The importance of ESG considerations has grown significantly in recent years and, alongside this, we are seeing a rise in ESG litigation. Companies and organisations are giving greater focus to their priorities and activities in relation to ESG, and more commitments and promises are being made. This comes with risks as well as opportunities. So, what are the key points organisations need to consider to manage their key ESG issues effectively and protect themselves from litigation?
In this second video in our series on 'managing ESG litigation risk', Commercial Litigation Partner Emma Carr looks at the key factors behind this rise in ESG claims, including the trend for group action claims and the impact of litigation funding. She discusses the types of cases we are seeing come through the courts and the key takeaways from these in order to help organisations understand the new environment they need to operate within.
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Now, in recent years, the importance of ESG considerations has grown significantly with ESG now sitting firmly at the top of many corporate agendas. And all of that's great, and of course the right thing to do. However, with companies making more and more ESG promises and stakeholders having greater ESG demands comes, of course, the risk of getting it wrong and the increased risk of litigation as a result. Allegations and complaints regarding ESG are increasingly being driven by the collective interest of stakeholders such as investors, consumers and pressure groups and activists. And we're seeing those stakeholders bring claims based on existing laws in quite innovative and novel ways, including by way of derivative actions, claims for misstatement and misrepresentation of ESG disclosures, claims for false advertising and greenwashing and claims against parent companies for the actions of its suppliers and subsidiaries.
Now, whilst stakeholders can be varied, they're often united by two key motivations in bringing the litigation. Firstly, to seek compensation. And secondly, to hold wrongdoers to account and bring around behavioural change.
Now, traditionally, whilst has often been a wide gulf between those motivations and stakeholders having the actual practical and financial ability to bring a claim, that gulf is now being more readily bridged both by the rise of claimant law firms who are purposely being set up to deal specifically with mass group claims and who actively go out looking to represent claimants, and also by the increase in third party litigation funders who in turn look to fund the ESG litigation in exchange for a financial return.
Indeed, they've already been a number of recently funded actions in the courts challenging issues such as inadequate climate policies, insufficient environmental regulations or indeed, the promotion of fossil fuel activities. And we expect this trend and the demand for and the availability of litigation funding to continue to grow, particularly as more investors look for ways to incorporate ESG considerations into their portfolios.
So what does all of this mean for you? Well, the key takeaway from all of this is that companies can therefore no longer afford to sit back and hope that claims won't get off the ground for lack of organisation and funding, because, as we're seeing, those obstacles are increasingly being overcome.
This in turn, of course, makes it more important than ever to get your ESG objectives and their delivery right from the outset so as to minimise the risk of getting it wrong, and the litigation that could flow from that.
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