The ‘S’ and the ‘G’ of ESG is coming to the fore, too.
And corporates are not the only ones at risk. Financial institutions and professional investors are also increasingly in the crosshairs of claimants and their lawyers, in a way that hitherto has been much less common.
HSBC ran advertising campaigns in Australia promoting its support for protection of the Great Barrier Reef while also funding fossil fuel operations. It now faces an investigation by the advertising regulator.
The Commonwealth Bank of Australia was subject to action to disclose internal documents relating to a gas pipeline and other projects that potentially infringed the bank’s policies that required it to consider whether its funded projects are in line with the goals of the Paris Agreement.
A UK pension fund for university staff is being taken to the High Court for failures of the fund’s directors “to create a credible plan for disinvestment from fossil fuel investments”.
Shareholders in the UK benefit from section 90 and 90A of the Financial Services Markets Act 2000, which allows them to claim for losses arising from action taken on the basis of misleading information provided by a listed company. Indeed, the regime also extends to omissions and delays in publication.
Lofty ESG claims that turn out to be overblown may prove to be very expensive for companies. Shareholder litigation against Tesco was backed by litigation funders, who may also be prepared to back ESG-related shareholder litigation.
For fund managers, too, claims on the ESG credentials of their investments may prove similarly expensive. On May 31 the German police raided the office of asset manager DWS and Deutsche Bank, its majority owner, as part of an investigation into alleged greenwashing – the first, but certainly not the last, investigation into an asset manager.
We may also soon see asset managers themselves acting as claimants in litigation, meeting their responsibilities to investors by taking active steps to ensure companies are meeting the ESG standards they set themselves.
While asset managers may not have much appetite or capacity to manage such litigation internally, litigation funders and law firms are poised to assist and remove the risk and cost of such actions.
Scrutiny and accountability and enforcement are here, and while ESG as a buzzword may be dying, the litigation risk on the component parts of ESG is just coming to life.
Ellora MacPherson is chief investment officer of Harbour Litigation Funding
