Latest / The Freshfields Podcast / ESG trends to watch in 2026: Part 1: ESG litigation risk in a fragmented regulatory world

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ESG trends to watch in 2026: Part 1: ESG litigation risk in a fragmented regulatory world · The Freshfields Podcast

• 0:05
  Hi everyone,
• 0:06
  Welcome to our mini series on ESG
• 0:08
  opportunities and risks in 2026.
• 0:11
  I'm Juliane Hilf and I'm
• 0:12
  leading our global
• 0:13
  ESG Risk and Advisory
• 0:15
  group here at Freshfields.
• 0:17
  As part of this mini series, I'll
• 0:18
  Be sitting down with colleagues
• 0:20
  across the globe
• 0:21
  to get their insights
• 0:22
  on key
• 0:22
  ESG developments
• 0:24
  that we think will shape the year ahead.
• 0:27
  Today, I'm joined by Simon Duncombe,
• 0:30
  Cat Greenwood-Smith and Sam Houshower.
• 0:33
  All of them
• 0:33
  are co-leads of our ESG group.
• 0:36
  If we take a quick look back at 2025,
• 0:40
  it was a year marked
• 0:42
  by intense geopolitical polarisation
• 0:45
  and significant disruption
• 0:47
  in the ESG regulatory landscape.
• 0:49
  And as we look
• 0:50
  ahead, 2026 is already shaping up
• 0:53
  to be yet another very important year.
• 0:56
  Staying ahead
• 0:57
  won't just be about
• 0:58
  monitoring these developments,
• 1:00
  but also about actively engaging
• 1:02
  with a rapidly evolving
• 1:04
  regulatory and stakeholder environment.
• 1:07
  So, what does that mean for
• 1:09
  ESG litigation
• 1:10
  and what should we be
• 1:11
  watching out for in the year ahead?
• 1:13
  Sam,
• 1:14
  let me start by asking you what
• 1:17
  we can expect in 2026
• 1:19
  from a US perspective.
• 1:21
  From a US perspective,
• 1:22
  2026 will be another challenging year
• 1:24
  for ESG and for ESG Crosscurrents.
• 1:27
  We can expect more political
• 1:29
  and regulatory divergence
• 1:31
  defining the
• 1:32
  the national ESG landscape here
• 1:34
  and also the global ESG landscape.
• 1:36
  The anti-ESG movement remains ascendant and
• 1:39
  particularly strong in the US
• 1:40
  and federal executive.
• 1:42
  In federal executive actions,
• 1:44
  aimed at curtailing
• 1:45
  sustainability policies,
• 1:46
  significant rollbacks
• 1:47
  on the environmental front,
• 1:48
  including
• 1:49
  the recent pull
• 1:51
  back attempt
• 1:52
  to pull back the endangerment finding,
• 1:53
  which underpins
• 1:54
  climate regulation in the US,
• 1:56
  carbon regulation in the US,
• 1:58
  federal retreat from ESG
• 1:59
  reporting with the SEC
• 2:01
  pulling its climate
• 2:02
  last year.
• 2:04
  On the flip side, though, there remains
• 2:07
  divergent
• 2:08
  action at the state level
• 2:10
  with Republican controlled
• 2:12
  states and Democratic controlled states
• 2:13
  pushing in different directions,
• 2:16
  particularly in California.
• 2:17
  California is moving forward
• 2:18
  with its climate reporting rules.
• 2:21
  In New York and Vermont,
• 2:22
  they've enacted polluter
• 2:23
  pays climate
• 2:25
  legislation that will
• 2:26
  impose significant liabilities
• 2:28
  on a number of fossil fuel companies
• 2:30
  based on historic emissions.
• 2:32
  But
• 2:33
  much of that is being challenged
• 2:35
  in court as we speak.
• 2:36
  So how are these US developments
• 2:39
  having an impact
• 2:40
  on other areas of the world?
• 2:41
  Well, we're seeing the assertive US
• 2:43
  federal approach rippling globally.
