Author: Sushma Mannam, VIT School of Law, VIT Chennai
TO THE POINT
Environmental, Social, and Governance (ESG) frameworks are now beyond the realm of optional corporate reporting and informal commitments. More frequently, failures in ESG are leading to actionable legal claims in various jurisdictions, sparking lawsuits for reasons such as corporate misrepresentation, breaches of fiduciary duty, environmental carelessness, and deception of shareholders. The corporate veil is being penetrated not just by regulatory bodies but also by public interest litigants, shareholders, and international courts.
USE OF LEGAL JARGON
The landscape of ESG litigation has transformed into a legal battleground where various doctrines of corporate law and environmental regulations converge. At its essence, fiduciary duty requires corporate directors and officers to prioritize the interests of shareholders; however, modern legal interpretations are increasingly viewing this duty as inclusive of long-term sustainability and stakeholder interests. Simultaneously, material disclosure requirements, rooted in securities laws and corporate governance standards, mandate that companies deliver precise and non-deceptive ESG disclosures. Failure to disclose accurately or the presentation of exaggerated sustainability reports risks being labeled as greenwashing, which may lead to liability under both statutory and common law frameworks.
Moreover, corporate due diligence responsibilities, as established in regulations like the French Duty of Vigilance Law and the proposed EU Directive on Corporate Sustainability Due Diligence, impose mandatory standards that go beyond voluntary corporate social responsibility initiatives. Non-compliance in this area can lead to claims of misfeasance, negligence, or even a breach of statutory obligations, especially when violations of human rights or environmental standards are at stake.
ESG-related damages also invoke tort liability, as plaintiffs utilize theories of nuisance, negligence, or strict liability to hold companies accountable for environmental harm, contributions to climate change, or human rights abuses. Increasingly, courts have employed the public trust doctrine to frame natural resources and the environment as common goods held in trust by the State, thereby placing corporations in the role of indirect fiduciaries subject to restrictions on exploitative behavior.
Additionally, there is a notable expansion of locus standi in ESG litigation. Courts across various jurisdictions, influenced by constitutional environmental rights and the principle of intergenerational equity, have granted NGOs, climate activists, and even future generations (through representative actions) the ability to establish standing. This relaxation of procedural barriers indicates a shift from a model of accountability centered on shareholders to one that includes multistakeholder enforcement.
At the same time, the doctrine of extraterritorial jurisdiction has been applied in cases where corporations based in the Global North face legal action for ESG-related violations occurring in the Global South. This trend acknowledges that environmental and human rights issues do not recognize borders, holding multinational corporations accountable under transnational environmental responsibility standards. Landmark rulings from the UK, the Netherlands, and the United States demonstrate how domestic courts are prepared to pierce corporate veils and impose liability for damages incurred overseas.
Together, these developments indicate that ESG accountability has shifted from being a matter of lex ferenda (aspirational law in development) to lex lata (settled and enforceable law). What was once merely soft-law rhetoric surrounding corporate responsibility is now solidified into enforceable obligations, with ESG litigation emerging as a distinct area of corporate and environmental law.
THE PROOF
In the last ten years, there has been a significant increase in ESG litigation, shifting from being aspirational to becoming legally enforceable. Research from the Grantham Research Institute and the Sabin Center illustrates a notable uptick in lawsuits related to climate and ESG matters, especially after 2015, with cases involving climate-washing and corporate accountability representing a substantial part of this trend. Landmark decisions by courts, such as Vedanta (UKSC, 2019), which acknowledged parent company responsibility for environmental damages caused by overseas subsidiaries, and Milieudefensie v. Shell (Netherlands, 2021/2024), which mandated emission reduction obligations based on tort and human rights law, have further cemented this direction. Concurrently, securities regulators like the U.S. SEC and Australia’s ASIC have taken action against cases where ESG disclosures and marketing were found to be misleading, viewing them as instances of securities fraud or violations of consumer protection laws, exemplified by SEC v. Vale S.A. (2022) and ASIC’s substantial fines against Vanguard and Mercer. These steps indicate that ESG misrepresentation can lead to legal consequences, going beyond just reputational damage to being actionable under securities and consumer legislation.
