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Litigation trends in ESG

Overview

Globally, businesses and other institutions are facing an increasing risk of litigation brought by investors, shareholders and other stakeholders in relation to ESG and sustainable finance. This is a consequence both of the rapidly growing public profile of ESG – we are increasingly seeing governments, institutions, investors and shareholders focusing in on ESG issues and robustly calling businesses to account for ESG failings - and the new laws and regulations which are being introduced in this area in the UK and elsewhere.

We are seeing a trend of increasing litigation in relation to (i) ESG and sustainable finance disclosures; (ii) climate change and sustainable finance; (iii) working conditions and the supply chain; and (iv) workforce and employment issues.

ESG disclosures

Businesses are facing mounting requirements to make full and detailed ESG disclosures, whilst also increasingly providing voluntary ESG and sustainable finance disclosures, either due to external pressures from investors and shareholders or due to internal policy. 

For guidance on navigating the litigation risks, and potential opportunities, that arise out of ESG disclosures and public statements, please see [INCLUDE LINK TO ESG ARTICLE (SEPARATE DOCUMENT)]. 

Climate change

One clear area of vulnerability is in relation to climate change.  As set out in our climate change and litigation risk page, climate change litigation is on the rise globally, and the risk presents itself not only to businesses and institutions working in the traditional fossil fuel industries, but to all businesses and institutions who, through investments or other activities, are vulnerable to underlying climate change risk.

Workforce and employment issues

Workforce and employment issues can give rise to significant liabilities for companies.  Although the Equal Pay Act has now been law for 50 years, a recent study found that over the last 12 years employment tribunals in England and Wales have received on average 29,000 complaints a year relating to equal pay.  Large businesses are now also required to publish figures annually to show the gender pay gap pursuant to the Equality Act 2010 (Gender Pay Gap Information) Regulations 2017.

The result has been that businesses have faced increasing scrutiny of their pay practices, with many cases making headlines, including the employment tribunal’s landmark decision in presenter Samira Ahmed's case against the BBC in January 2020 which has reportedly exposed the BBC to a number of other potential equal pay claims, as well as creating a precedent for employees of other firms.

Additionally, the COVID pandemic and the implementation of the UK Government's COVID-19 Recovery Strategy and COVID-19 Secure Guidelines present new challenges for businesses.

Businesses will need to ensure that measures concerning the health and safety ("H&S") and welfare of workers are maintained to a high standard, in order to mitigate potential litigation risk.

The article "A shift to a more permanent working from home arrangement? Key Health & Safety considerations goes into more detail on how businesses can meet this challenge in respect of working from home.

For commentary on the Government's guidance on best business practice for returning to work please see [READ MORE – TO CONFIRM LATEST LINK TO INCLUDE HERE].

Working conditions and the supply chain

We have seen recent developments in case law, which have widened the potential liability of companies for working conditions in their supply chain.  This also includes the potential risk for private equity funds and other investment institutions, who may find themselves held liable for breaches by their portfolio companies and other entities in which they have invested. 

For more detailed information on this issue, please see our comments pieces on business ethics, and the recent developments in case law on parent company liability.

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