Navigating the growing risk of ESG litigation: the next big challenge for communicators?

Take a glance at some of the recent news headlines and it’s clear that litigation around ESG is a hot topic.

The prospect of reputationally damaging lawsuits is cited as the reason behind one investment bank pulling funding for new gas projects. Then there are employers like P&O Ferries who dismissed staff via video call and text message. P&O quickly found themselves in the firing line – with litigation around unfair dismissal. The E, the S and the G are becoming ever more entwined – and litigation is becoming a common theme.

With increased scrutiny and stricter regulatory requirements regarding ESG disclosures, the risk of litigation for companies in breach of regulation is rising. Good governance is essential and in our view there’s an opportunity for communicators to work closely with legal counsel to advise what companies need to prepare and mitigate risk.

Last week CDR and Clifford Chance convened an expert panel under Chatham House rules at the Royal Society of Arts to unpack what ESG litigation is, the trends, role for communicators and how individual Directors can find themselves as much at risk as the company they represent.

In the room? Senior communication leaders, regulatory experts to some of the UK’s largest listed companies as well as advisers to fast growing but sometimes resource constrained growth companies. For this latter group, interpreting the wave of ESG regulations remains a significant headache. So, what were some of the key things we heard?

What we mean by ESG litigation 

• There is a lot of focus currently on litigation arising out of climate related causes but the challenges for businesses in managing the “S” were highlighted by some of the missteps we saw in the reaction to Covid, “Me Too” and the killing of George Floyd.  One panellist joked how companies have historically thrown around green claims ‘like confetti’ but those days are now coming to an end. Roger Leese, Partner at Clifford Chance:

“For many businesses risk will lie in a misalignment between their public claims and reality. The golden rule therefore is to say what you do, and do what you say.”

What are the big ESG litigation trends?   

• New assessments of companies are being formed in the capital markets. Non-financial metrics are increasingly the norm. The London Stock Exchange Group has launched the Green Economy Mark, which recognises London-listed companies which derive more than 50 per cent of their revenues from products and services that contribute to environmental objectives from climate change mitigation and adaptation to the circular economy. Claire Dorrian, Head of Sustainable Finance, Capital Markets and Post-Trade at LSEG:

“This is a fast-changing landscape, the role of a Corporate Sustainability Officer didn’t exist the way it does today, 4-10 years ago.”

• Evidence verification is becoming even more crucial. Simon Gleeson, Partner at Clifford Chance:

“Never allow anybody to say anything unless someone has decided this is true, know what you have said and if you set targets ensure there is a paper trail to substantiate this.”

The role for communicators   

• Communications alone should not be viewed as a substitute for a carefully mapped out ESG strategy informed by a robust materiality analysis. Lorna Cobbett, CEO of CDR UK:

“Ultimately, it’s about accountability and how you manage your reputation. You also need to articulate the journey that you’re on with full transparency. Your audience goes beyond investors and every stakeholder needs to be considered.”

• It was also noted that ESG litigation is not always about financial action but can often be about challenging behaviours and holding companies (and individuals) to account for their actions.
• The digital world has also made an impact as there is now a permanent record of what a company has said and when. Doing due diligence on a company is enhanced by Natural Language Processing allowing anyone to see exactly what was said, when – and who actually said it.
• The consensus on the panel was that communicators with proximity to the board and ability to influence senior leaders gave them a key role to work alongside legal counsel to map the risks a client might be able to face. Eleanor Hervey-Bathurst, Associate at Clifford Chance:

“There can often be a discrepancy between sales teams who are keen to promote green credentials of products and the legal team who understand the burden that brings. Good communication between all parties including reputation advisers is vital to ensure that products do as marketed.”

Mitigating risk  

• The good news is there is a path forward to safeguard reputation with ESG upskilling, mapping key stakeholders and engaging in the right way and the right time key to success. Roger Leese, Partner at Clifford Chance:

“The connection between the comms advisers, risk/compliance and legal team is pivotal when mitigating ESG risks. Ensure you engage with NGOs earlier and be transparent to mitigate the risks.”

• The organisation, Chapter Zero equips non-executive directors with skills and knowledge around the impact of climate change and what is needed to build robust plans and measurable action. Sharon Flood, Fellow at Chapter Zero says boardroom education is critical:

“There is a need to ensure companies can upskill their board of directors to meet ESG expectations.“

With new research this year from the World Business Council for Sustainable Development highlighting that lawsuits against companies concerning ESG issues have risen sharply, expect to see a continued focus on activities in the value chain, breaches of policy and regulatory frameworks (which are getting more stringent and at various stages at a national and supra-national level) and more cases around ‘softer’ laws such as biodiversity conventions, OECD guidelines and more. ESG litigation is not going away.

Huge thanks to our stellar panel for their contributions.