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A panel moderated by Sophie Lamb KC of Latham & Watkins, and comprising The Honourable Mrs Justice Cockerill DBE, Commercial Court Judge (Judge in Charge of the Commercial Court July 2020-July 2022), High Court, Adam Heppinstall KC, Henderson Chambers and Meghan Sheehan, Head of ESG & Sustainability, Kekst CNC, considered the ESG risk factors presenting businesses today.

How did we get here?

Sophie Lamb KC set out how we arrived at this point: to prevent catastrophe we needed to make ‘the energy transition’, with that came mobilising private investment, a proliferation of consumer and investor demand for greener products and increasing regulation for business both to act to achieve transition and to disclose their green credentials, combined with ‘soft laws’ and adherence to voluntary codes. Business started saying what they were doing or planned to do to achieve transition. But the absence of a coherent framework and the discrepancy between all the different rules and terminology of this energy transition drive brought associated reputational, enforcement and litigation risk.

Managing the risks – communication is key

Something that, not that many years ago was seen as a positive, has become a potential liability: how does business comply with its obligations without incurring the potential damage these risks threaten? According to Meghan Sheehan, these risks cannot be eliminated, and the focus has to be on how to best mitigate them. Largely this is a question of managing communications. Difficult given the lack of consensus (industry, country, global) on terminology.  At the formal level, such as sustainability reports, those communications are increasingly well managed. It is the informal communications which present the greatest risk. Credibility is key. How to mitigate: use of fact based communications, difficult absent a consensus on terminology. Avoid value based nominative language. Above all, prepare for the risk: what are your processes, how do you monitor, involve your legal teams, be ready for those headlines or when the regulator comes calling.

The enforcement risks

In terms of enforcement, the advertising sector provides some clear examples. Adam Heppinstall KC contrasted the actions of (i) the Advertising Standards Authority (ASA): a quick and nimble enforcer with a lot of soft power, deciding for itself whether or not something is, eg, ‘sustainable’ and issuing fines (note many complaints come from competitor businesses) with (ii) the Competition and Markets Authority (CMA) which has an extraordinary power under section 218A of the Enterprises Act 2022 which requires alleged infringers prove their ‘green claim’. Less nimble as proceedings are required but if the alleged transgressor fails to appear/offers no evidence, then their ‘green claim’ is deemed inaccurate. Currently under-utilised with only a handful of claims, and which may be overtaken by the new powers, more akin to those of the ASA, set to be given to the CMA in the proposed Digital Markets, Competition and Consumers Bill.

The difficulty with litigating greenwashing claims is, given the element of falsity involved, they’re naturally based in common law actions of deceit and misrepresentation where issues of reliance and loss usually prove fatal. Contrast this with the Consumer Protection from Unfair Trading Regulations 2008, SI 2008/1277 (CPUT Regs) where the reliance requirement is less onerous, and loss is more flexibly dealt with.

There is also the prospect of NGO instigated litigation where economic return on the claim is not an issue. It may be that cases such as these will establish the principles on which smaller group claims can then become economically viable from a funder perspective.

Litigating claims – a view from the bench

Mrs Justice Cockerill observed that whilst historically the climate related cases had come to the Administrative Court, the Business & Property Courts expect the influx of future cases and, with them, the attendant issues such cases involve being: large-scale, complex, often involving significant jurisdictional battles and thus a huge amount of court time and resource. This is manageable but the size and scale should not be underestimated.

Specific litigation issues of such claims

The panel members noted some further areas of potential difficulty, specific to these types of claim, including:

• the role of expert evidence in a landscape where ‘climate change’ and the paths to energy transition are so political and in flux – is there yet a truly recognised body of non-politicised expert evidence in this area?
• as seen in ClientEarth v Shell plc [2023] EWHC 1137 (Ch) – amongst the various reasons given for refusing permission for continuing the derivative action was acknowledgment that, when there is no agreed terminology in place, how could the court be sufficiently legally precise so as to formulate what the duty in this sphere was, such that directors could know how to comply with that duty, even if it were within scope to interfere to that extent in a board’s strategy on such matters?
• if crowdfunding of future claims is a prospect, what will happen in terms of cost liability for unsuccessful claims?

The path ahead

Notwithstanding such difficulties, the risks of greenwashing litigation alongside those of regulatory enforcement and reputational risk, remain and are increasing.  As the above illustrates, the aims of those pursuing greenwashing claims will not always be direct economic benefit to themselves. This is something business has to accept and, as noted, there are actions to take to seek to mitigate the risks. Be in no doubt, business wants to achieve transition but clarity is required on what they need to do and by when. In the absence of that, they will look to their lawyers and advisers to help them manage these inevitable risks as best they can.