Whilst many of these cases have been brought in the US courts, litigation risk looms large over businesses operating in the EU as a result of continuing regulatory developments, and published guidance, which will directly affect businesses in the UK. In 2017, the Task Force on Climate-related Financial Disclosures ("TFCD") issued some ambitious recommendations for financial disclosures, which were designed to be implemented in the near-term future. The UK Government has since set out its expectation that all listed companies and large asset owners should disclose in line with the TFCD requirements by 2022.
This was followed in 2019 by the release of the Bank of England's Prudential Regulation Authority supervisory statement for banks and insurance institutions, which set out the PRA's expectations concerning the strategic approach that those institutions should take to climate change risk, which included developing disclosure on financial risks from climate change.
In July 2019, the Government published its Green Finance Strategy, in which it stated that it would support quality disclosures through data and guidance, as well as "establishing a joint taskforce with UK regulators, chaired by Government, which will examine the most effective way to approach disclosure, including exploring the appropriateness of mandatory reporting".
The recent COVID 19 pandemic will inevitably have an impact on this area. Despite warnings that the resulting global downturn may divert attention from ESG priorities, the pandemic has in fact brought ESG issues into sharper focus, with leading global institutions calling for governments to ensure that they use the pandemic as an opportunity to ensure environmentally and socially sustainable economic recoveries. ESG disclosures are likely to be a key tool relied on by governments and industry, and recent developments have reflected this:
- The Climate Financial Risk Forum published their 2020 Guide in June 2020, which includes detailed guidance on the disclosure of climate-related financial risks.
- The Committee on Climate Change (CCC) presented its annual report to the UK Parliament in which it recommended the continued use of the TCFD framework.
- In November 2020, the UK Government set out its roadmap for the transition to full alignment with the TCFD framework across all sectors.
These developments and increased focus highlight the need for businesses to invest time and energy in developing their ESG disclosures, filings and public statements, whilst taking care to mitigate potential litigation risks.