More ESG reporting raises risk of legal challenges for trustees

A lawyer has warned of increased litigation risk over environmental policies, saying that “it will only take one case for duties to be extended or flexed”.

Speaking at a Society of Pensions Professionals (SPP) event on 12 September, Burges Salmon partner Suzanne Padmore warned that “increased reporting requirements [increase] the risk of challenges to trustees and company boards”.

“The reporting – but also the approach to investment strategies – can’t be done with a tick box mentality,” she continued, adding that reporting “must be done in a way that seeks to actually make actual improvement across ESG factors”.

In July, the Pensions Regulator said that too many pension schemes were only aiming to achieve minimum compliance with their ESG duties. In August 2023, two members of the Universities Superannuation Scheme had a case dismissed after suing over the scheme’s lack of a plan for divestment from fossil fuels.

Campaigners are attempting a range of claims to hold companies to account, Padmore warned.

“I think they will keep trying to bring different claims until they get some more traction because… it will only take one case for duties to be extended or flexed,” she said.

As climate change “becomes more of a problem, there may well be a different approach by the courts in assessing what the directors’ duties are”, she continued.

“If we’re successful in moving away from reliance on fossil fuels, then if investment strategies aren’t changed… schemes might actually suffer a loss, and that would then improve the basis of the claim. We are very likely to see more claims.”

‘Green-hushing’ risk

Padmore warned of the resulting risk of so-called ‘green-hushing’ where there is a reluctance for companies and schemes to make climate commitments.

“The more you report, the more information you’re putting in the public domain,” she said.

“The more you put out there, the more you’re likely to be at risk of a claim if actually what you’re saying in terms of commitments isn’t actually met in practice. Green-hushing is a real thing.”