• 2:47
  For example, in Europe
• 2:48
  we saw the sustainability
• 2:49
  Omnibus pushed through rapidly last year,
• 2:52
  trimming back sustainability rules.
• 2:54
  In the UK,
• 2:55
  we've seen the delay
• 2:56
  of gas
• 2:57
  and diesel car bans
• 2:58
  and the rollback of DEI
• 2:59
  rules for financial firms.
• 3:02
  But I don't think pressure is going away.
• 3:04
  I think that
• 3:05
  scrutiny from regulators
• 3:06
  and litigants remains
• 3:08
  around companies' commitments
• 3:09
  and reporting and actions,
• 3:11
  particularly on climate,
• 3:12
  but on other issues
• 3:13
  as well.
• 3:14
  NGOs and consumers
• 3:15
  want credible
• 3:16
  and consistent
• 3:17
  ESG, commitments and action.
• 3:22
  I think there's a mixed
• 3:23
  and contradictory landscape
• 3:24
  that's created
• 3:25
  where you have states
• 3:27
  pushing in different directions
• 3:28
  in the US,
• 3:29
  you have the federal government
• 3:30
  pushing hard in one direction,
• 3:32
  and globally you have
• 3:33
  governments
• 3:34
  in different jurisdictions
• 3:38
  pushing in their own
• 3:39
  different directions as well.
• 3:41
  And that creates a lot of friction
• 3:42
  for businesses, particularly
• 3:44
  those operating
• 3:44
  on an international scale
• 3:45
  that have to calibrate their
• 3:48
  commitments,
• 3:49
  their reporting, their actions
• 3:51
  to legal obligations
• 3:52
  and stakeholder
• 3:53
  and regulatory expectations
• 3:54
  that are quite divergent
• 3:55
  in different geographies.
• 3:57
  Thank you, Sam.
• 3:58
  So indeed,
• 3:59
  you mentioned the European Union.
• 4:00
  We've been tracking the Omnibus
• 4:02
  developments quite closely.
• 4:04
  And I think we were surprised
• 4:05
  on the one hand,
• 4:06
  how quickly in the end
• 4:08
  the Omnibus has been adopted.
• 4:09
  And on the other hand,
• 4:11
  how much back and forth
• 4:12
  there was on the European level.
• 4:15
  Never a dull day in Brussels,
• 4:16
  if I may quote
• 4:17
  our public affairs team
• 4:19
  We'll be following up with some lessons
• 4:21
  learned from that process
• 4:22
  and what to expect in the coming months.
• 4:24
  But let's go back to the political
• 4:26
  and regulatory backdrop.
• 4:27
  Simon, maybe you can talk about
• 4:29
  what influence
• 4:30
  that is going to have
• 4:31
  on the ESG litigation in 2026.
• 4:34
  Yes. Thank you, Juliane.
• 4:35
  Well,
• 4:35
  I guess the headline is
• 4:36
  that that landscape is a major factor
• 4:38
  that shapes the ESG litigation.
• 4:41
  It creates real uncertainty
• 4:43
  for businesses in particular,
• 4:45
  presents challenges
• 4:46
  for those who operate
• 4:46
  globally and straddle
• 4:47
  different jurisdictions.
• 4:50
  At the same time,
• 4:51
  where there are delays in regulation,
• 4:53
  what we see
• 4:54
  as NGOs
• 4:55
  and other stakeholders
• 4:56
  who are turning
• 4:56
  to the courts increasingly
• 4:58
  to seek to drive change,
• 4:59
  they're looking for
• 5:00
  clarity or accountability
• 5:02
  or stronger standards.
• 5:04
  And that in turn feeds
• 5:06
  other claims for compensation.
• 5:08
  So it's standing back,
• 5:09
  I guess
• 5:09
  it's having a real impact
• 5:10
  on who is bringing these ESG cases,
• 5:13
  what those claimants
• 5:15
  are really trying to achieve,
• 5:16
  and also where they're doing it.
