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14 Oct 2021

Christine Dawson, ESG Clarity, on Portfolio Adviser (UK)

Commentary: Companies & investors face court over Environmental, Social & Governance failures

"Corporates and investors face court over ESG failures ", 7 Oct 2021

[Compulsory Environmental, Social, and Governance (ESG) disclosure regimes and stricter ESG regulation] is happening in the context of rapid developments in environmental policy and higher expectations … in the lead-up to this November’s UN climate change conference COP26, as well as increased scrutiny on business practices and portfolio holdings, and the harm these can cause.

… [S]ome asset managers are being cautious in choosing Sustainable Finance Disclosure Regulation categories for their funds amid concerns of getting it wrong and then needing to downgrade or, worse, face litigation.

In July … fund groups won a second reprieve for the date the regulatory technical standards (RTS) are applied under SFDR. The RTS will now apply from July 2022 instead of January 2022.

… “[T]he delay raises legal risk – highlighted by the regulatory probes into DWS’ sustainability disclosures – because managers are operating in a vacuum as to how they should categorise their funds,” [it also] “suggests the new standards will be highly complex and compliance will take more time.”

…the prospect of litigation … could be used as an ESG tool by investors …’the global climate movement sees the courts as an essential tool to hold both companies and government to account for their climate record.’

… ‘Climate change is a major legal and reputational risk, and while legal challenges used to be the preserve of the oil majors in the US, they are now going mainstream with more and more companies exposed.’

… ‘The need for stronger responses, such as litigation, will increasingly be seen as a legitimate option where company behaviours may trigger significant financial losses to investors.’

Pension asset owners are also not afraid to use litigation as an engagement tool…