Decarbonisation and ethical sourcing drive ESG class action risk 13 min read
As the global push towards decarbonisation and ethical sourcing intensifies, businesses must keep abreast of ESG developments not only to maintain their social licence to operate and comply with evolving regulatory frameworks, but also to effectively manage their litigation risk from increasingly sophisticated and well-funded advocacy groups and class action promoters.
This Insight examines new causes of action on ESG issues that are being tested in the court system and spotlights several notable judgments that are likely to inform future class actions in Australia, including in relation to alleged climate change impacts, financed emissions, greenwashing, supply chain liability and employee safety.
Who in your organisation needs to know about this?
Boards, in-house / general counsel, sustainability teams, regulatory and compliance, external and regulatory affairs teams.
Key takeaways
- Climate litigation continues to evolve and mature globally. Claimants are deploying new strategies to seek to impose legal liability on companies for alleged climate harms using a variety of legal mechanisms, including under tort, human rights and public law. An emerging theme is that European courts are open to finding that a duty of care exists, but have yet to rule on the scope of that duty and how it might be discharged. This is a dynamic area of law that is far from settled, and is likely to develop in the form of focused claims targeting specific projects or activities, rather than the ambitious challenges to the business models of companies to date.
- While the much publicised decision in Pabai demonstrates that claimants seeking to rely on novel duties of care are likely to face evidentiary difficulties in establishing causation, the decision does not affect other legal obligations on companies, such as those relating to disclosure of climate risks or compliance with environmental regulations and reporting regimes. Companies and directors should continue to monitor developments in those areas to ensure regulatory and community expectations are met.
- It is clear that anticipating and mitigating the risks of misleading sustainability claims (ie greenwashing and bluewashing) remains a key priority for businesses with significant emissions profiles, financing relationships or supply-chain footprints. As more information enters the public domain through ESG reporting regimes, businesses should operate on the assumption that their climate (and broader ESG) strategy, disclosures and governance structures will be subject to scrutiny by class action promoters.
- Businesses should exercise caution when making environmental claims and sustainability commitments to consumers, and ensure that such claims can be substantiated by audited documentation and targets are set with credible pathways to achieving them.
- As the spotlight intensifies on human rights impacts in value chains, companies should develop, and document the enforcement of, robust due diligence policies with respect to foreign subsidiaries and suppliers.
- Class action litigation relating to psychosocial harm in the workplace is gaining momentum globally and domestically, and employers without adequate and enforceable policies and training in place are at risk of being targeted by class action promoters.
More strategic climate litigation is expected
Claimants continue to strategically use court systems to drive climate action at a corporate level, with some European courts prepared to find that companies have a duty of care to mitigate the impacts of climate change, albeit stopping short of imposing specific emissions reduction targets.
To date, strategic climate change-related class actions in Australia have only been brought against the Federal Government on the basis of alleged duties of care owed to sub-sections of the Australian population. But recent cases domestically and abroad suggest it is likely, if not inevitable, that class actions will be commenced against companies to test the scope of duties owed by them to a broader class of people with respect to climate change harm. Such cases are likely to face legal and evidentiary difficulties with respect to establishing causation.
Pabai v Commonwealth
The recent Federal Court decision in Pabai v Commonwealth of Australia (No 2) [2025] FCA 796 has broad implications for government policy and corporate risk. The case was commenced by two Torres Strait Islander leaders alleging that the Government owed and breached its duty of care to take reasonable steps to protect all Torres Strait Islanders from the current and projected impacts of climate change on the Torres Strait Islands.
The Federal Court ruled that the Government did not owe a novel duty of care to the people of the Torres Strait on the basis that:
- decisions concerning emissions reduction targets and adaption measures are matters of core or high government policy that are not suitable for determination under common law negligence in Australia; and
- even if the Government owed, and breached, a duty of care, the court could not conclude that such breach materially contributed to the harm suffered by Torres Strait Islanders, noting that any additional emissions from the allegedly inadequate, low targets set by the Government would only have caused an 'extremely small' increase in global temperatures.
Although the decision might ostensibly appear to be a significant setback for strategic climate litigants seeking to rely on novel duties of care, it is notable that the claimants succeeded in establishing many of the factual claims regarding physical risks of climate change and the need for science-based corporate emissions reduction targets—eg the Government failed to engage with, or give proper consideration to, the best available science when setting emissions reduction targets, and the adverse impact climate change has had, and will continue to have, on the Torres Strait Islands.
