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ESG-related disclosures an increasing target for civil litigation claims.

Companies are increasingly seeking to polish their Environmental, Social, and Corporate Governance (ESG) credentials in response to the risk of investor and activist claims if those disclosures are inaccurate.

Misleading statements about a company’s ESG credentials can trigger investor / shareholder action with significant implications for Directors and Officers (D&O). The developing litigation situation in England and Wales has also generated a perfect storm for ESG-related actions brought by numerous other stakeholders.

The proposed draft EU Directive on Corporate Due Diligence and Corporate Accountability (the “Draft Directive”) envisages a regulatory enforcement regime similar to that imposed by the General Data Protection Regulation (“GDPR”) but also a civil liability regime including provisions which would allow third parties to hold a company liable for infringements of applicable human rights, environmental, and governance standards.

As the U.K. is now outside the EU, the Draft Directive will not become law, however, it is possible the U.K. will enact equivalent legislation in its authority.

With the rise of trans-national tort claims and the likelihood that U.K. businesses will be part-and-parcel of the supply chains of EU-headquartered businesses, means that the Draft Directive will continue to be of relevance to the U.K and lead to disputes before the courts of England and Wales.

 Examples of the ESG issues include:

 

Shareholder claims

From the perspective of the litigator, there are a number of immediately apparent ESG-related litigation risks for corporates—most obvious amongst these is the possibility of shareholder claims.

Examples of shareholder activism, include the RBS Rights Issue Litigation, which was settled before trial, the Lloyds/HBOS litigation, and the Tesco shareholder litigation, also settled shortly before trial. Claimant law firms and litigation funders will be looking to announcements from regulators to identify the next possible major focal point.

 

Environmental and human rights issues

ESG negligence claims could be a route to holding corporates accountable for environmental and human rights issues, even if those issues occur as a result of the actions or omissions by a parent company’s subsidiary. This has been highlighted by Okpabi v Shell in which 42,500 individuals from two different areas in the Niger Delta region brought proceedings in the English courts against Royal Dutch Shell Plc (incorporated in England) and Shell Petroleum Development Company of Nigeria Ltd, a subsidiary incorporated in Nigeria.

 

Claimant law firms and Litigation funding

In a sign of the current times, claimant firms and funders are actively considering potential group actions with one tactic being to try and extract an early settlement or test defences. Targeting firms in the same industry sector in the hope of getting a win that leads to others settling early is another ploy being used.

 

Group Litigation Order (GLO)

This another is another weapon held by those wishing to bring a group action. The advantage of the GLO, as opposed to a representative action, is that it allows for differentiation between claimants of potentially different categories of loss or impact. In a representative action, the class of individuals must have the same interest in the claim. The increasing influential role of claimant law firms and funders is crucial to this growth and they are constantly looking for the next major target.

The W Denis dedicated ProFin team specialises in Management Liability Insurance, including Directors & Officers Insurance, Trustees Liability Insurance, Public Offering of Securities Insurance, Corporate Liability Insurance as well as other types of Professional Liability Insurance.

To discuss this further with an expert at W Denis, please make arrangements with Richard Bowdidge on 0203 713 3982 or at Richard.Bowdidge@wdenis.co.uk and Daniel Moss at daniel.moss@wdenis.co.uk or on 0044 (0)113 2439812

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