Environment, Social and Governance (“ESG”) has gained traction in a post-Covid climate. Sustainable investing has now become, to borrow a Covid-era phrase, the “new normal”, where investors are prioritising ESG criteria alongside financial and risk assessments. This shift in market sentiment worldwide has led to the inception of regulatory requirements in various jurisdictions.
Locally, Bursa Malaysia has announced enhanced sustainability reporting requirements in the Main Market and ACE Market Listing Requirements and launched the Bursa Malaysia ESG Reporting Platform.
The key enhanced areas include disclosure of common sustainability matters and alignment with climate change-related disclosures, as recommended by the Task Force on Climate-related Financial Disclosures[1].
With stricter regulatory requirements comes heightened litigation risks should companies fail to comply.
In a survey published by Baker McKenzie[2], 73% of respondents expect some form of ESG dispute to present a risk to their organisation in the coming year, while 52% of respondents view employment matters as a key dispute risk in 2024.
It is important for corporations to bear such risks in mind when complying with disclosure requirements.
Locally, ESG disputes can arise from various legal grounds, including tort, breaches of fiduciary duties, claims for false or misleading statements in prospectuses under s. 248 of the Capital Markets and Services Act (“CMSA”) 2007 and enforcement actions under s. 360 of the CMSA 2007.
Broadly, ESG disputes may be categorised into two: first, claims by parties with direct interest in an organisation, such as investors and beneficiaries over misstatements or misrepresentations on ESG compliances and second, claims by the wider public stemming from deficient corporate governance or adverse effects on society or the environment.
Whilst there are no high-profile local ESG disputes to date, it is an inescapable fact that the recent enhanced reporting requirements will likely give rise to claims in the near future.
On this note, it would be prudent to examine recent noteworthy ESG disputes internationally and extract some key lessons learnt from them.
United Kingdom – Investors’ claim against Glencore Energy UK Ltd over “untrue statements” in prospectus
Following Glencore Energy UK Ltd’s (“Glencore”) conviction on charges of bribery relating to its oil operations in Cameroon, Equatorial Guinea, Ivory Coast, Nigeria and South Sudan[3] , a total of 197 funds filed a claim for damages against Glencore. They allege, in the main, misleading or untrue statements in its prospectuses to cover up corrupt activities. The claimants include GIC, Kuwait Investment Authority and funds managed by HSBC, Vanguard and Fidelity[4] .
The claimants’ claim, premised on s. 90 of the UK Financial Services and Markets Act 2000, alleged that they suffered financial losses as a result of “untrue statements” in Glencore's 2011 prospectus and misleading information in the 2013 prospectus relating to its merger with Xstrata.
S. 90 of the UK Financial Services and Markets Act 2000 provides for compensation to persons who acquired securities and thereafter suffered loss as a result of untrue or misleading statements in the listing particulars or prospectus.
It is worth noting that the underutilised s. 248 of the Malaysian CMSA 2007 provides a similar right to recover losses or damage resulting from misleading statement in disclosure documents or prospectus.
In an ESG-driven investment landscape, corporations and investors must be alert to the risks of greenwashing, so as not to mislead investors as to its environmental impact.
Australia – Breach of fiduciary duties claim over failing to act with care in relation to the impact of climate change
In 2018, an Australian pension fund member filed a suit in the Federal Court of Australia against the Australian Retail Employees Superannuation Trust (“REST”) for failing to act with care, skill and diligence and failing to discharge its duties as a trustee by not considering the risks climate change poses to the fund’s investments.
REST is an industry superannuation fund that manages assets to provide benefit for workers in retirement. Employers pay 9.5% of their employees’ wages into the fund.
The plaintiff claims that REST ought to have sought information from its investment managers about climate risks and further complied with the recommendations of the Task Force on Climate-related Financial Disclosures[5] .
Before the trial of the suit, parties entered into a settlement with REST acknowledging that climate change could lead to consequences and is an important concern of its members. REST agreed to, amongst others, implement a long-term objective to achieve a net zero carbon footprint for the fund by 2050 and enhance its consideration of climate change risks when setting its investment strategy and asset allocation positions, including by undertaking scenario analysis in respect of at least two climate change scenarios[6].
Like REST, there are many retirement savings funds and pension schemes across the world which owe fiduciary duties to its beneficiaries. This case highlights the risks of failing to take into account ESG concerns in fulfilling their fiduciary duties.
United Kingdom – Workers’ forced labour claims against Dyson Malaysia
Employee development and labour practices are the cornerstone of the social pillar in ESG.
Under the enhanced sustainability reporting requirements in the Main Market and ACE Market Listing Requirements, companies are required to disclose labour practices and health and safety of employees in the workplace.
