The continuing rise of Consumer Litigation in the EU - Trend 2: The rise of ESG claims

Trend 2: The rise of ESG claims

In Part 2 of our mini-series looking at the continuing rise of Consumer Litigation in the EU we explore the rise of ESG claims. We consider recent ESG claims and their importance on the litigation landscape today and then look at how this will impact businesses in the coming years. Understanding these shifts is essential for businesses seeking to effectively address legal matters and cultivate lasting consumer trust.

What types of claims have we seen to date?

When it comes to climate-related litigation in the EU, we have seen numerous recent successful cases which were directed at governments, for example Neubauer, et al. v. Germany (2021) and Urgenda Foundation v the State of the Netherlands (2019). In the Neubauer case, the Federal Constitutional Court found that state obligations to protect the climate are not only concerned with environmental protection but also the burdens spread out between different (and future) generations (Federal Constitutional Court of Germany, Judgment of 24 March 2021, 1 BvR 2656/18). In the latter decision, the Dutch Supreme Court ruled in favour of the Urgenda Foundation, finding that the Dutch government must reduce emissions immediately in line with its human rights obligations (Dutch Supreme Court (Hoge Raad), Judgment of 20 December 2019, No. 19/00135, ECLI:NL:HR:2019:2006). These successes, and specifically the sympathy displayed by judges in different European jurisdictions when it concerns the protection from climate change as a fundamental right, has encouraged non-governmental organizations and other representative groups to focus their attention on businesses they consider to be contributors to climate change.

As expected, among the first companies to be targeted by this effort were those in the energy sector, the stand-out cases here being Milieudefensie et al. v Royal Dutch Shell as well as ClientEarth’s lawsuit against BP for misleading advertising. However, litigation is increasingly spreading beyond the energy industry, and we are seeing more claims being brought against banks, automotive groups, pension funds, retail groups, and chemical groups.

This year in France, three climate activist groups brought claims against BNP Paribas, one of Europe’s biggest banks, alleging that their loans to big oil and gas companies breach their legal duty to not harm the environment. Meanwhile in Germany, automotive manufacturers are facing claims that the greenhouse gas emissions produced by their vehicles make them indirectly responsible for climate change. Claimants sought a court injunction for Mercedes-Benz and Volkswagen to discontinue their worldwide sales of combustion engine cars. The plaintiffs supported their argument by referring to the German court’s 2021 decision which recognized unchecked climate change as a significant hindrance to our personal freedoms and argued the manufacturers are a cause of this future hindrance.

Aside from greenhouse gas emissions as a target, the newest and biggest trend in climate litigation is greenwashing and lack of corporate transparency. As it stands, this is a particular risk in EU countries such as France and Germany where domestic law provides for explicit ESG due diligence obligations, and commercial strategies of corporations are held to a tight standard. A sector which is particularly at risk is the aviation industry, which previously was not in scope of being targeted for its contribution to climate change. In June 2023 a lawsuit was filed against the Dutch airline KLM by Fossielvrij Netherland and Reclame Fossielvrij concerning KLM’s carbon offsetting advertising (Rechtbank Amsterdam, 7 June 2023, ECLI:NL:RBAMS:2023:3499). The claimants are challenging KLM’s "Fly Responsibly" campaign and argue that it is misleading and unfounded since there is no environmentally friendly way to fly, at least not just yet. The District Court of Amsterdam has granted permission for the action to proceed to a full trial.

The scope of this trend is broadening away from just the domestic level, as currently EU legislators have been working to draft a Green Claims Directive to ban misleading advertisements and provide consumers with better product information. The Directive is still in the early phases of the law-making process, although the EU Parliament and Council reached a provisional agreement on its direction in September.

Can we expect to see a continued growth in ESG claims?

As a result of the growth in litigation funding (which we considered in Part 1 of this series), the important judgments from climate-related cases, and the new regulatory changes in the EU (particularly the Representative Actions Directive which we also discussed in Part 1 of this series), we can expect to see a continuing rise in ESG claims in Europe. As observed by recent statistical reports, climate litigation and ESG related claims have been consistently gaining momentum in the past couple years, and this trend is only increasing. What’s more, Europe is leading the ESG movement worldwide.

Many new EU legislations and guidelines have been introduced regarding supply chain due diligence, consumer greenwashing, and ESG corporate disclosures. In 2022, the European Commission proposed their Corporate Sustainability Due Diligence Directive (CSDDD), and if adopted as proposed the Directive will oblige qualifying companies to address human rights and environmental footprints in their business, subsidiaries, and supply chains. The CSDDD will also establish duties for directors of EU companies, including corporate due diligence and oversight of the implementation of such due diligence procedures. It is important to note that as it stands the obligations will apply not only to large EU-based companies but also to those based outside the European Union with an EU-generated net turnover above certain thresholds. More specifically, the Directive differentiates between two groups of companies to which it applies, namely Group 1 companies, with 500+ employees and a net turnover of €150 million+ worldwide, and Group 2 companies, with 250+ employees and a net turnover of €40+ million worldwide.

Also relevant to ESG is the Directive on corporate sustainability reporting (CSRD), which entered into force on 5 January 2023. The CSRD enables the European Commission to adopt acts that competent authorities and market stakeholders are bound to follow. A recent example is the European Sustainability Reporting Standards, which were adopted on 31 July 2023 and will come into effect on 1 January 2024. These Reporting Standards are going to regulate the way in which companies in the EU report climate change and ESG related actions and will ultimately give consumers a framework with which to hold companies and the directors of companies responsible for their environmental activities.

Growing use of Green Clauses

The increasing use of Green Clauses is one way to potentially reduce the pressure on companies and reduce the risk of ESG claims against them. Our clients are asking for contractual terms which ensure company compliance with Net Zero obligations (inspired by objectives set out in the European green deal).

However, in light of companies having to make increasing disclosures of information relating to their ESG obligations, and further applicable EU regulations and directives being enacted in this area, consumers and their representatives are gaining increasing rights and grounds with which to bring ESG claims against them. As Europe continues to lead the way in ESG related legislation the inevitable result of this increased regulation will be a corresponding rise in ESG related litigation seeking to challenge that legislation or hold businesses to account in respect of it.

With thanks to Giorgia Loredan for her help in putting this article together.

To read Part 1 of this series on the Growth in Consumer Class Actions in the EU click here.