• 5:18
  So, you know
• 5:18
  which jurisdictions
• 5:19
  and which specific avenues
• 5:21
  within those jurisdictions
• 5:22
  are they turning to?
• 5:23
  Can you give us some examples
• 5:25
  of more specific
• 5:26
  ESG cases that you are seeing?
• 5:28
  Yes, sure.
• 5:29
  So, let's take climate cases
• 5:31
  as an example.
• 5:33
  I think the growth rate of global
• 5:34
  climate cases
• 5:35
  was reported to have slowed
• 5:36
  a bit
• 5:37
  last year, actually,
• 5:38
  and I think that's likely due
• 5:39
  to the anti-ESG
• 5:40
  movement in the US
• 5:41
  that we just heard from Sam about.
• 5:44
  Because it's still the case
• 5:45
  that the US accounts
• 5:46
  for around three quarters of the world's
• 5:48
  climate cases.
• 5:49
  But then if you look at climate cases
• 5:51
  being brought outside the US,
• 5:53
  what we see
• 5:54
  is that they are proliferating
• 5:55
  and they're really
• 5:56
  catching the headlines,
• 5:57
  not just because of the
• 5:58
  the volume of them.
• 5:59
  Also, the different ways
• 6:01
  in which they're being framed
• 6:02
  and importantly,
• 6:03
  the diversification of their targets.
• 6:06
  It's
• 6:06
  not just the energy
• 6:07
  and the industry sectors anymore,
• 6:09
  but now we're seeing claims
• 6:10
  being brought against those
• 6:11
  in the transport, retail,
• 6:13
  consumer products sectors as well.
• 6:16
  And what's interesting is if
• 6:17
  you look back at last year,
• 6:19
  even though there were some high profile
• 6:21
  losses for claimants in the Dutch
• 6:23
  and the German courts.
• 6:24
  The well known cases
• 6:25
  brought against shell and RWE.
• 6:28
  What's interesting
• 6:28
  is that even though those courts
• 6:30
  ultimately sided
• 6:31
  with the defendants in those cases,
• 6:33
  there are now
• 6:34
  new cases
• 6:34
  being brought in the Netherlands
• 6:36
  and Germany and elsewhere
• 6:38
  that are really developing
• 6:39
  the arguments and points of principle
• 6:41
  arising out of those original cases.
• 6:43
  So I guess what that tells us
• 6:45
  is that even though
• 6:46
  there are these political headwinds
• 6:48
  and the uncertainty
• 6:49
  about the regulatory framework
• 6:51
  and even these decisions
• 6:52
  that on their face
• 6:53
  are going against claimants,
• 6:55
  the litigation is continuing
• 6:56
  and it's really evolving
• 6:57
  and developing in response.
• 7:00
  And that's I guess, that's
• 7:00
  just in the climate space.
• 7:02
  I mean, we see similar
• 7:03
  developments in litigation
• 7:04
  about other ESG issues,
• 7:05
  whether you're looking at,
• 7:07
  claims about environmental damage
• 7:08
  all the way through to alleged
• 7:10
  human rights impacts in the businesses
• 7:12
  supply chains.
• 7:13
  Cat, we've just heard
• 7:14
  that things are evolving.
• 7:16
  Can you maybe expand on that
• 7:17
  a little bit?
• 7:18
  Yes.
• 7:19
  Happy to
• 7:20
  and echo
• 7:21
  some of what Simon's already said.
• 7:23
  ESG litigation
• 7:24
  is certainly not going away,
• 7:27
  even if it did slow down
• 7:28
  somewhat last year.
• 7:30
  And there are forces
• 7:32
  which will impact
• 7:33
  how ESG litigation
• 7:35
  is likely to develop in 2026.
• 7:37
  I think we might even see
• 7:39
  a reinvigorated landscape ahead.
• 7:42
  And as for what's contributing to that,
• 7:45
  well,
• 7:46
  I think sticking with climate change,
• 7:47
  Simon already mentioned
• 7:49
  two cases
• 7:50
  where there have been findings
• 7:51
  against the claimants.
