The EU's Corporate Sustainability Reporting Directive, set
to shape ESG disclosures in 2024 reports to be published in 2025,
has companies and their CFOs on edge. Already early last year, law
firms, consulting companies, and the banking sector established
specialized teams and departments, promoting their advisory
expertise in ESG reporting. Meanwhile, dispute resolution lawyers
gleefully anticipate the array of potential litigation and
arbitration cases, which have already begun to materialize.
The potential of ESG claims for dispute resolution practices
worldwide seems undeniable. While climate-related claims in
commercial disputes are not a novelty, ESG reporting requirements
will enable a more concise attribution of ESG-related damages to
companies' activities. ESG-related claims may be associated
with failures in respect of corporate reporting and disclosures,
which could not only hold shareholders accountable vis-à-vis
regulatory bodies but emerge in post-M&A disputes, where
transactional documentation includes warranties regarding
compliance with ESG standards and reporting. Moreover, higher risks
of directors' and officers' liability may cause supervisory
boards to maintain a tighter grip on management, as weak governance
may have implications for a company's attractiveness towards
investors (including private equity funds with green-oriented
portfolios) and insurers (who will be sure to check compliance with
existing ESG laws and requirements).
While the influx of cases related to ESG issues is certain, the
question that remains is which dispute resolution venue is more
suitable for handling such claims. Arbitration attracts business
for its speediness, relative inexpensiveness, and probably most
importantly for its confidentiality; however, critics argue that
precisely due to the potentially high public interest in ESG
matters, such cases should be heard by courts, which will ensure
transparency. It remains to be seen which venue will become more
popular, but arbitration institutions must prepare to address
confidentiality concerns more comprehensively. A holistic approach,
including default rules on confidentiality, exceptions, and partial
disclosures, could be crucial in attracting ESG-related commercial
arbitration.
Originally published 10 April 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
