ESG class actions

Climate

Corin Morcom Climate issues remain at the forefront of ESG litigation, especially for plaintiffs seeking to change the environmental policies and approaches of organisations. In the United States, class actions alleging greenwashing, environmental damage and a failure to consider and mitigate the threats of climate change have all been grounds for ESG class actions. Now we've started to see this in Australia. In short: it's no longer the case that litigation, particularly climate litigation, will arise on the positive actions of organisations. Rather, it's the inaction—what one fails to do—that will be the battleground of ESG class actions for the next decade.

Social and governance

Matthew McCarthy Social and governance related claims are increasing in prominence. In the United States, we've seen class actions relating to animal rights and failures to manage modern slavery risks. In Australia, a failure to engage properly with First Nations people may give rise to ESG related class actions.

Policies that pay lip service to these issues will not escape scrutiny. It's important that this strong investment in managing risk in this space through targeted concrete policies and through proper engagement with the right stakeholders. This needs to be a key focus for all sectors.

Future issues

Corin Morcom Not all ESG class action risks are equal, and public and private entities will face distinctly different challenges. For government, Australian law has begun to recognise the duty owed in relation to climate change and inaction on social issues. In the private sector, market disclosures are the subject of constant and heavy scrutiny by potential plaintiffs and regulators. Cyber security breaches may also give rise to class actions for ineffective digital security policies and management systems.

Mitigation and management

Corin Morcom There's a breadth of ESG issues that could fall subject to class actions, and as activist shareholders continue to rise, organisations across all sectors will need expertise in this space. When facing any class action threat, it's important to remember the key is a mix of speed and preparation as well as following these three essential steps.

Matthew McCarthy One, engage a team. And it's important in this context to remember that class actions are a specialist form of litigation and you need a team that has a vast understanding and experience dealing with these unique claims. It's also really important to leverage the specialist resources within your own organisation and to harness that expertise.

Corin Morcom Two, prepare to defend the action. As soon as a class action is filed or threatened, you need to begin preparing the company to defend the action by notifying your insurer, developing a litigation strategy, maintaining good document management practice, and moving swiftly to retain expert and identify likely witnesses.

Matthew McCarthy Three, consider the broader commercial context. In addition to the legal exposure, there are a range of commercial operational issues that can be impacted when a class action is made, and these are only highlighted when the claim relates to an ESG issue. There are a range of significant commercial, reputational and social license considerations that can arise, and it's important to have regard to that broader commercial context and to respond to it appropriately when dealing with your claim. It's important to remember class actions are complex and specialist expertise is required. That's only heightened in an ESG context. The better prepared you are, the more proactively you'll be able to engage and the faster you'll be able to respond if and when a claim is made.