Steven Friel is a leader in the law and business of ESG. He is particularly expert in helping to organise large groups of shareholders, bondholders and other stakeholders to respond to catastrophic breakdowns in ESG at publicly listed companies.
Steven has repeatedly been ranked by independent legal directories. Chambers and Partners notes: ‘Steven deploys strong problem-solving abilities with the finesse only available to people of unusually high intelligence … praised for his hands-on approach and ability to work constructively on even the biggest and most complicated matters … He has a razor-sharp legal mind, is intellectually curious, and has strong business sense.’ He is a member of the Global Stewardship Committee of the International Corporate Governance Network and sits on the advisory board at the Centre for Sustainable Governance and Law in the Built Environment at University College London.
This is the third annual edition of this helpful guide to ESG engagement and litigation.
ESG is an acronym for the wide range of environmental, social and corporate governance standards that companies now increasingly say that they comply with, or which they are otherwise legally required to comply with. Companies make ESG promises and otherwise have ESG obligations to a variety of stakeholders, including their investors, their customers, their regulators and the wider community in which they operate.
Banks promise their regulators (and their investors) that they don’t engage in money laundering or terrorist financing. Fashion brands promise their customers (and, again, their investors) that their supply chains use sustainable materials and a properly paid workforce. Technology brands promise all of us that the prices we pay for their ubiquitous products are fair and competitive and that they respect the intellectual property rights of the (typically smaller) businesses they engage with.
Investors increasingly consider ESG factors when making investment, divestment and stewardship decisions. Consumers increasingly consider ESG factors when deciding which products to buy.
When a company fails to comply with its ESG obligations and causes loss or damage to one or more categories of its stakeholders, those wronged stakeholders – the shareholders who invested based on promises that turned out to be untrue, or the customers who have been ripped off – could potentially engage with the company on an escalated and often collective basis, up to and including litigation. They will have a good legal case, and they will almost always have at least two key motivations to litigate.
First, to seek compensation.
Second, to hold the wrongdoers to account.
But how do they engage? Which laws and regulations assist them? Which public bodies are relevant?
This publication sets out to answer these questions. It includes contributions from a number of different professionals who are experts in their respective jurisdictions on the question of how stakeholders can engage with major corporates on ESG issues.
The position in Australia has been explained by class action lawyers Joel Phibbs and Ellen Roberts from the law firm Phi Finney McDonald. Australia has increasingly become one of the most progressive international jurisdictions on ESG issues. Joel and Ellen update us on some recent developments, including proposed reforms to the Environment Protection and Biodiversity Conservation Act (1999), which would establish Australia’s first national environment protection agency and introduce new enforcement powers; and a new law that enshrines the ‘right to disconnect’, protecting employees who refuse to monitor, read or respond to contact from their workplace outside their working hours. Separately, the Australian federal government has announced draft bills that include stronger enforcement and penalty provisions aimed at preventing, detecting and disrupting scams and crimes in relation to banks, telecommunication companies and tech giants, including significantly expanding the role of the Australian Financial Complaints Authority.
The chapter on Austria is a new addition to this year’s publication. Bettina Knoetzl and Ferdinand Urban from KNOETZL, Austria’s first large-scale disputes resolution powerhouse, describe Austria’s first step towards enshrining ESG aspects into Austrian national law by adopting the Sustainability and Diversity Improvement Act while implementing the EU Non-Financial Reporting Directive. Other relevant Austrian legislation includes the Climate Protection Act (which fixes maximum greenhouse gas emission levels for certain sectors in Austria), the Waste Management Act, the Federal Clean Air Act and the Water Act, which stipulate specific obligations for individual companies and provide for administrative penalties in the case of non-compliance.
Together with my colleague Mitesh Modha, I drafted the chapter that described the position in England & Wales. Greenwashing continues to be an issue. In March 2024, the UK Competition and Markets Authority accepted undertakings from three fashion brands (Asos, Boohoo and George at Asda) which committed to being accurate and clear when displaying, describing, and promoting their green credentials. And institutional investors continue to use sections 90 and 90A of the UK Financial Services and Markets Authority 2000 as a tool of escalated and collective engagement, with ongoing actions involving Standard Chartered (breach of Iranian sanctions), Reckitt Benckiser (illegal ‘product hopping’ scheme) and Glencore (bribery and corruption on a global scale).
