International: Preparedness for climate-related litigation in the financial sector

17 Oct 2022    2 minute read
Topics Financial Infrastructure Providers & Payments, Banks
Governance Due Diligence Financial Services Regulation Disputes ESG Sustainability Climate-related Litigation

In brief

A number of factors are driving up the incidence of climate-related litigation and enforcement, which has been most marked in North America but other regions are now catching up. Financial institutions, given their critical place in financing economic activity, are increasingly the focus of action. As a result, they would be well advised to prepare for and mitigate the risk, for example, from reviewing their corporate strategies around climate change and carbon reduction to taking note of regulators’ expectations. 

Contents

Recommended actions 

  • Developing case law suggests that boards and management should review their corporate strategies around climate change and carbon reduction. Are they sufficiently detailed and realistic? Arguably, financial institutions that finance energy businesses and other carbon generators will be most exposed.
  • Ask whether ESG commitments are sufficiently realistic or attainable for the business to follow. What due diligence has been conducted to substantiate them and will be necessary in future? Against a backdrop of fragmented regulation across jurisdictions with the prospect of a global baseline standard that builds on the TCFD framework with more granularity and standardization still someway off, for cross-border businesses putting together a robust strategy to track and comply with voluntary and mandatory standards is essential.
  • To counter climate-related greenwashing, financial institutions should carry out documented, evidence-based reviews of their entity and product level disclosures and statements around ESG, substantiating how they implement ESG investment processes. Additionally, review the degree to which internal ESG practices are consistent with those disclosures and written policies and procedures.

In more detail

  • Many financial institutions are not prepared for managing climate risk, exposing themselves to increased risk of climate-related litigation and regulatory enforcement. At the same time, increasing numbers of claimants are looking to use litigation to pressure businesses to follow climate-friendly policies.
  • A number of factors are driving up the incidence of climate-related litigation and enforcement, which has been most marked in North America but other regions are now catching up. Financial institutions, given their critical place in financing economic activity, are increasingly the focus of action.
  • Until recently, claims with the primary purpose of securing the disclosure of climate-related information have predominated. The focus, however, is moving away from complaints over inadequate or insufficient disclosure to cases scrutinizing what prudent financial management means. Greenwashing claims are now also on the rise. 
  • Financial institutions are well advised to prepare for and mitigate the risk, for example, from reviewing their corporate strategies around climate change and carbon reduction to taking note of regulators’ expectations.

For more detail, please see the full legal update here.
 

Contact Information
Joanna Ludlam
Partner at BakerMcKenzie
London
Read my Bio
joanna.ludlam@bakermckenzie.com
Eva-Maria Ségur-Cabanac
Partner
Vienna
Read my Bio
eva.segurcabanac@bakermckenzie.com
Christine Cuthbert
Special Counsel
Hong Kong
Read my Bio
christine.cuthbert@bakermckenzie.com
Richard Powell
Lead Knowledge Lawyer
London
Read my Bio
richard.powell@bakermckenzie.com

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.