Why?

There will be increased regulation, compliance and litigation risk around environmental issues:

• The first mandatory climate-related disclosures under the Financial Markets Conduct Act 2013 have been made in 2024. For many Climate Reporting Entities^[1], these disclosures will be the first time that the public (and in some cases, their stakeholders) will be able to test whether their activities are aligned with their stated climate/sustainability goals.
• The progression of current claims through the Courts (in NZ and globally), and related media interest, may encourage further claimants:
  • In November 2023, Lawyers for Climate Action NZ Inc (LCANZI), Consumer NZ and the Environmental Law Initiative filed the first greenwashing claim in New Zealand against Z Energy in Consumer NZ Incorporated v Z Energy Ltd. The claim alleged that Z Energy had breached the Fair Trading Act by misleading New Zealanders through its public messaging about climate action (you can read our detailed summary of that case here). This case will be closely watched by many, including those looking to act on fresh climate disclosures. LCANZI has published its statement of claim^[2], which will assist other potential claimants looking to file similar claims.
  • Greenwashing claims are also on the uptick in Australia (and globally), and the Australian Securities and Investment Commission (ASIC) announced earlier this year that it would retain its enforcement priority relating to greenwashing for 2024, as well as its enduring priorities relating to governance and directors’ duties failures.^[3] ASIC has previously taken a number of actions for greenwashing, with most cases based on alleged misleading and deceptive conduct in relation to ESG matters. Notably, ASIC has also signalled that future cases may move beyond misleading and deceptive conduct to license obligations, directors’ and officers’ duties and a range of other obligations.[4] 
• Innovative claims will encourage potential claimants, including: 
  • The Supreme Court’s decision in Smith v Fonterra & Ors which allowed tort claims to be pursued by a climate change activist against seven large New Zealand corporates in relation to their greenhouse gas emissions. You can read our detailed summary of that case here.
  • Greenwashing claims brought by competitors, such as the ongoing litigation between carpet manufacturers Godfrey Hirst (US-based manufacturer of nylon carpets) and Bremworth (New Zealand manufacturer of wool carpets), each alleging that the other is making misleading environmental claims about the other’s products. Competitor-brought greenwashing actions are also on the increase in Europe, as recently evidenced by the proceedings filed last month by Spanish energy giant Iberdrola against Repsol, another Spanish energy giant for alleged greenwashing.^[5]
  • In 2023, the English High Court dismissed a derivative action by ClientEarth, a shareholder of Shell plc, against the company’s directors in ClientEarth v Shell plc,^[6], alleging they had failed to comply with their duties as directors in their decisions relating to the management of climate risk. Leave to appeal was subsequently refused by the Court of Appeal. You can read our detailed summary of that case here. In February, the Rt. Hon. Lorn Carnwath, former UK Supreme Court Judge published a paper^[7] in which he expressed his view that the English High Court’s reasons for dismissing ClientEarth’s claim was “unpersuasive”, and the Court of Appeal’s dismissal of the claim a “missed opportunity”. ClientEarth has published its key court filings, including its statement of claim, witness statements and submissions^[8] to “encourage debate on the critical issues raised in this lawsuit”. Such documents will also assist other potential claimants looking to file similar claims. 
• New Zealand regulators have signalled a continued focus on misleading environmental claims. For example:
  • The Financial Markets Authority’s (FMA) 2020 Disclosure framework for integrated financial products sets out ways for Managers of Integrated Financial Product (IFP) funds to meet the particular disclosure challenges of those types of funds, to ensure that “investors are protected from poor product design and confusing or misleading disclosure and marketing (ie greenwashing)”.
  • The FMA’s review of documentation of managed funds integrated financial products in 2022 found weaknesses and deficiencies in information disclosure of all funds reviewed. That report concluded that the FMA expected that Managers of IFP funds would “take the necessary care not to mislead or confuse investors with greenwashing” and that “this is an area the FMA will continue to monitor to prevent complacency and the entrenchment of poor disclosure”.
  • The Ministry for the Environment’s 2022 Interim Guidance for voluntary climate change mitigation says that for voluntary climate change mitigation to be considered credible, it must take account of 6 specified principles, including that information on mitigation must be transparent, clearly stated, and publicly available. 

What it means for you 

The risk of ESG civil claims, and reputational damage, will increase for corporates in multiple sectors over the next 12 months (and beyond). To avoid claims, entities should:

• Be aware of the increasing risk of litigation being brought (including against their directors specifically) in relation to their emissions and/or climate change strategy.
• Ensure that company statements in relation to climate change strategy are supported by clear and quantifiable evidence.
• Regularly review ESG commitments to ensure they remain aligned with the company’s activities, and carefully consider whether changes should be made.
• Engage with, and gain the support of stakeholders in respect of their climate change strategy to: 
  • Demonstrate that they are actively assessing climate change risks; and 
  • Ensure the continued support of investors/shareholders and reduce the risks associated with activist investors/shareholders.

Get in touch

For more information please contact our ESG experts below.