• 7:53
  But as Simon mentions,
• 7:55
  the key thing to bear in mind
• 7:56
  is that even when defendants have won
• 7:59
  in cases like shell and RWE,
• 8:02
  the courts are effectively
• 8:03
  leaving the door ajar for claimants.
• 8:06
  In the Shell case,
• 8:08
  the 45% emission
• 8:10
  reduction order was overturned,
• 8:12
  but the Court of Appeal
• 8:13
  also confirmed
• 8:14
  that protection from climate change
• 8:16
  is a human right.
• 8:18
  The court also suggested
• 8:19
  that new oil and gas
• 8:20
  investments might be at odds
• 8:22
  with corporate responsibilities
• 8:23
  to reduce emissions,
• 8:25
  and activists are already pivoting
• 8:27
  in light of that.
• 8:28
  Milieudefensie, in particular,
• 8:30
  has now
• 8:31
  launched new proceedings
• 8:33
  against Shell in the Netherlands
• 8:34
  specifically to stop new oil
• 8:37
  and gas investments.
• 8:38
  So, that's the Netherlands,
• 8:40
  where indeed
• 8:41
  we do see a number of high profile cases.
• 8:44
  What about the RWE case in Germany?
• 8:46
  Yes, well, it's
• 8:47
  pretty much the same story.
• 8:49
  So in that case, the claim failed
• 8:51
  because the claimant couldn't
• 8:53
  prove a specific flood
• 8:54
  risk to his property.
• 8:56
  But the court made it clear
• 8:58
  that climate change claims
• 8:59
  are possible under German law.
• 9:01
  And I think there's an expectation
• 9:03
  that claimants will now take the RWE case
• 9:07
  and try to improve their claims
• 9:09
  to reach a more favourable outcome
• 9:11
  in future proceedings.
• 9:12
  And we're already starting to see that,
• 9:15
  at the end of last year,
• 9:17
  a couple of cases very similar to the RWE
• 9:20
  claim were filed, or at least threatened.
• 9:24
  And we're seeing claimants
• 9:25
  take the court's direction,
• 9:27
  looking at fact
• 9:28
  patterns and legal arguments,
• 9:30
  which may ultimately
• 9:31
  prove more successful
• 9:32
  than was the case in the RWE matter.
• 9:36
  I think another factor that is
• 9:38
  influencing the continued
• 9:40
  growth of ESG litigation
• 9:42
  is the series of landmark
• 9:43
  advisory opinions
• 9:44
  that were issued
• 9:45
  recently by international legal bodies
• 9:48
  on the obligations of states
• 9:50
  in the event of climate change.
• 9:52
  In particular,
• 9:53
  there was a really significant opinion
• 9:54
  issued by the International Court
• 9:56
  of Justice last year,
• 9:58
  where effectively
• 9:59
  the ICJ concluded that states
• 10:01
  have a legally binding obligation
• 10:02
  to protect the climate system
• 10:04
  from the harmful effects
• 10:05
  of greenhouse gas emissions,
• 10:07
  and that a breach of that obligation
• 10:09
  is an internationally wrongful act
• 10:11
  that entails state responsibility.
• 10:13
  And it also found that a clean, healthy
• 10:15
  and sustainable environment
• 10:17
  is a human right.
• 10:19
  Now, these opinions aren't
• 10:20
  binding on companies,
• 10:22
  but they do provide influential guidance
• 10:24
  for courts around the world.
• 10:26
  And I think plaintiffs and courts
• 10:29
  are looking
• 10:29
  to these opinions
• 10:31
  when interpreting domestic laws.
• 10:33
  And, this is making company obligations
• 10:36
  on climate
• 10:37
  and human
• 10:38
  rights perhaps more clear
• 10:39
  than it has been previously.
