Global organisations brace for growth in ESG-related litigation, study finds

A majority of organisations also expect overall disputes to stay the same or increase this year, according to Baker McKenzie survey

ESG litigation is a growing risk Shutterstock

Almost a third of senior legal and risk leaders in large organisations globally expect disputes to increase this year, with almost three-quarters anticipating greater risk from ESG-related issues, according to a Baker McKenzie survey.

The annual Global Disputes Forecast report showed that 30% of respondents believe the number of disputes will be higher in 2024, with 73% expecting ESG disputes to present the biggest litigation risk to their organisation in the year ahead – making it the biggest risk overall (up from the second biggest risk in 2023). Fewer than a fifth of respondents believe disputes will decrease over the next 12 months, with just over half expecting the amount of disputes to stay the same.

The report is based on a survey of 600 senior legal and risk executives from organisations with annual revenues of more than $500m based in the UK, USA, Singapore and Brazil. It highlights that ESG concerns are being fuelled by risks around climate litigation and claimants turning their attention to broader environmental abuses beyond carbon emissions, such as biodiversity loss. Concerns about potential social disputes are also on the rise, jumping to 22% of respondents from 12% a year ago.

Peter Tomczak, Bakers’ co-chair of global investigations, compliance and ethics, said: “ESG disputes are now a top-of-mind, practical litigation risk. In particular, the widening scope of ESG disputes means organisations should expect disputes on human rights and social issues, and should continue to evaluate their policies and reporting on ESG issues.”

Just over half of respondents (52%) flagged employment-related disputes as the biggest risk facing their organisation over the coming year, partly driven by the heightened focus on ESG and growing legislation around employee pay. As many as 58% of respondents said equal pay and pay transparency poses the greatest risk to their organisation this year. Weaker economic conditions is also putting pressure on organisations to restructure and lay off staff, increasing severance-related risks.

Michael Brewer, global chair of Bakers’ employment and compensation practice, said: “As the regulatory landscape shifts, employers worldwide must adapt. Likewise, global restructuring and reorganisations remain a complex and potentially contentious area for employers. The wide range of varying local requirements around employee transfers, notification, termination and other requirements, as well as variations in protected employee status, present significant risks.”

Despite the heightened disputes landscape, the report revealed that only 16% of respondents were fully or very confident their organisation is well prepared for litigation.

At the same time, more than three-quarters of respondents are also concerned about the potential for an increase in internal or external investigations over the coming year, with cybersecurity and data privacy issues topping the list of those risks.

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