On 27.5.2022, migrant workers who worked for ATA Industrial (M) Sdn Bhd and Jabco Filter System Sdn Bhd (“ATA and JFS”), companies that manufactured Dyson products based in Johor, filed a claim in the UK High Court against three Dyson companies, namely Dyson Technology Limited and Dyson Ltd based in Malmsbury and Dyson Malaysia in Johor Bahru.
In summary, the claimants claim that for a substantial period of time, they were subjected to forced labour and highly exploitative and abusive working and living conditions while working for ATA and JFS. However, it is noteworthy that ATA and JFS, as the alleged primary tortfeasors, were not named in the proceedings.
The claimants’ claim was on the basis that Dyson exerted a high degree of control over the manufacturing operations and working conditions of the factories and enforced compulsory policies and standards governing the working conditions within its supply chain. The claimants cited multiple Dyson Group policies, including the Ethical and Environmental Code of Conduct prohibiting forced labour and mandating suppliers' compliance, along with the Dyson Modern Slavery and Human Trafficking Statement 2020.
The defendants raised a jurisdictional challenge against the claim, arguing that the proper forum for the claimants’ claim was Malaysia.
On 19.10.2023, the English High Court agreed with the defendants upon considering, amongst others, that the alleged torts occurred in Malaysia. Further, the High Court also did not accept the claimants’ argument that the claimants would not obtain substantial justice in Malaysia given that the defendants undertook to partially fund the claims in Malaysia and submit to the jurisdiction of Malaysia[7] .
The High Court’s findings suggest that complainants need not consider the domicile of an organisation as the appropriate forum to hear such negligence claims and such claims can be appropriately heard in the jurisdiction where the alleged tort is said to have occurred. This lowers the barrier for potential claims. Domestic and international corporations therefore ought to take extra care in ensuring ESG requirements are complied with throughout its supply chain.
ESG compliance obligations are not just matters for listed organisations. Listed organisations ought to mitigate supply chain risk by establishing appropriate oversight levels in contracts, policies, and procedures and conducting effective due diligence.
On the other hand, small and medium enterprises (“SMEs”) acting as suppliers ought to ensure their own compliance with ESG standard to maintain competitiveness and visibility.
Claims under this category are premised on companies’ duties and obligations to the wider society and environment. These claims have been premised on human rights, civil liberties, and general tortious principles.
Netherlands – Royal Dutch Shell plc ordered by Court to reduce emissions
In 2021, in a class action suit against Royal Dutch Shell plc (“RDS”), the Hague District Court ordered RDS to, amongst others, reduce emissions by a net 45% across emissions from its own operations and emissions from the use of the oil it produces, by the end of 2030, relative to 2019 levels.
In the case of Milieudefensie et al. v. Royal Dutch Shell plc[8], the claimants alleged that RDS' contributions to climate change violate its duty of care under Dutch law and human rights obligations under the European Convention of Human Rights (“ECHR”), namely Articles 2 (right to life) and Article 8 (rights to a private life, family life, home, and correspondence). Amongst others, the claimants argued how RDS’ long knowledge of climate change, misleading statements on climate change, and inadequate action to reduce climate change led to its unlawful endangerment of Dutch citizens and actions constituting hazardous negligence.
The Court held that RDS is obliged to ensure, through the Shell group's corporate policy, that the CO2 emissions of the Shell group, its suppliers and its customers are reduced.
In reaching its decision, the Court considered, amongst others, the following:
RDS appealed against the decision of the Hague District Court, and the appeal is presently ongoing.
It is uncertain if Malaysian Courts would similarly consider and apply the above principles and “soft law instruments”. In Malaysia, constitutional law (including human rights and civil liberties) does not extend to infringements of an individual's legal right by another[9]. Further, Malaysian Courts have not enforced the UNGPs or the Paris Agreement on corporations.
New Zealand – creation of a new tort for climate change?
The Supreme Court of New Zealand recently allowed an appeal against an application to strike out a claim, thereby allowing an individual to proceed with his claim to, amongst others, argue that corporations owe a common law duty of care in tort to not contribute to damage to the climate system.
In Smith v. Fonterra[10], the plaintiff is an elder of the Ngāpuhi and Ngāti Kahu tribes and a climate change spokesperson for a group of New Zealand tribal leaders. In his claim, he alleges that the defendant companies are responsible for emitting greenhouse gases or supplying products which release greenhouse gases when burned. Consequently, the plaintiff contends that the defendants have damaged, and will continue to damage places of cultural, historical, and spiritual significance to him and his community.
