INSIGHT

What strategies should you implement to mitigate ESG disputes risk?

Environment, Social, Governance

ESG is a material disputes risk that extends well beyond traditional litigation

We are seeing an upward trend in disputes exposure for companies across the ESG remedy ecosystem. And not just about climate change. Litigation is foreshadowed in other ESG areas, including modern slavery, Indigenous rights and biodiversity.

In this video, our cross-sector experts outline:

  • current trends and the different types of ESG disputes that could arise both now and in the future;
  • potential causes of action and allegations; and
  • the top five strategies you can implement right now to mitigate your ESG disputes risk.

Transcript

Rachel Nicolson Is ESG a disputes risk for business?

Emily Turnbull Absolutely, and it's a risk that extends well beyond traditional litigation.

Rachel Nicolson In this short video, we are going to talk about the trends we are seeing in disputes that are being brought against business on environmental, social and governance grounds, the fact that these disputes are not necessarily traditional in form, and we are going to look at the types of actions, or causes of action, that are being pursued by claimants.

What trends are you seeing with ESG disputes?

Emily Turnbull We are seeing an upward trend in disputes exposure for companies across the ESG remedy ecosystem.

There has been a wave of litigation on ESG issues against companies globally in the last few years.

In Australia, ESG litigation risk is materialising primarily in the climate change space. Cases are being brought by activists who are not seeking damages but seeking to drive behavioural change at the corporate and government levels.

It's not just about climate change. Litigation is foreshadowed in other ESG areas, including modern slavery, Indigenous people's rights, and biodiversity.

Non-judicial dispute resolution processes are also increasingly popular with complainants. We mean processes such as the OECD National Contact Points and UN Special Procedures. We have seen a 58% uptick in complaints to the Australian National Contact Point in the past 18 months, with 25% of new cases filed worldwide filed in Australia.

The ESG focus has led to an increase in government inquiries on specific topics, such as sexual harassment and protection of cultural heritage, with the potential to create follow-on litigation risk.

And, finally, internal company grievances and reports have increased on social impact issues. Recent reforms to Australian whistleblowing legislation have created an expectation that companies can respond to these complaints effectively.

What are the common causes of action?

Rachel Nicolson We are seeing litigation across the spectrum, in Australia and globally, from tort law to corporations law to consumer law, to challenges under environmental laws.

One significant change, though, is the rise in importance of the role of shareholders. Traditionally, we have tended to see activist groups, NGOs and communities bringing claims against corporates. 

The new focus is challenging corporate decision makers and corporate funders on issues around disclosure and greenwashing, in particular.

Key risk areas include:

  • Risk management: including directors' duties and trustees' obligations.
  • Risk disclosure: under corporations laws.
  • Misleading or deceptive conduct.

What should you be doing now to mitigate risk?

Emily Turnbull There are five key strategies you can be implementing right now to mitigate your ESG disputes risk. 

  1. The board should understand and have an opportunity to consider key ESG issues, and set the 'tone from the top' by providing endorsement for key ESG ambitions. Boards are also expected to have ongoing oversight of ESG risks and opportunities.
  2. Engage with your stakeholders to try to head off potential disputes at an early stage. High-watermark international law standards increasingly inform stakeholders' expectations of corporate conduct. Consider material gaps between your ESG commitments and those prevailing international standards.
  3. Satisfy yourself that the company's public ESG claims and commitments are accurate, factually based and able to be substantiated. Stress-test how well the business fulfils those representations on the ground. Have the standards to which you have committed been embedded in your policies, procedures, due diligence and training?
  4. Rachel Nicolson Consider carefully the language you employ in public-facing documents such as annual reports, prospectuses, action plans and marketing materials. Make clear any material assumptions or interdependencies.
  5. Finally, establish an accessible and respected speak up and whistleblower program. A good speak up program is essential to a healthy corporate culture, and a really important way to identify hot spots in relation to environmental, social and governance issues across the business.

Stay informed

Subscribe to our insights and updates