Potential test cases
The findings in Pabai make clear that the court will accept evidence of the measurable impact of climate change and invites such evidence to be led in private litigation concerning corporate failures to disclose climate risks or comply with environmental regulations. Looking ahead, it is likely that companies in, or adjacent to, high-emitting sectors will be earmarked by claimants seeking to test the standard of care to which companies should be held. Recent cases in Europe indicate the following types of claims may be a focus for class actions against companies.
Germany: Lliuya v RWE
Key takeaway
Companies can be proportionately liable under German civil law, in principle, for climate-related harms regardless of the distance between the property and the company's activities.
Background
A Peruvian farmer commenced proceedings against German energy producer RWE seeking contribution to the costs of implementing flood protection measures at his property situated below a glacial lake. The claimant alleged that RWE’s historic greenhouse gas emissions have contributed to the increased risk of glacial outburst floods.
In May 2025, the Higher Regional Court of Hamm dismissed the claim on appeal on evidentiary grounds, concluding that the threat to the claimant's property was too remote to establish liability under German civil law. However, the Court recognised that high-emitting companies can be liable for climate risks to property based on their proportional contribution to global emissions.
The Netherlands: Milieudefensie v Shell
Key takeaway
Companies have a duty under Dutch law to prevent climate change harm but there is insufficient expert consensus on the efficacy of applying global emission reduction targets to individual companies.
Background
A group of Dutch NGOs and individual claimants filed an action against Shell in the District Court of the Hague alleging Shell owed a duty of care to prevent climate change harm. The District Court of the Hague ruled in favour of the claimants at first instance and ordered Shell to reduce its scope 1 to 3 emissions by 45% by 2030, but those orders were overturned on appeal in November 2024.
The Court of Appeal concluded that applying a global emissions reduction target on Shell was unlikely to reduce global emissions as consumer demand would be met by another supplier. However, the Court reaffirmed that Dutch law imposes a duty of care on companies – informed by soft law instruments such as the UN Guiding Principles on Business and Human Rights – to limit emissions to mitigate climate change harm and take into account climate risk when investing in projects expanding the supply of fossil fuels.
The Netherlands: Milieudefensie v ING
Key takeaway
Financial institutions should evaluate whether their governance, disclosure and capital allocation policies align with emerging stakeholder expectations on global emissions reductions.
Background
In March 2025, Dutch environmental group Milieudefensie commenced proceedings against ING in the Amsterdam District Court alleging ING breached its duty of care to counter climate change and protect human rights by financing high-emitting sectors.
The claimants allege ING’s climate policy is ineffective at reducing emissions to align with the Paris Agreement and they seek orders for a reduction of financed emissions and stricter lending policies. The case is premised on duties of care under Dutch law and soft law human rights frameworks. The case is ongoing.
Greenwashing in focus
Regulatory scrutiny of greenwashing continues to intensify, raising the risk of private litigation and reputational damage.
Regulatory enforcement priority
As reported in our previous Insight, Australia was a key jurisdiction for successful regulatory 'greenwashing' enforcement in 2024. Greenwashing continues to be an enforcement priority for Australia's corporate regulators in 2025.
- In February, the ACCC Chair reinforced the ACCC’s focus on greenwashing and sustainability issues during her keynote speech, and stated it will proactively target a range of sectors including energy, food, fashion and homewares.
- In March, ASIC secured a $10.5 million penalty against Active Super in the Federal Court for misrepresenting to potential investors that it would not invest in companies associated with gambling, tobacco, coal mining or in Russian companies.
- In April, the Federal Court approved an $8.25 million penalty against Clorox following its admissions to the contraventions alleged by the ACCC concerning misleading and deceptive conduct with respect to its claim that certain kitchen and garbage bags were made of 50% recycled ocean plastic.
- In June, the ACCC commenced greenwashing proceedings against gas distributor AGN relating to its 'Love Gas' advertising campaign which represented, without any qualifications or disclaimers, that the gas it distributes will be renewable within a generation. The ACCC alleges that the campaign was misleading because it 'overstated the likelihood of AGN overcoming significant technical and economic barriers to distribute renewable gas to households within a generation'.
Consumer claims
Regulatory scrutiny on a company's ESG affairs may prompt greenwashing litigation commenced by third parties (eg consumers, advocacy groups and their funders).
