ESG and the Industrials sector

A comprehensive analysis of ESG litigation risks in the industrials sector

The industrials sector is no stranger to litigation, and ESG compliance has been at the top of its risk assessment agenda for some time. With its carbon-intensive operations, complex supply chains, regulatory pressures, and significant workforces, the sector faces unique challenges.

This report considers the key challenges resulting from the increasing threat of ESG litigation facing the industrials sector, primarily from private sector actors, and highlights those areas where the sector can implement sustainable change and manage their litigation risk. Ultimately, the most effective way to mitigate that potentially expensive, reputation damaging and business altering risk is to embed sustainable practices which meet all applicable ESG standards, and to do so across all parts of the business wherever it operates. If done effectively, it can deliver both risk mitigation and a competitive commercial advantage.

Key takeaways:

• Human Rights and Supply Chain Liability: Increasing litigation related to human rights due diligence is emerging, driven by legislation like the EU Corporate Sustainability Due Diligence Directive (CSDDD) and France's Duty of Vigilance. Companies must ensure comprehensive oversight of their supply chains to avoid liability for human rights violations caused by subsidiaries or suppliers.
• Greenwashing and Emissions Reporting: Inaccuracies in reporting indirect emissions (Scope 3) present significant litigation risks. Companies must allocate resources to ensure accurate measurement and reporting of emissions, as misrepresentation can lead to mass claims and accusations of greenwashing.
• Biodiversity as a Litigation Frontier: Biodiversity loss is becoming a prominent issue in ESG litigation, with increasing regulatory focus. Companies are expected to implement comprehensive biodiversity strategies to mitigate risks from actions linked to environmental degradation.
• Project Derailment Through Litigation: High-value industrial projects are increasingly targeted by litigation aimed at halting development, especially on environmental grounds. This can involve legal challenges to permits, environmental assessments, or reputational attacks from NGOs.
• Director Liability for ESG Failures: Directors face growing legal risks related to their oversight of ESG issues, including accusations of negligence and breach of fiduciary duties. Claimants are leveraging ESG non-compliance to challenge directors, with litigation funders driving claims to force settlements.