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Director Tom Davey discusses greenwashing and ESG claims in ThoughtLeaders4 Disputes

Exploring one of the biggest trends in the class action space, Director Tom Davey discusses greenwashing, ESG claims and how litigation can hold polluters to account.

Tom’s article was published inThoughtLeaders4 Disputes, 18 June 2024, and can be found here.

One of the biggest trends in the class action space, ESG claims will likely remain a significant area of litigation over the coming years, as evidenced by current trends and case volumes. At the same time, while pure ‘greenwashing’ claims are somewhat limited at present, these are only likely to become much more significant in the future as a result of legal developments and the application of more intense scrutiny to corporate practices.

The Intergovernmental Panel on Climate Change (IPCC) and other global organisations concerned with environmental affairs are continuing to drive political change at governmental level across the world, helping ensure that an ever-growing number of protections are codified into law at both national and international level. However, this macro level action takes place at a relatively glacial pace and is often compromised to accommodate the priorities of countries, such as the need for less developed countries to continue their industrialisation to improve the wealth and standard of living of their citizens.

This has been seen in the recent reversal of climate targets in Western Countries around the implementation of Net Zero goals due to political and economic factors. It is also often proving difficult for climate campaigners to convince ordinary voters to see climate change as a threat. As such, the issue is often dismissed as a “tomorrow problem”, thanks to voters’ apathy to the subject encouraging politicians to kick the can down the road for future governments and organisations to tackle instead.

However, while macro level changes may find themselves hampered by political apathy, more successful changes to law and practices around the environment can be found at the micro level. We have seen that small-scale projects are able to improve the lives of people and environments at the local level, which in the aggregate leads to significant impact at the macro level. For example, reforestation in the northern hemisphere compensates, to some extent, for the deforestation of the Amazon.

Where policy fails, or where corporates take advantage of lesser regulated countries, litigation can therefore act as a useful tool to effect change when none is otherwise readily forthcoming. Such litigation can also bring useful compensation into communities to rebuild their lives or their region’s environment after disastrous events occur, such as the 2015 Brazilian dam collapse, for which the mining giants BHP and Vale were ordered to pay $15bn in damages.

Environmental-based litigation is by no means a new phenomenon, and over recent decades there have been many high-profile claims across multiple jurisdictions. Some of the most notorious cases have involved oil companies, exemplified by 30,000 members of the Ivory Coast’s fishing communities bringing – and winning – a claim against commodities trading house Trafigura following the illegal dumping of toxic waste by the firm in 2006.

Many environmental claims are brought on the back of “old law”, such as negligence, tort, and nuisance. However, there are an emerging number of cases which will tackle greenwashing directly, utilising more recently enacted legislation, such as Chicago City’s launching of a claim against oil companies who the claimants alleged had deceived the public about the climate crisis.

Scrutiny should always be applied to what companies say and promise compared with what they deliver, as well as to their potential exploitation of loopholes in current regulation and law. Corporates often champion a green agenda to a Western audience but directly cause environmental problems in less-regulated countries where they are unlikely to face serious sanctions, if any at all.

Electric cars are an interesting example of this issue. While their creation and use helps to solve the climate concern of air pollution in Western cities, the extraction of toxic materials or the disposal of green tech elsewhere in the world involved in production means they are somewhat of a double-edged sword.

Similarly, the growth of the garments industry led to consumers buying twice as many clothes in 2015 compared with a decade earlier, resulting in clothes now being discarded in half the time. Countries such as Chile now import clothes to recycle to such an extent that vast amounts end up forming mountains in the Atacama Desert, a fact of which Western consumers may well not be aware when they send clothes to be recycled in good faith.

Litigation is therefore a useful tool to apply pressure to make sure green goals are delivered rather than kicked along the road and recreating issues in another manner or jurisdiction. The limitation, however, is that is approach can be expensive, jurisdiction-driven, and often painfully slow, since it needs to work in conjunction with public support, understanding, and policy.

While local change is being implemented, it is vital that we take a closer, more holistic look at our local companies and hold them to account in cases where they have breached either environmental law or green pledges made to consumers and stakeholders. Examples of how we are doing so of late include the emission cases and wider greenwashing litigation.

There is also clear evidence that the introduction of mandatory ESG reporting and disclosures by financial firms has played a critical role in helping the sector address climate change and sustainability. The disclosure regime is also being used to address issues such as poor workplace diversity and gender pay gaps, while several jurisdictions have introduced or plan to introduce rules to dealing with ESG risks in supply chains, helping to widen the impact of ESG legislation even further.

On the face of it, new regulatory implementations such as the clean air zones and city emission charges as well as the growth of electric cars are helpful, but companies need to also consider the impact that this will have further down the line.

To this end, it will pay dividends to be proactive now rather than reactive in future, and to learn from the mistakes of the emission cases before it is too late. Future generations depend on us today to ensure that robust regulation and effective legislation is enacted across the board, to prevent the impacts of climate change and environmental damage wreaking irreversible damage on the world they are set to inherit.