Private greenwashing litigation claims continue to escalate globally, albeit at a slightly reduced rate, likely in part because this area is increasingly regulated by new disclosure frameworks and greenwashing regulation. Although the pace of new greenwashing cases may be slowing, they continue to enjoy a relatively high success rate. The most recent study on global climate change litigation trends published by the Grantham Research Institute estimates that, of the just over 100 greenwashing cases decided internationally by the end of 2024, more than 60% were successful for the claimants. Thus, greenwashing remains the most attractive strategy for claimants seeking compensation and accountability for inaccurate corporate narratives regarding sustainability commitments and the transition to a low-carbon future.
In Australia, private greenwashing litigation has been largely limited to claims against companies in fossil fuel industries, although financial institutions have been subject to requests for documents (including through the court system) and formal complaints in connection with their lending to fossil fuel projects. However, greenwashing litigation abroad has expanded beyond the traditional energy sectors with litigants targeting companies that market themselves as sustainability-conscious. It is crucial for businesses to exercise caution when making marketing and consumer-facing claims involving emissions-related, carbon neutral / offset, and sustainability claims, and ensure that such claims are technically accurate or appropriately qualified, and targets are not set without a credible pathway to achieving them.
- Australia
In May 2025, an environmental group settled its Federal Court proceeding against EnergyAustralia shortly before trial. The case concerned allegations that the marketing of EnergyAustralia's ‘Go Neutral’ carbon offset products misled consumers by promising the purchase of carbon credits to completely offset the emissions generated by those products. Although the settlement did not involve any admission of misleading and deceptive conduct, EnergyAustralia issued a public statement acknowledging that 'carbon offsetting is not the most effective way to assist customers to reduce their emissions'.
Looking ahead, judgment is expected to be delivered later this year in the Federal Court proceeding against Santos concerning statements made in its plan to achieve net zero emissions, while the proceeding against Woodside concerning its emissions reductions achieved through the use of carbon offsets awaits trial.
- USA
A consumer class action was filed in the Federal District Court in Florida against sportswear company Lululemon in relation to its 'Be Planet' marketing campaign. The claimants allege the campaign misled consumers into believing the premium pricing of the company’s products was justified by their environmentally sustainable practices and commitments. The class action was filed after Canada's Competition Bureau launched an investigation into Lululemon's environmental claims in response to a complaint lodged by an environmental advocacy group identifying alleged inconsistencies between the company's actual scope 3 emissions and use of materials derived from fossil fuels, and those reported in the campaign.
The action was dismissed in February 2025 on the basis that the plaintiffs could not demonstrate a link between the deceptive statements and the premium price of the relevant products to support a claim for damages.
- The Netherlands
The District Court of Amsterdam determined that the 'Fly Responsibly' advertising campaign launched by Dutch airline KLM painted an optimistic picture of the measures it was taking to reduce emissions and gave an incorrect impression that flying with KLM is an environmentally sustainable option. The claimants commenced proceedings for declaratory relief after the Netherlands Advertisement Code Commission ruled that elements of the marketing campaign breached provisions on misleading marketing.
Greenhushing
An unintended consequence of the success of greenwashing enforcement activity and litigation is the potential for companies to pare back or obfuscate their ESG commitments due to political headwinds and practical challenges with implementation, or to simply avoid regulatory scrutiny. While ASIC already considers such practices—known as 'greenhushing'—to be synonymous with greenwashing, we expect private greenhushing litigation to develop in Australia over the coming years with the maturity of ESG reporting frameworks.
Shareholder claims
Inaccurate, misleading or insufficient ESG disclosures to the market could give rise to securities class actions by shareholders seeking damages for financial losses suffered as a consequence of the disclosure.
Securities class action
In the UK, institutional investors in fashion retail company Boohoo filed group proceedings claim against the company seeking over £100 million in damages. The claim came after the publication of a media report revealing multiple allegations of labour rights violations at Boohoo’s suppliers’ factories, which caused its share price to drop significantly. The investors seek compensation for losses resulting from untrue or misleading statements, a dishonest delay in disclosing information and a failure to disclose information.
This claim is one of the first of its kind in the UK. It will be a litmus test of the viability of such a claim in Australia given the similar statutory liability provisions for misleading statements that cause investors loss that have been a prominent feature of the Australian class action landscape. Companies subject to Australia's new climate-related financial disclosure regime must be mindful of the risk of investor claims, particularly after the expiry of the modified liability regime, and develop additional risk-attenuating disclosures to mitigate such risks.