The position in Switzerland has been explained by renowned environmental lawyer Isabelle Romy and her colleagues Ines Pöschel and Denise Wohlwend from Kellerhals Carrard Zurich. Their firm launched a new sustainability and ESG desk in July 2022, putting them in a good position to discuss the various environmental, labour, anti-corruption and other laws that form part of the Swiss position on ESG. Of particular note, they provide an update in the Grand Chamber ruling of the European Court of Human Rights in the case Verein KlimaSeniorinnen Schweiz and Others v Switzerland. This landmark case has received worldwide attention as the ECHR ruled for the first time that the European Human Rights Convention encompasses a right to effective protection by the state authorities from the serious adverse effects of climate change.
The position in the United Arab Emirates has been explained by Mohammed R Alsuwaidi and Suneer Kumar, both at Alsuwaidi & Company. Mr Alsuwaidi served as the head of legal at Emirates General Petroleum Corporation before founding Alsuwaidi & Company in 1997.
The US chapter has been drafted by Elizabeth Raulston, a senior associate, and Nirajé Medley-Bacon at the international law firm Linklaters LLP. ESG remains a political hot topic in the US. The Biden-Harris administration and Democrat-led state administrations have generally pushed the ESG agenda, with the Republican Party, at both the federal and state levels, generally pushing back. At the time of writing, the outcome of the 2024 election is unknown. It will undoubtedly have a huge impact, in the US and beyond, on ESG issues. Other developments of note in the US include Oklahoma’s anti-ESG Energy Discrimination Act of 2022, which prohibits the state’s public retirement plans from investing in companies that allegedly boycott fossil fuel producers, being permanently enjoined by an Oklahoma state court in July 2024, and the Loper Bright Enterprises et al v Raimundo decision of the US Supreme Court, which is likely to significantly reduce the authority of federal agencies such as the US Environmental Protection Agency and the Securities and Exchange Commission.
While every jurisdiction is different, with its own rules and sometimes idiosyncratic procedures, there are a number of universal themes that we can see across all of the jurisdictions.
First, there is a general consensus on the types of issues covered by ESG. The ‘E’ covers protection of biodiversity and the natural environment, clean energy, greenhouse gas emissions and carbon emissions. The ‘S’ covers modern slavery, social justice and inclusion, anti-discrimination and privacy, fair pay, minimum safety and other employment-related standards, rights to union representation and collective bargaining. The ‘G’ covers corporate governance standards and the integrity of financial and other markets, compliance and anti-fraud measures, anti-money laundering and counter-terrorism financing.
Second, we can see that, both within each jurisdiction and internationally, there is no single source of ESG law and regulation, and there is no single enforcer or method of enforcement. Rather, we see a fragmented patchwork of laws, regulations and authorities.
Third, it is clear that international efforts are important in driving national practices. We see, for example, the importance of the International Financial Reporting Standards, the Task Force on Climate Related Financial Disclosures and the international Taskforce on Nature-related Financial Disclosures.
Fourth, greenwashing is a significant issue. If companies claim to be environmentally friendly, they should be held to their promises and should not be allowed to get away with unsubstantiated marketing hype. Just as greenwashing is about E-related misrepresentations, bluewashing is about S-related misrepresentations, and this is another area covered in this publication.
Fifth, there is a close connection between ESG engagement and litigation, including class actions. Most engagement between companies and stakeholders will be consensual and non-contentious. However, there will be occasions when escalated and collective engagement, up to and including litigation, is a necessary and reasonable response to ESG breakdowns.
Finally, the political dimension of ESG inevitably has an effect on the legal position.
It is clear that ESG issues are front of mind for many stakeholders, particularly the investors in major companies and the consumers who buy and use the products of these companies. ESG law and regulation is a hot topic, and the methods by which stakeholders engage, particularly in the face of ESG breakdowns, is a significant growth area for lawyers and other professionals.
The contributors to this publication are all experts in ESG issues in their respective jurisdictions. I am grateful to them for their excellent work.
This article was originally published on Lexology and you can access the original version here