Simultaneously, derivative lawsuits and fiduciary duty allegations are probing the responsibility of directors concerning governance shortcomings related to ESG. The lawsuit by ClientEarth against Shell’s board (UK, 2023) seeks to extend the statutory responsibilities of directors under the Companies Act to include climate-related strategies, while the U.S. Caremark doctrine introduces the potential for liability due to consistent neglect of ESG considerations. Regulatory bodies globally are integrating ESG into mandatory reporting frameworks with SEBI’s BRSR in India, the EU’s CSRD/ESRS, and the SEC’s forthcoming climate regulation in 2024 thus raising the standard for the accuracy of ESG information to a legally enforceable level. Collectively, these judicial rulings, enforcement measures, and regulatory changes illustrate that failures in ESG now lead to risks of cross-border tort claims, securities actions, consumer lawsuits, and governance-driven shareholder litigation. In summary, ESG has evolved from a voluntary business principle to a landscape of litigation risks across multiple jurisdictions and vectors.
ABSTRACT
This article assesses the shift of ESG from a mere compliance guideline to a legally actionable corporate duty. It investigates how courts, regulators, and stakeholders are utilizing breaches of ESG within the existing legal structures of corporate law, securities law, environmental law, and constitutional principles. By analysing case law, it highlights judicial trends in ESG-related lawsuits, such as greenwashing cases, climate accountability lawsuits, and governance-focused shareholder actions. The article concludes that ESG is evolving into a quasi-legal responsibility, enforceable in both domestic courts and international arbitration.
CASE LAWS
1. In Vedanta Resources Plc v. Lungowe (UK Supreme Court, 2019),
the Court determined that a parent company based in the UK could be held responsible in England for environmental harm caused by its subsidiary in Zambia. This case established the principle of liability for parent companies in environmental, social, and governance (ESG) issues, broadening corporate accountability across international borders.
2. In Milieudefensie v. Royal Dutch Shell (Netherlands, 2021),
the Hague District Court mandated that Shell must decrease its CO₂ emissions by 45% by 2030, stating that the company’s responsibilities regarding ESG arise from its duty of care and human rights commitments. This significant ruling elevated ESG litigation into the area of enforceable climate responsibilities.
3. The Supreme Court of India in M.C. Mehta v. Union of India (Oleum Gas Leak Case, 1987)
developed the principle of absolute liability for industries handling hazardous materials, which laid the foundation for ESG-related legal claims in India. Failures in corporate governance concerning environmental management now entail strict liability.
CONCLUSION
The landscape of ESG is evolving from a voluntary approach to mandatory corporate responsibility, enforced through legal action. Courts are now holding companies accountable not just for direct environmental damage, but also for misleading ESG statements, poor governance practices, and shortcomings in due diligence throughout their supply chains. The global expansion of ESG litigation, bolstered by international soft-law frameworks such as the Paris Agreement and the UN Guiding Principles on Business and Human Rights, is increasing corporate accountability.
As ESG-related lawsuits become more prevalent, companies must adopt proactive compliance measures, ensure transparent reporting, provide oversight of ESG matters at the board level, and implement risk-based due diligence processes. Neglecting to embed ESG considerations within the corporate legal structure will leave firms vulnerable to claims across jurisdictions, harm their reputation, and lead to financial repercussions.
FAQS
Q1. What does ESG litigation entail?
ESG litigation involves legal actions in which companies are held responsible for failing to meet environmental, social, or governance commitments, this includes issues like misrepresentation, negligence, and violations of fiduciary duty.
Q2. Can non-compliance with ESG standards lead to securities fraud?
Indeed. Providing misleading information regarding ESG can be considered significant misstatements, which can result in liability under securities regulations, as illustrated in SEC v. Vale S.A.
Q3. How does ESG litigation operate differently in India?
In India, the Supreme Court and other courts utilize principles such as absolute liability and public trust, thereby broadening the corporate responsibility for environmental matters under constitutional articles (21, 48A, 51A(g)).
Q4. Are the obligations related to ESG enforceable against individual directors?
Certainly, derivative lawsuits, such as ClientEarth v. Shell’s Board, demonstrate that directors may be liable for breaching fiduciary duties if they neglect to implement sustainable governance strategies.
Q5. Is ESG litigation restricted solely to environmental matters?
No, ESG litigation encompasses social issues (like labor rights and human rights) and governance concerns (including disclosure, corruption, and board accountability), thus representing a multifaceted liability framework.
