ESG Litigation and the Role of the Judiciary

6 March 2024
London International Disputes Week
ESG Litigation and the Role of the Judiciary

Author: Sana Akhter

COVID-19 has brought attention to the social and governance components of ESG as companies look to safeguard employment, assist in efforts to prevent the virus’s transmission, and “do the right thing.”In ESG litigation, the judiciary’s role is to uphold and interpret laws and policies that support social welfare, sustainability, and corporate responsibility.

Through precedent-setting decisions, it also contributes to the development of legal frameworks by interpreting and upholding current laws. For a number of reasons, Justice Antonio Hermann Benjamin, of the National High Court of Brazil, stresses the importance of the court in combating climate change. First, he contends that the absence of workable alternatives forces people to choose the courts. Second, if climate change is not included in the jurisdiction of courts, it may inhibit the development of environmental jurisdiction and legal theory in the face of swift change. Thirdly, facilitating significant judicial intervention enhances their contribution to societal change. Lastly, climate litigation spans various environmental issues, including impact assessments, protected areas, deforestation, water resources, wetlands, and desertification, underscoring its undeniable significance.

Pakistan has numerous issues in the areas of ESG litigation; hence, the court plays a crucial role in these areas. Since Pakistan is vulnerable to the effects of climate change, including floods and water scarcity, the judiciary is essential to the interpretation and enforcement of legislation pertaining to environmental protection. Additionally, governance litigation in Pakistan focuses on corporate governance, transparency, and accountability, reflecting the nation’s commitment to fostering responsible business conduct. Challenges related to resource management, industrial pollution, and societal well-being necessitates a proactive judicial role.

Similar to Pakistan, claims of environmental harm resulting from past or present greenhouse gas emissions are frequently the basis for climate change lawsuits in the United States. A number of states have recently filed lawsuits against fossil fuel companies in an effort to hold them liable for damages resulting from extreme weather events such as floods and fires. These cases, which centre on allegations of failing to warn investors and consumers about the hazards associated with climate change, sometimes make comparisons to prior successful actions brought against tobacco corporations.

The ESG litigation practice in the United States is a holistic regime that integrates environmental justice principles, private lawsuits, and government enforcement. The ‘governance’ aspect of ESG has been highlighted in certain United States cases, such as In re McDonald’s Corp. Stockholder Derivative Litig. In this case, the court ruled that corporate leaders had oversight responsibilities and warned of possible legal repercussions for executives found to have violated ESG obligations, including failing to stop a culture of sexual harassment. This ruling established a precedent for holding corporate executives accountable for ESG-related failures.

Elsewhere in the world there have been glimpses of accountability. In the case of Gbemre v. Shell Petroleum Development Company of Nigeria Ltd & Ors, Shell was held liable for engaging in massive and unceasing intense gas flaring which caused adverse environment impacts leading to violations of the African Charter dealing with right to life, human dignity and clean, healthy environment for individuals. In the case of Milieudefensie v. Royal Dutch Shell Plc, the court ordered that the oil giant had to reduce its GHG emissions by 20% within a decade, and further ordered it to slash its GHG emissions by 45% from its 2019 levels by the end of 2030. In another case, it was held that Shell was under liability to compensate for environmental damage in the form of paying $111 million.

In Europe, the significance of ESG-related litigation is further enhanced by the current EU Green Deal legislation, which includes the EU Taxonomy, Sustainable Finance Disclosure Regulation (SFDR), Corporate Sustainability Reporting Directive (CSRD), and Green Bond Standard (EUGB). This law requires significant non-financial disclosure, such as data on social responsibility and the environment, and is applicable to US companies operating in Europe. Companies must constantly adjust to the changing regulatory environment in order to navigate and comply with the EU’s planned Corporate Sustainability Due Diligence Directive (CSDDD), which imposes due diligence obligations on directors.

To put it briefly, the judiciary’s proactive involvement in environmental and public health matters—like stopping industrial units and resolving issues related to climate change—highlights its influence on business and societal conduct. The way that laws are changing in various jurisdictions—such as historic lawsuits brought against fossil fuel corporations and laws emphasising sustainability—demonstrates how important the court is in promoting accountability and openness. The court has a major role as governments around the world struggle with the intricacies of ESG issues. It sets precedents, enforces laws, and advocates for sustainable and ethical corporate practices and governance.

Sana Akhter 

Ms Sana Akhter is an Advocate of the High Court. She completed her LLB(Hons) and LLM from University Law College and University of the Punjab. Currently, she is working as an Assistant Professor in Law at Kinnaird College for Women Lahore, Pakistan. Her research interests include constitutional development, human rights, family law and public international law.