The plaintiff’s claim was premised on public nuisance, negligence, and a novel duty “to cease materially contributing to damage to the climate system, dangerous anthropogenic interference with the climate system, and the [a]dverse [e]ffects of climate change through their emission of [GHGs] into the atmosphere” (“climate system damage tort”). The defendants applied to strike out the plaintiff’s claim. The High Court struck out the plaintiff’s claim for public nuisance and negligence, whilst the Court of Appeal struck out his claim for all three (3) causes of action.
On appeal, the Supreme Court decided to allow the plaintiff to proceed with his claim for all three (3) causes of action.
As this was only a decision on an application to strike out, the decision “is not a commentary on whether or not it will ultimately succeed” and the Supreme Court did not decide on whether there was such a climate system damage tort. Thus, it remains to be seen whether the Court will allow the plaintiff’s claim and recognise this new tort.
In Malaysia, the Courts have not yet recognised a tort regarding climate change or a duty of care to prevent the same. Nevertheless, that is not necessarily an impediment to the Malaysian Courts recognising a new tort, as the common law is “not static” but is “organic”, “flexible”, and “grows to meet changing conditions with dynamism”[11].
However, it is to be noted that the plaintiff’s claim in this case was largely linked to indigenous customary laws. Thus, even if the plaintiff in Smith is successful in his claim, the implications for other common law jurisdictions remain uncertain.
Belgium – Oil and gas company sued for climate change-fuelled damage
In Belgium, a farmer recently brought a claim against oil and gas company TotalEnergies, seeking, amongst others, financial compensation and an order for the company to stop investments in new fossil fuel projects and reduce its oil and gas production each by 47% by 2030[12].
The farmer farms a herd of cattle in the municipality of Lessines. He contends that, as TotalEnergies is one of the top 20 CO2-emitting companies, it is partly responsible for damage that extreme weather caused to his operations from 2006 to 2022. During this period, there were successive droughts which, according to the farmer, reduced the yield of his meadows that produce food for his cows. This led to additional costs incurred by him and a risk to the economic viability of his farm.
The farmer’s claim is a civil liability claim premised on Articles 1382 and 1383 of the former Belgian Civil Code, which oblige persons who have committed a fault to repair the damage to which they have contributed. The farmer alleges that TotalEnergies breached the general standard and duty of care, as the company has known since the 1970s that its activities are contributing to dangerous climate change that is damaging the lives, health and property of others.
The claim was recently filed in March 2024 and is ongoing. This is the first climate-related case in Belgium brought against a multinational company.
The premise of the farmer’s case appears similar to a common law claim for negligence. It will be particularly interesting to see if the farmer succeeds in establishing that TotalEnergies owes a duty of care to him, and that the damage suffered by him was in fact and in law caused by TotalEnergies’ breach of such a duty.
Conclusion
In conclusion, the upward trend in ESG litigation is undeniable, signalling a pivotal moment in legal landscapes worldwide. The evolving legal framework will shape the future trajectory of corporate responsibility and sustainability practices.
Stay tuned to our website for more insights and updates as this dynamic field continues to develop.
*Written by Chong Jen Hui (Senior Associate) & Priscilla Faith Lim (Associate)
For any related enquiries, please contact our Partner, David Mathew (davidmathew@stsp.my), Senior Associate, Chong Jen Hui (jenhui@stsp.my) or Associate, Priscilla Faith Lim (priscillalim@stsp.my).
The content of this article is of a general nature and does not constitute legal or other advice or the provision of legal or other professional services, and shall not be relied upon as such.
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[1] Bursa Malaysia - Amendments to the Main Market Listing Requirements in Relation to Enhanced Sustainability Reporting Framework; Bursa Malaysia - Amendments to the Ace Market Listing Requirements in Relation to Enhanced Sustainability Reporting Framework
[2] Baker McKenzie - The Year Ahead, Global Disputes Forecast 2024
[3] The Guardian - London court forces Glencore to pay record £281m for bribery in Africa
[4] Bloomberg - More ESG Lawsuits On the Horizon as Investors Jump On a UK Law
[5] Equity Generation Lawyers - Mark McVeigh v. Retail Employees Superannuation Pty Ltd
[6] Statement from REST dated 2.11.2020
[7] Limbu & Ors v. Dyson Technology Ltd & Ors [2023] EWHC 2592
[8] C/09/571932
[9] Beatrice A/P AT Fernandez v. Sistem Penerbangan Malaysia & Ors [2005] 3 MLJ 681 (at [13])
[10] BC202460097
[11] McCurry Restaurant (KL) Sdn Bhd v. McDonalds Corporation [2009] 3 MLJ 774 (at [4])
[12] Hugues Falys, FIAN, Greenpeace, Ligue des droits humains v. TotalEnergies
