Increased volume of EU class actions forecast for 2024

Clyde & Co is predicting that the EU directive on collective redress will see increased volumes of class actions, notably for cyber liability and greenwashing cases.

“Next year is likely to see the first really significant tranche of collective redress actions across Europe following the enactment of the EU Directive on Representative Actions,” said Henning Schaloske, a partner at Clyde & Co in Dusseldorf. “We expect to see increased interest from claimant groups in bringing actions stemming from the potentially systemic risks that are occupying the minds of lawmakers, companies and individuals around the world – namely, ESG risks and cyber.”

As an example, he noted that the EU Directive makes it simpler for groups of individuals whose data privacy has been breached to bring collective actions. In particular, the Directive and its implementation into domestic laws now allows for actions for collective compensation of damages. In addition to this, he said the first actions brought on the basis of the EU’s General Data Protection Regulation, Article 82, are already in the pipeline and expected to be brought in 2024.

“Until now, most cyber-related cases in Europe have centred on first-party losses such as business interruption. But fresh actions for immaterial damages are posing a new and significant exposure for cyber insurers,” he said.

Schaloske said it is also likely that collective actions will become more commonplace for breaches in other areas, such as ESG pledges and so-called greenwashing actions. He noted that several mechanisms already exist to require companies to make disclosures about their sustainability reporting, including the EU’s Corporate Sustainability Reporting Directive. In addition, EU institutions are currently working on a directive that would require companies to substantiate the voluntary ‘green’ claims they make to consumers.

“This proposed ‘Green Claims’ directive and the crackdown on potential greenwashing, alongside efforts to prevent companies from ‘greenhushing’ – under-reporting ESG information – could also result in an increase in collective redress actions now that such a mechanism is more readily available in Europe,” said Schaloske. “An ever-increasing focus from consumers on the ESG and sustainability credentials of the companies that they buy from and interact with will likely fuel this.”

Nigel Brook, a partner at Clyde & Co in London, said the number of greenwashing litigation cases will continue to increase as we go into 2024, with a wide variety of sectors being impacted.

“Historically, climate litigation against companies was focused primarily on the energy sector. However, greenwashing litigation is somewhat distinctive in that it is impacting a wide variety of sectors, from aviation to fashion, and has now become the fastest-growing area of climate litigation,” he explained.

Greenwashing litigation to date has been primarily driven by NGOs and activists, but to a large extent they have common cause with regulators and standards bodies such as the Advertising Standards Agency in the UK, said Brook.

He noted that a proposed EU directive, due to come into force in 2026, will outlaw generic environmental claims such as “climate neutral” or “natural” without proof of recognised excellent environmental performance. In addition, new EU legislation will oblige companies to report on the environmental impacts of their products, operations and value chains, and these public statements will be closely scrutinised by NGOs and others.

“Upcoming litigation could take different forms,” said Brook. “Currently, it is mostly about behaviour change, seeking to force businesses to withdraw an advertising campaign or claims about a product. However, in the next year we might see more claims based on allegedly misleading statements in listed companies’ filings. Businesses will need to become more rigorous about their environmental assertions to protect themselves against regulatory and reputational risk.”