawsuits seek structural changes in business practice rather than financial restitution,” authors Nneka Chike-Obi and Marina Petroleka wrote. “Litigation is one of the main transmission mechanisms of ESG issues to credit risk. Its rising prominence is therefore of potentially high relevance and materiality for issuers in many sectors.”
However, the Securities and Exchange Commission is currently considering making climate-risk and emissions disclosures mandatory for issuers. How comprehensive those requirements will be – such as whether they will initially cover Scope 3 emissions – is unknown. But new requirements nonetheless would pull in many public companies to making shareholders more aware of their climate-related data. And if what companies have publicly said in the past conflicts with their regulatory filings, that could raise questions about greenwashing.
One ongoing case to watch is the 2019 lawsuit York County vs. Rambo, in which bond investors allege PG&E Corporation misled them about its climate change and wildfire preparedness, the report’s authors noted.
“As sustainable finance priorities expand beyond climate change, there are several other ESG topics where litigation could become more common,” the report read. “Regulations targeting modern slavery, deforestation, labor conditions and supply chain due diligence will increase the amount of reporting on these subjects.”
Greenwashing will likely be at the center of more cases, as hinted by recently litigation against Reynolds Consumer Products, Allbrids, Oatly and Danimer Scientific, according to the report.
Data privacy could also see a rise in securities class actions, given laws that follow the EU’s General Data Privacy Regulation, the authors said, citing lawsuits against Nielsen Holdings, Snap Inc and others. California, for example, passed its Consumer Privacy Act in 2018.
Finally, the pandemic has brought to light the health risks facing workers and customers, with more than 4,200 lawsuits filed in the US since the beginning of 2020, according to the report.
Although most were brought against health services companies, others have been filed against cruise lines and other businesses, the authors said.