• 10:41
  And actually,
• 10:42
  the recent judgement in Bonaire
• 10:43
  that came out just this last week
• 10:45
  is one of the first judicial decisions
• 10:47
  to expressly rely
• 10:49
  on the ICJ's advisory opinion.
• 10:52
  And in that decision,
• 10:53
  the Dutch state was ordered
• 10:54
  to comply
• 10:55
  with its international obligations
• 10:57
  on emissions reductions
• 10:58
  and adopt and implement
• 11:00
  a climate adaptation plan by 2030.
• 11:03
  So, there's still a lot happening
• 11:05
  and a lot moving forward in this space.
• 11:07
  I think that's right, Cat.
• 11:09
  Just actually just picking up
• 11:10
  on that ICJ opinion,
• 11:11
  because one of the things
• 11:12
  that featured heavily in that,
• 11:14
  and which is a theme
• 11:14
  that I think will probably continue
• 11:16
  this year, is an increased reliance
• 11:18
  on really detailed science
• 11:20
  and technical evidence
• 11:21
  in all of these cases.
• 11:23
  And some of that has always been
• 11:24
  a feature actually,
• 11:25
  of the more traditional
• 11:26
  environmental damage cases,
• 11:28
  where there's been a specific event
• 11:30
  that might have led
• 11:31
  to relatively localised pollution.
• 11:33
  But in the recent climate cases,
• 11:35
  there's a real new focus
• 11:36
  on attribution science, which is
• 11:39
  trying to link
• 11:40
  a specific company's
• 11:41
  emissions or practices
• 11:42
  with extreme weather events.
• 11:44
  That's quite an interesting claim
• 11:46
  that was recently announced
• 11:48
  that's being brought
• 11:49
  by survivors of Typhoon Odette
• 11:52
  in the Philippines against Shell.
• 11:54
  And that claim there relies
• 11:55
  on an independent report
• 11:57
  from a group of international scientists
• 11:58
  that concluded that
• 12:00
  climate change
• 12:01
  made that typhoon more likely
• 12:02
  and more severe.
• 12:03
  And crucially,
• 12:05
  it also says that Shell's actions
• 12:07
  allegedly accelerated that development.
• 12:10
  So quite innovative, quite interesting.
• 12:12
  And there's a similar case being brought
• 12:14
  at the moment
• 12:14
  in Switzerland
• 12:15
  against the cement producer, Holcim,
• 12:18
  on behalf of four Indonesian residents
• 12:20
  who suffered losses
• 12:21
  as a result of rising sea levels.
• 12:23
  So the credibility of
• 12:24
  that climate attribution
• 12:25
  analysis will,
• 12:26
  I think, be really
• 12:27
  a really important part
• 12:29
  of all of these cases.
• 12:31
  And then I guess you
• 12:31
  put that together with,
• 12:33
  some of the broader trends
• 12:34
  that we're seeing in other ESG cases.
• 12:37
  The more innovative
• 12:38
  liability theories that we see
• 12:40
  where claimants are taking inspiration
• 12:42
  from other arguments and developments
• 12:44
  that they're seeing
• 12:44
  in multiple cases around the world
• 12:46
  and then deploying them in other
• 12:48
  in other cases.
• 12:49
  Things
• 12:49
  like allegations of ever broader
• 12:52
  legal duties of care,
• 12:53
  said to be owed to individuals
• 12:55
  who might be impacted
• 12:56
  by a business's operations
• 12:57
  in the broader sense.
• 12:59
  So I think there's a lot for
• 13:00
  businesses to be keeping an eye on.
• 13:03
  Also, on the procedural side, we see
• 13:06
  the courts approach to questions
• 13:07
  of forum and jurisdiction,
• 13:09
  where courts are showing themselves
• 13:11
  increasingly willing to hear
• 13:13
  these really complex ESG disputes
• 13:15
  that often involve events
• 13:17
  that may well have taken place overseas.