Derivative claims
Shareholders might also bring novel derivative claims against directors for breach of their duties, for example the duty to act with care and diligence and in doing so have regard to the company’s impact on the community and environment. In the UK, separate derivative actions were lodged against:
- the directors of Shell for alleged breaches of their statutory directors' duties by failing to adopt policies capable of achieving Shell's emissions reduction target; and
- the directors of the trustee of the Universities Superannuation Scheme for alleged breaches arising from a failure to divest away from fossil fuels.
Although the High Court of England and Wales did not allow either claim to proceed, other claims may be viable on different facts.
Modern slavery and supply chain risks
More expansive regulatory regimes concerning corporate actions to identify and remediate modern slavery conditions and other human rights impacts continues to create litigation risk for companies with complex global supply chains. This reflects the global movement to hold businesses accountable for the actions, or inactions, of their foreign subsidiaries and suppliers.
Strategic litigants and advocacy groups are using court systems to apply pressure on companies to address alleged human rights violations in, and improve scrutiny of, their supply chains, particularly in emerging markets where transparency can be lacking. While such claims have not yet been brought in Australia, ambitious group actions have been commenced in the UK and US against multinational parent companies seeking to test the scope of corporate liability. These claims are often premised in tort and focus on the degree of control the parent has over relevant functions in the subsidiary or its supply chain.
- Dyson
In December 2024, the Court of Appeal of England and Wales allowed a group of Nepali and Bangladeshi workers to bring representative proceedings against Dyson in England for alleged labour and human rights abuses by Dyson’s manufacturing supplier in Malaysia. The Court of Appeal ruled that, despite the alleged abusive treatment occurring in Malaysia, England was the appropriate forum for the case to be tried for reasons including that the core allegations involved Dyson's UK-domiciled management failing to implement policies and respond adequately to known abuses within its supply chain. The case is ongoing.
- Tesco and Intertek
UK supermarket chain Tesco continues to defend group proceedings commenced on behalf of migrant workers in relation to alleged modern slavery conditions at a Thai garment factory owned by a supplier that produced clothing sold in the UK under Tesco's in-house label. The claimants allege Tesco failed to identify modern slavery conditions at the factory or remediate those conditions following complaints lodged by the workers with Thai regulators. Notably, the proceedings are also brought against Tesco's social auditor, Intertek, which demonstrates that the use of social auditors or participation in certification schemes may not dissuade class action promoters from scrutinising a company's affairs.
- Starbucks
In January 2024, a consumer advocacy group filed a lawsuit in the US Superior Court of the District of Columbia alleging Starbucks misrepresented its commitment to '100% ethical coffee' by sourcing coffee beans from farms with reported human rights violations. The claimants refer to sustainable messaging on Starbucks’ labels, webpages, advertising, and press statements to argue that Starbucks exploited consumer's demand for ethically sourced products. In April 2025, a separate proceeding against Starbucks was commenced in the US District Court in Washington on behalf of Brazilian workers alleging modern slavery conditions at farms from which Starbucks sources its coffee beans.
The proliferation of supply chain litigation emphasises the importance for businesses to undertake human rights and modern slavery due diligence across the supply chain, and maintain documented policies that are enforced in practice. Caution must be exercised when making public statements about supply chain standards and sustainable and ethical practices. The potential introduction of a mandatory due diligence regime under the Modern Slavery Act 2018 (Cth) (discussed in our previous Insight) will provide interested parties with more opportunities to challenge the efficacy of actions taken by companies to protect human rights.
Employee safety and psychosocial harm
Employment class actions are becoming, if not already, a core part of class action risk in Australia as new positive duties are introduced on employers in areas such as sexual harassment, discrimination and psychological safety. The intersection between safety and employment laws is becoming increasingly complex for employers to navigate as regulators continue to target workplace conduct and psychosocial safety matters, and class action promoters seek to diversify into new types of employment class action claims.
It is increasingly important for employers to implement robust policies and training as class actions relating to psychosocial harm in the workplace gain momentum globally and domestically.
- Late last year, separate class action proceedings funded by Omni Bridgeway were commenced in the Federal Court against BHP and Rio Tinto in relation to alleged failures to protect female employees from gender discrimination and sexual assault and harassment. The action is brought on behalf of all women who worked at BHP and Rio Tinto workplaces who were impacted by the alleged conduct during a certain period.
- A UK-based non-profit, Foxglove, is leading a class action claim against Meta. The case concerns alleged psychological harm suffered by content moderators employed by Meta's contractor in Kenya. The moderators claim they suffered post-traumatic stress disorder as a direct consequence of their work in moderating distressing and violent online content. In May 2025, Foxglove announced it was preparing to commence another class action against Meta on behalf of content moderators working in Ghana.