ESG Legal Outlook 2022: litigation risks

Linklaters recently published its ESG Legal Outlook 2022, in which litigation was identified as one of the key global risks for corporates, banks and others in the financial sector.

2021 was a hugely significant year for climate and other ESG litigation. It is not only striking that many claims have been and are being pursued for strategic reasons, with increasing degrees of creativity, but that some notable claims are succeeding – a trend which is set to continue in 2022.

There has been a wave of claims brought against governments and public authorities in connection with climate change in the courts, including successful challenges in Germany, France, Belgium and Australia (and claims brought in Italy, Poland, the UK and South Africa), in 2021. The trend in project-specific challenges under administrative and planning laws has also continued apace. We have seen investment arbitration claims brought by adversely affected foreign investors in the energy sector against States, in the context of energy transition. Several cases are also pending against States before the European Court of Human Rights. We expect these trends to continue in 2022.

It is not just government conduct and legislative/regulatory change that are in focus. Corporates are also in the firing line. Companies are subject to growing reporting / due-diligence obligations on a wide range of ESG issues and are under pressure from stakeholders to act, with increased scrutiny of greenwashing and “social washing”. Against this backdrop, we expect that disclosure-related claims (brought by investors or other interested stakeholders) will continue to rise. We also expect to see an increase in claims seeking to challenge what corporates have done and are planning to do, not just what they are saying. So look out for more civil claims (and soft law complaints) against corporates focused on ESG harms, future emissions and emissions reduction targets in the year ahead. In this context, parent company liability and corporate responsibility for wider value chains may well be key themes.

In that regard, in May 2021, a Dutch district court found (in a landmark judgment) that Shell’s decarbonisation plan was not ambitious enough and ordered it to reduce its CO2 emissions by 45% by 2030. The court found that Shell had an obligation of result to reduce the CO2 emissions from the activities of the whole Shell group (Scope 1 and Scope 2) and a significant best efforts obligation to reduce the emissions of its end users (Scope 3). In doing so, the Court placed significant weight on the UN Guiding Principles on Business and Human Rights, despite their “soft law” nature.

Since then, we have seen a number of claims commenced with a view to changing corporate conduct in Germany. Meanwhile, in Australia, a court has granted a shareholder access to the records of a bank to check whether it has complied with its climate change policy in lending to oil and gas projects.

In January 2022, the NGO that won the case against Shell in the Dutch courts (Milieudefensie/Friends of the Earth Netherlands) sent a letter to 30 large companies and financial firms which they claim have “control over and influence on a substantial amount of CO2 emissions” calling on them to publish (by 15 April) a climate action plan which shows how they intend to reduce their CO2 emissions (including Scope 3 emissions) by at least 45% by 2030. Although the letter says that Milieudefensie do not wish to engage in legal battles with all the recipients of the letter, they have indicated elsewhere in the press that they are “prepared and willing” to take other companies to court if they fail to take sufficient action and that they expect an “avalanche” of copycat cases against oil companies, banks, insurers, car manufacturers and other industries.

See also our short video on key ESG litigation risks for 2022 with Satindar Dogra, a Partner in our Dispute Resolution practice.