3. Financial Institutions
  5. International: Preparedness for climate-related litigation in the financial sector

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 FI Featured Content

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
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joanna.ludlam@bakermckenzie.com
Eva-Maria Ségur-Cabanac
Partner
Vienna
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eva.segurcabanac@bakermckenzie.com
Christine Cuthbert
Special Counsel
Hong Kong
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christine.cuthbert@bakermckenzie.com
Richard Powell
Lead Knowledge Lawyer
London
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richard.powell@bakermckenzie.com

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