Growth in North American organisations facing ESG litigation

One in ten organisations in North America experienced ESG litigation in 2023, compared to just 2% the year before, according to Norton Rose Fulbright’s Annual Litigation Trends Survey. The share of respondents involved in energy-related litigation also doubled. The law firm surveyed more than 400 general counsel and in-house litigation leaders based in the US and Canada.

The survey found that nearly a quarter (24%) of respondents saw their ESG dispute exposure increase over the last year, with 27% expecting more exposure in 2024. The latter group includes significant proportions of respondents in energy (41%), real estate and construction (36%) and technology (36%).

“As ESG issues become politically polarised, organisations are increasingly finding themselves stuck in a tug of war between ESG regulatory pressure and vocal opposition from stakeholders,” said Norton Rose Fulbright.

The law firm says two conflicting trends appear to be driving the increase in dispute potential. Pro-ESG regulatory pressures are the leading issue (40%), followed by anti-ESG sentiment from stakeholders (37%). “These competing forces pose a thorny problem for organisations that are navigating compliance with ESG disclosure requirements like the EU’s Corporate Sustainability Reporting Directive while also trying to temper opposition flaring among conservative political circles in the US,” says the report.

However, it notes that the anti-ESG bark may be bigger than its bite. Only 29% of respondents say anti-ESG regulatory pressures are contributing to an increase in exposure. Similarly, pro-ESG sentiment from stakeholders may be less of an issue than ESG and climate-related regulations themselves – just a third (33%) say it is a factor in increasing dispute exposure.

Within ESG issues, environmental concerns again rank as the most prominent area expected to drive disputes in 2024 (71% of respondents). Exposure to disputes and litigation surrounding climate change and greenhouse gas emissions rank second (43%), followed by breaches of contractual obligations related to environmental compliance (40%).

Among respondents who expect their environmental exposure to increase in the coming year, more than half (54%) identify allegations related to greenwashing or other false environmental claims as a contributor.

“This comes as regulators like the Securities and Exchange Commission (SEC) focus on greenwashing in relation to ESG, and as activists continue to target the accuracy of corporate environmental claims in statements and advertising,” said Norton Rose Fulbright disputes partner Rachel Roosth.

Social issues falling under the ESG umbrella are also an area of future concern for more than half (58%) of respondents. The report says: “This is thanks in large part to the recent controversies surrounding diversity, equity and inclusion (DEI) programmes, after the Supreme Court struck down higher education affirmative action policies in 2023. Among organisations that expect greater exposure to social disputes, DEI policies and practices rank as the leading contributor (42%), followed by human rights (41%), which may reflect the spotlight cast by congressional investigations into forced labour allegations tied to corporate operations in China.”

The survey also found that 36% cite labour rights as a factor, results that come amid continued activity by labour unions – including a months-long strike by the Writers Guild of America in the spring and a major strike among autoworkers in autumn, the law firm noted.

As for class actions, the survey found that of the 28% of respondents who were involved in class action litigation over the past 12 months, employment & labour matters and cybersecurity & data protection/privacy issues were the most common such types, with 55% and 35% respectively experiencing these in 2023. ESG was a growing focus for class actions in 2023, experienced by 11% of organisations involved in class actions compared to just 8% in 2022. Consumer protection also jumped seven percentage points, from 27% to 34%.

The top areas of class action concern for 2024 are employment & labour matters (48%), cybersecurity & data protection/privacy issues (46%), consumer protection (39%), ESG (38%) and product liability (30%).