The first few weeks of 2023 have seen a flurry of action against companies and directors associated with environmental, social and governance (ESG) issues. In some cases, the claims seek novel remedies. This is at a time when there is increased regulatory focus on this area in Australia by both ASIC and the ACCC.
- In January 2023, the Australasian Centre for Corporate Responsibility (ACCR) and global institutional investors filed a shareholder resolution to Glencore PLC, seeking information of how the company's thermal coal operations align with the Paris Agreement to limit global warming to 1.5C, following statements made by the company in 2021. The ACCR is also a plaintiff in Federal Court proceedings against Santos alleging it engaged in misleading or deceptive conduct by claiming that it produces clean energy and has a pathway to reach net zero emissions.
- In February 2023, ClientEarth commenced proceedings in the English High Court against the directors of Shell alleging that they are in breach of their obligations in failing to adopt a reasonable or effective strategy to manage climate risks. The claim is considered a landmark case for seeking to hold directors personally liable for a company's climate strategy. The claim is backed by institutional investors, including various pension funds. They seek orders for the board to adopt a strategy to manage climate risk in line with their alleged duties under the UK Companies Act and to comply with a Court order in separate Dutch proceedings, requiring Shell to cut emissions by 45% by 2030.
- Also in February 2023, a complaint was lodged against Marsh by Inclusive Development International and 10 Ugandan and Tanzanian human rights and environment organisations with the United States National Contact Point for the OECD, alleging Marsh is failing to meet the OECD guidelines by acting as insurance broker for the contract phase of the East African Crude Oil pipeline (the EACOP). The complaint alleges Marsh is enabling the project to proceed, with adverse consequences for the environment and human rights. The complainants seek public confirmation on whether Marsh is currently acting as broker for the EACOP, that Marsh cease in this role and fully disclose its current human rights and environmental due diligence policies and procedures, amongst other things.
- ASIC has publicly stated that greenwashing is a priority and has issued at least 8 infringement notices and penalties against entities in a range of industries since October 2022. For example, Tlou Energy Limited was issued 4 infringement notices and paid a total of $53,200 for alleged misleading statements that the electricity it produced would be carbon neutral, amongst other things. Vanguard Investments Limited was considered to have made misleading representations in a PDS that an investment screen excluded investments in tobacco. However, while the screens operated to exclude manufacturers of cigarettes and tobacco products, they dd not exclude companies involved in the sale of tobacco product.
- In October 2022 the ACCC launched two internet sweeps focusing on greenwashing. The ACCC will review over 200 company websites to identify misleading or deceptive ESG claims with possible enforcement action to follow.
Private actions by activists are not unusual in jurisdictions outside Australia. However, there is a noticeable increase in the number and variety of claims and regulatory activity. This, coupled with the involvement of high value institutional investors, the targeting of industries outside the resource and construction sector and that in many cases, claimants are not seeking monetary damages, indicates an increasing appetite to use the legal framework in novel ways. These dynamics raise challenges for companies, their advisors, directors and their insurers, including those who operate in Australia, faced with a new and uncertain area of risk.
In the Australian financial services context, this comes at a time when ASIC is also actively enforcing the design and distribution obligations (DDO) introduced in October 2021. In December 2022 ASIC commenced the first proceedings under the DDO regime being 2 separate proceedings against an issuer (American Express) and distributor (Firstmac Limited) of financial products. Since July 2022 ASIC has issued at least 22 interim stop orders.
There is no doubt that claims and regulatory activity in this area will continue to increase. It will be considered fertile ground for class action lawyers.
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