Lawsuits filed against corporations over ESG issues are a rarity, but many companies are bracing for that to change, a recent survey found.
Just 2% of companies in the US and Canada saw lawsuit activity on ESG topics last year, but nearly a quarter, 24%, said they will likely have a higher level of exposure to such litigation this year, according to a report published on Wednesday from law firm Norton Rose Fulbright. An even higher percentage, 28%, said that their legal exposure around ESG has recently grown.
The firm surveyed more than 430 lawyers at North American companies in October and November, from industries ranging from financial services to energy and health care.
“Across industries, our clients are feeling pressure from customers, shareholders and regulators, among others, to increase their disclosures of their ESG goals and performance,” Norton Rose Fulbright disputes partner Rachel Roosth said in a summary of the findings. “If these disclosures are perceived as false, misleading or insufficient, litigation may ensue. 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.”
Behind the increased risk of lawsuits are a current lack of established ESG standards and metrics, cited by 47% of respondents, as well as a higher level of regulatory focus on ESG, 40% said. One third also pointed to increased activity by the plaintiff’s bar, and another third said allegations of greenwashing could rise.
Class actions are increasingly a concern. While 8% of companies said they have had “involvement with class actions” on ESG topics last year, 37% of respondents said they are worried about class actions in that area this year, according to the report.
Lawsuits can range from greenwashing to allegations of human-rights violations in a company’s supply chain. The sector reporting the highest level of concern over ESG-related litigation was the food and beverage industry, which could be a result of scrutiny of recycling practices and single-use plastics, Roosth said.
Additionally, a third of companies surveyed said have faced disputes over diversity, equity and inclusion and social justice issues, a trend most common in the logistics and transportation sector, followed by real estate and construction, according to the report.
