The evolution of ESG litigation risk for multinationals

Evolution is a fundamental biological concept concerning the adaptation of species to their changing environment.

ESG litigation risks related to climate change and biodiversity are also evolving. While there has been a recent backlash against broad ESG legislation and the strict obligations it places on companies, the accelerating effects of climate change are driving increased activism and negative media attention for corporates more generally.

This shift is influencing the public perception of what responsible (ESG) governance looks like and is supported by emerging case law and scientific evidence, thus heightening the risk of reputational damage and potential liability for multinationals and their directors and officers.

In the recent landmark case Lliuya v. RWE the Higher Regional Court of Hamm in Germany recognised that major greenhouse gas emitters can, in principle, be held liable under German civil law for contributing to climate-related harms. This creates a significant legal precedent: large corporate emitters may bear responsibility for climate impacts. It even confirms that climate responsibility transcends national borders. In this contribution, we will outline the evolution of ESG litigation risk for multinationals.

In the European Union (EU), the Corporate Sustainability Reporting Directive (CSRD) – an EU directive which contains reporting obligations about ESG impact in the value chain – and the Corporate Sustainability Due Diligence Directive (CSDDD) –an EU directive that mandates certain companies to conduct due diligence on human rights and environmental impacts within their operations and value chains – the legal framework is becoming stricter for companies in relation to climate change and biodiversity pursuant to the European Green Deal.

However, in the recent challenging geopolitical and economic times, ESG – and biodiversity in particular – has shifted into the background for commercial ventures. Their primary focus has been on keeping business going, and lobby groups have been pushing for less ESG legislation.

This year, the change of emphasis has resulted in the EU’s “Clean Industrial Deal” initiative, with a significant limit on the scope of the CSDDD, CSRD and a delay in their implementation.

Although the scope of these regulations is more limited, and there is less emphasis on civil liability, it is still important to note that the new legislation introduces more general strict due diligence obligations to a company’s own operations, subsidiaries and direct business partners.

Even in the absence of a legal framework with clear obligations, under generally accepted business principles (so-called “soft law”) there can already be the attribution of damages resulting from climate change and biodiversity harm based on general tort law, and the universal due diligence obligations of companies (based on UN Guiding Principles on Business & Human Rights).

At the same time, it is important to note that in relation to biodiversity, the EU already has laws in place with specific due diligence obligations for supply chains, resulting in the EU Natura 2000 Network of protected areas. This aims to safeguard Europe’s most valuable and threatened species and habitats and comprises 18% of EU land and 8% of its maritime territory.

Furthermore, this biodiversity legal framework has been intensified recently with specific due diligence obligations (and impact) in the supply chains of businesses throughout Europe:

• The EU Timber Regulation (2013) makes it illegal to place timber on the EU market that has been logged in violation of the laws in the country of origin.
• The EU Conflicts Mineral Regulation (2017) aims to prevent the use of minerals that may be funding armed conflict. It focuses on ensuring responsible sourcing of tin, tantalum, tungsten, and gold from conflict-affected and high-risk areas.
• The EU Battery Regulation (2023) sets requirements for various aspects, including hazardous substances, carbon footprint, recycling efficiency, and due diligence in the supply chain. 
• The EU Revised Environmental Crime Directive (entered into force on 20 May 2024) aims at establishing minimum rules on the definition of criminal offences and penalties in order to improve the protection of the environment. It is viewed as a huge success by environmental activists, who had been campaigning for stricter rules against a so-called “ecocide” for years.
• The EU Nature Restoration Law (entered into force in August 2024) sets binding targets to restore degraded ecosystems, particularly those with the most potential to capture and store carbon.
• The EU Deforestation Regulation (which will enter into force on 30 December 2025) requires companies trading in cattle, cocoa, coffee, oil palm, rubber, soya and wood, as well as products derived from these commodities, to conduct extensive diligence on the value chain to ensure the goods do not result from recent deforestation, forest degradation or breaches of local environmental and social laws.

With this evolution of the legal framework, in combination with more reporting obligations, companies can expect their business operations and supply chain to be under more scrutiny with regards to their impact on climate change and biodiversity.

Building on the existing legal framework, international case law surrounding ESG litigation is evolving rapidly. In the past year, several landmark cases have signalled a significant shift from holding states accountable for climate inaction to extending responsibility to businesses—including potential liability for environmental damages:

• Klimaseniorinnen: On 9 April 2024 the European Court of Human Rights ruled that the state of Switzerland violated the European Convention on Human Rights by failing to adequately address climate change. This is the first climate change litigation in which an international court has ruled that state inaction violates human rights. 
• Milieudefensie v. Shell: On 12 November 2024 the Court of Appeal in the Hague (Netherlands) confirmed that protection against climate change is a fundamental human right (with reference to landmark cases like Urgenda and Klimaseniorinnen). This obligation does not only apply to states but also extends to companies in certain sector, which have a significant impact on global emissions. This sets a precedent for corporate responsibility in addressing climate change. While the court did not impose specific reduction targets on Shell, it affirmed that companies have a duty of care to align their business models with the goals of the Paris Agreement. This ruling underscores the importance of integrating climate considerations into corporate strategies and highlights the potential legal risks for companies that fail to do so.
• Lliuya v. RWE: On 28 May 2025 the Higher Regional Court of Hamm in Germany recognised that major greenhouse gas emitters can, in principle, be held liable under German civil law for contributing to climate-related harms and even damages arising therefrom (although at the moment it’s difficult to prove causality). As in previous climate cases, the court concludes that companies have a duty of care that is more or less independent of permits and public law rules. Furthermore, responsibility for the consequences of climate change transcends national borders.

The general views on good governance are evolving as well.

In August 2024 the World Economic Forum embraced the evolving role of directors in a “nature positive world” (What are directors' duties in a 'nature positive' world? | World Economic Forum).

According to World Economic Forum the “nature positive” concept is emerging as a vital strategy for businesses. This approach emphasises halting and reversing biodiversity loss, ensuring that natural ecosystems are preserved and enhanced.

The World Economic Forum underlines that environmental risks are significant business risks. Corporate directors have a pivotal role in this transition. They need to incorporate biodiversity and ecosystem health into their risk management frameworks, identifying and mitigating potential threats to the natural environment. This proactive approach protects the company's interests and contributes to broader environmental resilience. Incorporating environmental risk assessments into business continuity planning can enhance the company's ability to respond to ecological disruptions.

International research of February 2024 (ESG and CEO turnover around the world - ScienceDirect) shows that CEOs of listed companies are already held accountable in ESG-related shareholder actions (i.e. ESG litigation) for negative media coverage of the ESG incidents. This connection is both statistically and economically significant: multivariate tests indicate that CEOs are roughly nine percentage points more likely (24.0% versus 14.6%) to lose their position when their firms face extreme ESG risk. It is important to note that media coverage of an ESG issue has two components, pecuniary (shareholder loss) and non-pecuniary (media shaming), and both increase the likelihood of a turnover. This suggests that non-monetary considerations (board's conscientiousness, media shaming of board) are at play in some of the CEO turnover decisions.

We are continuing to see a significant evolution of ESG litigation with scrutiny of corporate behaviour and, in the future, there is likely a significant risk of liability both for companies and their officers.

This is empowered by the evolution of legislation, case law and general views in combination with more activism resulting in more legal actions and funding hereof.

Therefore, it is advisable for multinationals and their directors to have a proactive approach in the climate transition and risk management.

As Darwin notably explained: It is not the strongest of the species that survives, nor the most intelligent, but the one most adaptable to change.