| We are witnessing a legal avalanche relating to business and human rights. Our Business and Human Rights Updates will keep you advised of initiatives of relevance to your business. We are also constantly chasing new tools to enable businesses to identify and effectively address potential harm to people and the environment. Ultimately, what protects people (and the planet) is also what best protects businesses. |
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If you think much has happened around ESG in the financial sector in recent years, rest assured, it will not stop here. A new EU report suggests making the EU taxonomy legally binding. Climate litigation trends and their potential impact on directors’ duties.
For the financial sector, and beyond
- New EU report: Enhancing ESG integration into bank policies and strategies
On 27 August, 2021, the EU Commission published a final study commissioned from BlackRock, evaluating how banks within the EU are integrating ESG factors in their risk management, business strategies and investment policies and, similarly, how EU supervisory bodies integrate ESG into their strategies. The study concludes that integration must accelerate to meet the EU’s ESG objectives. To this end, in addition to increased cross-stakeholder collaboration, the report suggests regulatory measures, including potentially making the EU taxonomy and Green Bond standard legally binding, and regulatory measures “aimed at increasing accountability at executive and board level”.
- How banks can use leverage with clients to achieve better outcome for affected people
The BlackRock report confirms that “S” pillar risks, including human rights risks, are still commonly viewed as reputational or strategic risks, i.e. as a measure of a financial institution’s risk appetite. While it is vital to fully understand business risks, human rights due diligence is also about how to actually address identified risks to people: a considerably more complex matter. For those who want to take their due diligence journey further, Shift recently published practical and hands-on advice resulting from a peer-learning session on how to use leverage with clients to enhance outcomes for people, with ideas on some of those subtle but crucial aspects of effective due diligence, such as how to achieve internal buy-in.
Climate and human rights, cont.
- Report: global trends in climate change litigation – 2021
Former UN High Commissioner for Human Rights, Mary Robinson, holds that climate change is “the greatest human rights issue of our time”, as confirmed by the rising number of climate change related cases across the world. In their latest report from July 2021, the LSE Grantham Research Institute on Climate Change and the Environment, the Sabin Center for Climate Change Law at Columbia Law School and the Centre for Climate Change Economics and Policy provide a readable overview of substantive trends within climate litigation. Notably, human rights arguments in climate litigation, including arguments around “just transition”, continue to rise significantly, including in cases brought against private entities. There is growing appetite for holding public and private entities accountable for past emissions in addition to demanding forward-looking emission cuts. The report advises businesses to be aware of increasing litigation risk.
- More specifically, what may the Shell judgement mean for directors?
The climate litigation report also spots a trend that arguments against private entities continue to evolve. Along with more traditional style tort claims, claimants are increasingly presenting arguments around financial risks, fiduciary duties and corporate due diligence responsibilities, such as the corporate responsibility to respect human rights. In a recent blog post from the Harvard School Forum on Corporate Governance, the authors argue that this trend, illustrated through the Shell case (previously discussed by this Update), implies that boards will need to become even more attentive to and find ways to manage for instance climate risks in order fulfil their duties under company law. (Shell has, by the way, appealed the case.)
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If you have questions or want to discuss any of these issues, you can always reach out to your existing contacts at the firm. You are also welcome to contact the members of our Corporate Sustainability and Risk Management team, some of whom are listed at the bottom of this page.
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