ESG class actions

climate

Corin Morkom Climate issues continue to be at the center of ESG litigation, especially for plaintiffs seeking to change organizations’ environmental policies and approaches. In the United States, class action lawsuits alleging greenwashing, environmental damage, and failure to consider and mitigate the threats of climate change have prompted class ESG litigation. Now we are starting to see this in Australia. In short: it is no longer the case that lawsuits, especially climate lawsuits, arise on the positive actions of organizations. Rather, it is the passivity – the failure to do so – that will be the battleground of ESG class actions for the next decade.

Social and governance

Matthew McCarthy Claims in the field of social and administrative law aspects are increasing. In the United States, we have seen class action lawsuits related to animal rights and failure to manage modern slavery risks. In Australia, a lack of proper dealings with First Nations people can give rise to ESG-related class actions.

Policies that pay lip service to these issues will not escape scrutiny. It is important that this strong investment in managing risks in this space through targeted concrete policies and through proper engagement with the right stakeholders. This should be a central focus for all sectors.

Future problems

Corin Morkom Not all ESG class action risks are created equal, and public and private entities will face markedly different challenges. For government, Australian law has begun to recognize a duty owed in relation to climate change and inaction on social issues. In the private sector, market disclosures are the subject of ongoing and intensive scrutiny by potential plaintiffs and regulators. Cybersecurity breaches can also give rise to class actions for ineffective digital security policies and management systems.

Mitigation and management

Corin Morkom There is a wide range of ESG issues that can be subject to class actions, and as activist shareholders continue to rise, organizations across all industries will need expertise in this area. When faced with a class action threat, it’s important to remember that the key is a mix of speed and preparation, as well as following these three essential steps.

Matthew McCarthy One, call in a team. And it’s important to remember in this context that class actions are a specialized form of litigation and you need a team that has deep understanding and experience in handling these unique claims. It is also very important to leverage the specialist resources within your own organization and leverage that expertise.

Corin Morkom Two, prepare to defend the action. As soon as a class action is filed or threatened, you must begin preparing the company to defend the action by notifying your insurer, developing a litigation strategy, maintaining good document management practices, and moving quickly to get experts and identify likely witnesses.

Matthew McCarthy Third, consider the broader commercial context. In addition to the legal exposure, there are a range of commercial operational issues that can be impacted when a class action is filed, and these are only highlighted when the claim relates to an ESG issue. There are a number of important commercial, reputational and social licensing considerations that may arise, and it is important to take that broader commercial context into account and respond appropriately when handling your claim. It is important to remember that class actions are complex and require specialist expertise. That is only reinforced in an ESG context. The better prepared you are, the more proactive you can be and the faster you can react if and when a claim is made.