The EU’s Corporate Sustainability Reporting Directive, set to shape ESG disclosures in 2024 reports to be published in 2025, has companies and their CFOs on edge. Already early last year, law firms, consulting companies, and the banking sector established specialized teams and departments, promoting their advisory expertise in ESG reporting. Meanwhile, dispute resolution lawyers gleefully anticipate the array of potential litigation and arbitration cases, which have already begun to materialize.

The potential of ESG claims for dispute resolution practices worldwide seems undeniable. While climate-related claims in commercial disputes are not a novelty, ESG reporting requirements will enable a more concise attribution of ESG-related damages to companies’ activities. ESG-related claims may be associated with failures in respect of corporate reporting and disclosures, which could not only hold shareholders accountable vis-à-vis regulatory bodies but emerge in post-M&A disputes, where transactional documentation includes warranties regarding compliance with ESG standards and reporting. Moreover, higher risks of directors’ and officers’ liability may cause supervisory boards to maintain a tighter grip on management, as weak governance may have implications for a company’s attractiveness towards investors (including private equity funds with green-oriented portfolios) and insurers (who will be sure to check compliance with existing ESG laws and requirements).

While the influx of cases related to ESG issues is certain, the question that remains is which dispute resolution venue is more suitable for handling such claims. Arbitration attracts business for its speediness, relative inexpensiveness, and probably most importantly for its confidentiality; however, critics argue that precisely due to the potentially high public interest in ESG matters, such cases should be heard by courts, which will ensure transparency. It remains to be seen which venue will become more popular, but arbitration institutions must prepare to address confidentiality concerns more comprehensively. A holistic approach, including default rules on confidentiality, exceptions, and partial disclosures, could be crucial in attracting ESG-related commercial arbitration.

by Karolina Czarnecka