A wide variety of ESG claims are emerging in the UK and globally. Given the well-funded appetite to bring increasingly novel claims, businesses across all sectors, including the UK real estate sector, need to be alive to the risks facing them.
Of particular concern to businesses in the UK real estate sector will be greenwashing claims. There is an increased focus from regulators and investors on what companies are saying. If there is a discrepancy between public statements (e.g., achieving 'net zero') and reality, an organisation may find itself on the defensive, facing regulatory actions, securities litigation, and tortious claims by investors to name but a few possibilities – not to mention public scrutiny and media attention. Disputes between landlords and tenants may also arise if contractual ESG standards are not met.
What's more, shareholders can, and have, brought derivative claims against the directors of companies, tying the directors' duties contained within the Companies Act 2006 to ESG matters. An area of interest is Section 172 of the Act, including the likely consequences of any decision in the long term and the impact of the company's operations on the community and the environment. The courts have, unsurprisingly, been reluctant to intervene in complex business decisions and the way in which directors discharge their duties in relation to ESG matters and in particular transition planning. However, these actions can exert pressure on directors and shine a light on decision making processes, as well as potentially opening the door to disclosure of corporate documents through litigation.
The primary aim of many climate change claims is not to "win" the case, but to draw attention to the defendant's actions and thereby further particular agendas in relation to ESG. Even if ESG claims fail, the associated reputational damage can be significant. To minimise the risk of becoming a target of litigation in the first place, companies should carefully consider their ESG objectives and strengthen internal governance to bolster the integrity of those objectives and progress towards them, which can be consistently and comprehensively evidenced.
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