Navigating Litigation Risks Related to ESG Claims
By: Kim Polley | Managing Partner UK & Ireland | Senior Emerging Markets Advisor, Instinctif partners
In the evolving landscape of corporate sustainability, the risks associated with Environmental, Social, and Governance (ESG) claims have intensified globally, including in the Middle East. This region, with its unique environmental challenges and diverse socio-economic dynamics, presents specific concerns and opportunities for businesses operating within it.
The Middle East’s arid climate and rich hydrocarbon resources make environmental sustainability a critical issue. For instance, the United Arab Emirates (UAE) has been a front-runner in addressing these challenges. In a notable case, Dubai’s Roads and Transport Authority faced scrutiny over its claims of reducing carbon emissions through its public transportation systems. Although not escalating to litigation, the case emphasized the importance of verifiable and accurate ESG disclosures in maintaining credibility and avoiding reputational damage.
The Litigation Landscape
Globally, companies face increased litigation risks as stakeholders challenge misleading ESG claims or failures to meet sustainability goals. For example, in 2023, Delta Air Lines was sued over its carbon neutrality claims, highlighting doubts about carbon offsets. This global trend is echoed in the Middle East, where legal frameworks are gradually aligning with international standards, increasing the accountability for ESG claims.
The Role of Communications and Reputation Management
In the Middle East, where perceptions and business practices can vary significantly, strategic communication and reputation management are vital. Companies must ensure their ESG claims are not only substantiated but transparently conveyed to avoid accusations of greenwashing—appearing more environmentally friendly than one is—which is particularly damaging in a region scrutinizing Western business practices.
Strategic Approaches for Middle Eastern Companies
Enhance Transparency: Businesses should rigorously document and disclose ESG practices and outcomes, ensuring that all claims are supported by data that is verifiable through recognized frameworks like the International Sustainability Standards Board (ISSB) or the Taskforce on Climate-related Financial Disclosures (TCFD).
Understand Regional Materiality: Companies must identify what is material to their stakeholders specific to the Middle East. For instance, water conservation and energy efficiency might be more critical in this region than elsewhere.
Engage Locally: Maintain open lines of communication with local stakeholders, including governments, NGOs, and the community, to align ESG initiatives with regional priorities and cultural values.
Adopt Best Practices: Align ESG strategies with both global standards and regional regulations. The Middle East has unique regulatory environments that require careful navigation to avoid potential legal and reputational risks.
Regularly Review and Adapt ESG Strategies: Continuously assess and update ESG goals in response to evolving regional environmental data and stakeholder expectations. This is crucial in a region facing rapid economic and social changes.
Case Study: Saudi Aramco
Saudi Aramco’s efforts to reduce its environmental impact while boosting sustainability are instructive. Despite being one of the world’s largest oil producers, Aramco has invested significantly in carbon capture and storage technologies and renewable energy projects. These initiatives are prominently disclosed and rigorously verified, showcasing a proactive approach to ESG compliance.
The rise in ESG-related litigation signifies a shift in the accountability landscape for businesses worldwide, including in the Middle East. By prioritizing transparent and substantiated ESG claims, leveraging rigorous frameworks, and engaging in honest communications, companies can effectively navigate these risks. This strategic approach is not merely about compliance but about embracing genuine sustainability practices that can withstand scrutiny and contribute to a sustainable future. This proactive stance not only mitigates litigation risks but also enhances corporate reputations, aligning long-term business success with the broader goals of global and regional sustainability.
Kim Polley
Kim is a disciplined, creative and energetic advocacy, corporate affairs and ESG professional, with a career spanning multiple markets in UK, Europe and Africa, with international experience in business, government, civil society and education. She is an accomplished business unit leader, reputation strategist, CEO advisor and development / sustainability specialist and commentator. Kim believes that ESG disclosure, sustainability and corporate performance are linked, and works with clients to secure the alignment of their in-market operations with stakeholder expectations, assisting them in identifying partnerships and building alliances that support their ambitions. Building inclusive economies that consider the needs of all stakeholders, no matter where they sit in the value chain, is critical not only to securing sustainable development, but organizational sustainability too. Intrinsic to her mindset is a focus on facilitating collaboration between public and private sector to foster impactful investments and economic development in line with the global shared value principles.
