'Caught in the Middle': ESG-Related Risks Soar for Legal Departments
Ten percent of legal departments faced ESG-related litigation last year, up from 2% a year earlier, Norton Rose said in a new study.
'Caught in the Middle': ESG-Related Risks Soar for Legal Departments
Ten percent of legal departments faced ESG-related litigation last year, up from 2% a year earlier, Norton Rose said in a new study.
January 31, 2024 at 10:45 AM
3 minute read
Hugo Guzman
Nearly one-quarter of in-house attorneys surveyed by Norton Rose Fulbright say their companies’ ESG-related risk exposure increased in 2023, and 27% expect it to get worse in 2024.
The firm’s recently released “2024 Litigation Trends Survey,” based on interviews with 400 in-house attorneys late last year, found that 1 in 10 respondents worked for legal departments that faced ESG-related litigation last year. That compared with 2 of every 100 legal departments a year earlier.
“As regulatory requirements around climate and ESG disclosures take shape while anti-ESG sentiment grows, organizations are increasingly finding themselves caught in the middle,” the report said.
Indeed, litigation related to environmental, social and governance matters can come from all directions. A company championing diversity, equity and inclusion, for instance, could find itself in the crosshairs of a conservative investor that believes its practices amount to reverse discrimination.
Or an environmental organizational might accuse a company of “greenwashing”—overstating the environmental benefits of its products—or of misrepresenting its progress combating climate change in its disclosures to regulators.
Event
Complex Claims & Litigation Forum 2024
The conference experience aimed to help insurers and litigators Prevent, Prepare, and Prevail in complex claims cases and risks.
Get More Information
One assistant general counsel for litigation at an energy company told Norton Rose that “the climate change docket—involving 15 to 16 cases brought by states and municipalities regarding fuel combustion’s impact on climate change—is worrisome, and we’re spending an ever-increasing amount of time and money to manage that.”
Respondents said the biggest cause of rising ESG risks are pro-ESG regulatory pressures (cited by 40% of respondents). Next in importance is anti-ESG sentiment from stakeholders (cited by 37% of respondents).
“These competing forces pose a thorny problem for organizations that are navigating compliance with ESG disclosure requirements like the European Union’s Corporate Sustainability Reporting Directive while also trying to temper opposition flaring among conservative political circles in the U.S.,” the report said.
Survey respondents say they expect greenwashing-related allegations will be the biggest driver of environmental disputes in 2024. Those were cited by 54% of respondents. Second was climate change and greenhouse gas emissions, at 43%.
Greenwashing cases already are flooding the courts, ensnaring some high-profile companies. For example, Keurig Dr. Pepper agreed last March to pay $10 million to settle with plaintiffs who claimed the company misled consumers with claims that its plastic single-serve coffee pods are recyclable.
Companies hit by crisis can be especially vulnerable to ESG-related suits. For example, after rail transport giant Norfolk Southern in February 2023 suffered a massive train derailment in Ohio, investors filed lawsuits alleging the company’s public statements had exaggerated its commitment to safety. Norfolk Southern contends the allegations are unfounded.
Similarly, bank or financial fraud class actions more than doubled last year, Norton Rose noted, after the collapse of Silicon Valley Bank last March triggered other failures and put the entire banking system under scrutiny.
Corporate attorneys caution companies to remember that plaintiff attorneys are poring over what executives say publicly and what they disclose to regulators in pursuit of grist for lawsuits.
“As companies continue to add statements regarding their environmental impact or social responsibility to enhance their marketing efforts, communicate their company values, and/or attempt to appeal to consumers and shareholders attuned to ESG considerations, we expect to see ESG class actions continue their growth trajectory,” wrote Duane Morris partner Gerald Maatman in a recent analysis of class action lawsuit trends.