• 13:19
  Looking ahead,
• 13:20
  2026 indeed
• 13:21
  seems to be a time
• 13:22
  where it's quite likely that we see
• 13:24
  a number of high profile cases
• 13:25
  which will further test
• 13:27
  the creative approach
• 13:28
  you just mentioned, right?
• 13:30
  Definitely.
• 13:31
  I think that's right.
• 13:33
  I think
• 13:33
  reflecting on regulatory uncertainty,
• 13:36
  the scientific advances and evolving
• 13:39
  judicial interpretations,
• 13:41
  these developments are converging to create
• 13:45
  fertile ground for new creative
• 13:48
  and high impact ESG litigation
• 13:50
  that I expect is going to be
• 13:52
  keeping us all very interested
• 13:54
  over the course of the next year
• 13:55
  and beyond.
• 13:56
  So exciting times ahead indeed.
• 14:00
  With those words of warning, the question
• 14:01
  in our clients mind will be
• 14:03
  what can they do to pre-empt
• 14:05
  and mitigate such risks?
• 14:07
  Sam, what do you think?
• 14:08
  I think there's 2 or 3 areas
• 14:11
  I would
• 14:12
  put at the top of everyone's list.
• 14:13
  One is supply chain risks.
• 14:15
  So supply chains have become a vector
• 14:17
  of increased
• 14:18
  legal risk
• 14:19
  and liability across
• 14:20
  a lot of different legal channels,
• 14:21
  but including also in ESG,
• 14:24
  We're seeing increased pressure
• 14:26
  at the borders
• 14:27
  and in liability around human rights,
• 14:31
  in the supply chain as well as,
• 14:33
  potential emissions risks and,
• 14:35
  and environmental
• 14:36
  risks in the supply chain.
• 14:37
  So heat
• 14:37
  mapping of supply
• 14:38
  chain risks
• 14:39
  is one
• 14:40
  area of diligence
• 14:41
  that everybody should think about.
• 14:43
  Another area is around the way in
• 14:46
  which material risks
• 14:47
  are being identified,
• 14:47
  reported and acted on.
• 14:50
  And so,
• 14:50
  globally,
• 14:51
  there's a lot
• 14:52
  of new laws coming in
• 14:53
  in different jurisdictions
• 14:54
  requiring companies to
• 14:58
  engage in risk analysis,
• 15:01
  and think through and identify their
• 15:03
  risks
• 15:04
  across a number of different
• 15:05
  channels of kind of ESG topics.
• 15:07
  And as those
• 15:09
  analyses are being done,
• 15:10
  it's very important that
• 15:12
  they're being thought through
• 15:15
  thoughtfully
• 15:16
  and that the output from them is being
• 15:19
  channelled into the right kinds
• 15:20
  of governance processes
• 15:21
  at the company
• 15:22
  and risk management processes
• 15:23
  so that
• 15:24
  if there are material risks
• 15:25
  that are identified,
• 15:26
  they get
• 15:27
  dealt with appropriately.
• 15:29
  And consistency is key here,
• 15:31
  which is that
• 15:32
  I think boards and management
• 15:34
  need to be in a position
• 15:35
  of reviewing commitments
• 15:36
  and reporting from companies
• 15:38
  to ensure that they reflect
• 15:40
  credible past and reality and that
• 15:42
  that the reporting matches up with
• 15:45
  practice and commitments,
• 15:46
  otherwise
• 15:47
  it poses risk for scrutiny and liability
• 15:50
  globally, across
• 15:51
  a variety of jurisdictions
• 15:53
  and under a tapestry of different
• 15:54
  disclosure and liability laws.
• 15:56
  Very useful insights indeed.
• 15:59
  Thank you
• 15:59
  so much,
• 16:00
  Sam, Cat and Simon, for joining me today.
• 16:03
  And thank you all for listening
• 16:05
  and I hope you found it useful.
• 16:07
  Please join us for another conversation
• 16:09
  on AI, climate transition,
• 16:10
  and supply chains shortly.
• 16:12
  And do make sure to get in touch
• 16:13
  if you have any further questions.