Bracing for Future ESG Courtroom Drama

ESG — the catchword for corporate environmental, social, and governance concerns — has continued to catch more attention by regulators, marketers, investors, and consumers.

Now add lawyers to the list.

According to global law firm Norton Rose Fullbright, which released its 2023 survey of corporate counsels about litigation trends, there has been no big problems yet. But corporate lawyers are preparing themselves for what might be inevitable.

“While disputes related to environmental, social and governance (ESG) aren’t yet a significant problem for many businesses, in-house legal professionals are bracing for future impacts—and seeking guidance around ESG disclosure requirements to US and European Union regulators that could potentially open the door to litigation if not addressed properly,” they wrote.

“Twenty-eight percent of respondents said their ESG dispute exposure increased in 2022, and 24% expect it to deepen in the coming 12 months, with the latter group citing factors that include the current lack of established ESG metrics and requirements. However, the majority said their ESG dispute exposure remained the same as last year and don’t expect it to change in 2023.”

One of the issues that could change relatively quickly is the nature of regulation around any aspect of ESG. Environment tends to be the one people gravitate toward and has gained traction in CRE, especially as the Securities and Exchange Commission has the final action on its proposed rule governing enhanced ESG disclosures scheduled for October 2023. Impacts of properties on companies’ environmental impacts would ultimately involve property owners and operators.

But what to report and what will those regulators, marketers, investors, and consumers use as criteria and metrics? One respondent to the survey told the firm, “A lot of this is still uncharted territory. People are trying to figure out what ESG means.” And beyond environmental, how will companies have to report on the social and governance areas? The latter seems well understood in current SEC filings, but social? Will property owners have to document for their own operations and for corporate tenants how a given property affects local neighborhoods, quality of life, and economics of metro areas? About 26% of respondents were concerned about “increased awareness of ESG and the associated willingness to join/bring ESG-related class actions”

“Across industries, our clients are feeling pressure from customers, shareholders and regulators, among others, to increase their disclosures of their ESG goals and performance,” the report quoted Norton Rose Fulbright disputes partner Rachel Roosth as saying. “If these disclosures are perceived as false, misleading or insufficient, litigation may ensue. So while the kinds of litigation risk may vary across industries, companies in all sectors can benefit from assessing their ESG-related litigation risks and how to mitigate them.”