A look to the future: Litigation risks faced by the financial sector in relation to ESG statements

​With increasing public and regulatory scrutiny of claims by companies about their ESG achievements, it is essential that these are accurate, well-founded and backed up with data.

ESG-related legal and regulatory developments are maturing from soft law recommendations to hard law obligations in multiple jurisdictions. ESG has been identified as the defining issue of the 21st century.

There is increasing pressure on companies and institutional investors to tackle ESG issues. Role players are proactively engaging with institutional investors and asset managers on integrating ESG factors into their decision-making and are facing increasing scrutiny of their investment activities. They in turn are holding management to account on ESG issues. This has also spurred regulators to develop disclosure standards to meet investors’ information needs.

What does this mean for the financial sector, and specifically in South Africa?


In May 2022, the US Securities and Exchange Commission (the SEC) proposed two form and rule amendments, seeking to enhance and standardise disclosures of ESG factors considered by funds and advisers, and to expand regulation on the naming of funds with an ESG focus. In November 2021, the UK's Financial Sector Conduct Authority (FCA) published its ESG Strategy, stating that market participants and consumers must be able to trust green and other ESG labelled financial instruments and products. This was followed by the FCA's "Feedback Statement FS22/4", published on 29 June 2022, in which it outlined its strategy for bringing ESG labelled debt instruments, as well as ESG data and rating providers, under its regulatory remit and what that would entail.

The European Commission adopted its Corporate Sustainability Due Diligence Directive on 23 February 2022. This will lay down obligations for large companies that are impacted by it. They will have to, inter alia: (i) carry out due diligence to identify any adverse environmental impacts; and (ii) produce climate plans. The Directive will allow EU regulators to impose sanctions on companies for failing to comply, and civil liability for violations of certain due diligence obligations which have adverse environmental impacts. Also, from 8 February 2022, listed Chinese companies and bond issuers must disclose environmental information under new rules set by China’s Ministry of Ecology and Environment. Similar developments have occurred in other jurisdictions, such as Singapore, Malaysia and Canada.

These are only a few examples of regulatory and legal ESG developments. Most of these jurisdictions have promulgated additional measures, such as greenwashing penalty guidelines1 and mandatory ESG disclosures for banks2 and other actors3.


Under the current regime concerning disclosures and reporting requirements, there is no explicit duty to provide disclosures on ESG matters, although the South African regulatory regime may develop obligatory requirements following changes in the international market. There are, however, guiding principles on disclosures required by companies:

  • The "King Code"4 , which deals with corporate governance, sets out 17 principles that an organisation either must or should apply to substantiate a claim that it is practising good governance, reflected in four outcomes: ethical culture; good performance; effective control; and legitimacy. Many asset owners and investment managers subscribe to the King Code and take it into account in their governance. The King Code regards sustainability as an element of the value creation process relevant to all organisations, and emphasises sustainable development as “a primary ethical and economic imperative”. This reflects an approach that incorporates ESG factors into investment decision-making. The JSE requires listed companies to report annually, on an “apply and explain” basis, the extent to which they have complied with the King Code.
  • JSE-listed companies have general continuing disclosure obligations under the JSE Listings Requirements, which apply to financially-material ESG issues.
  • On 14 June 2022, the JSE released its Sustainability and Climate Disclosure Guidance note, which aims to promote transparency and good governance, and guide listed companies on best practice in environmental, social and governance (ESG) disclosure.
  • Prudential Standard GOI 3 promulgated by the Prudential Authority5 requires insurers, including life insurers, non-life insurers and reinsurers, to prepare their investment policies with regard to the following requirements: (i) setting out the insurer’s strategy for investing, including asset allocation strategies and how these will be managed; and (ii) taking into account any factor that may materially affect the sustainable long-term performance of assets, including ESG factors.
  • A revised draft Code for Responsible Investing in South Africa (CRISA) 2.0 sets out various principles and practice recommendations with a clear emphasis on ESG and broader sustainable development issues.
  • From a securities law perspective, the Financial Markets Act, 2012 makes it an offence to publish, in respect of past or future company performance, any statement, promise or forecast that is, at the time, and in the circumstances in which it is made, false, misleading or deceptive in respect of any material fact and that the person knows, or ought reasonably to know, is false, misleading or deceptive. The risk will rise as companies more regularly report to shareholders and stakeholders on their ESG conduct and as ESG concerns become more important in investors’ choices.


One of the principal ESG-related litigation risks faced by the financial sector is when financial institutions and companies make inaccurate or misleading ESG reporting and disclosures, including on climate change, or "Greenwashing".

Greenwashing is generally defined as unsubstantiated or misleading claims about an entity’s environmental performance, or selective disclosure or non-disclosure about the environmental or social impacts of a company’s business practices.

In other jurisdictions there has been a surge of litigation in these categories, and sometimes the regulators themselves have taken action. Some interesting cases are:

  • In Ramirez v. ExxonMobil Corp6 a derivative suit was filed in the US by ExxonMobil’s shareholders against its directors for a breach of fiduciary duty and failure to disclose the impacts of climate change on the company’s business reserves and assets;
  • In Abrahams v. Commonwealth Bank of Australia7 shareholders of the Commonwealth Bank of Australia filed a complaint in 2017 against the bank for investing in coal mines;
  • In SEC v Vale S.A.8 the SEC, on 28 April 2022, charged Vale, a publicly-traded Brazilian mining company, for committing securities fraud by intentionally concealing that its Brumadinho dam might collapse, and that the flow from the dam would cause significant environmental damage.
  • In SEC v BNY Mellon9 the SEC charged BNY Mellon, an investment adviser, on 23 May 2022 for omitting or making misleading statements about the ESG investment considerations of its managed mutual funds. This resulted in the SEC issuing a cease-and-desist order, a censure, and a penalty of USD 1.5 million against BNY Mellon.
  • In Deutsche Bank10 German law enforcement officials raided the offices of Deutsche Bank on 31 May 2022 on suspicion that the company had made misleading statements in its 2020 annual report by claiming that more than half the group’s USD 900 billion assets were invested using environmental, social and governance criteria.

There has been no direct or explicit greenwashing litigation in South Africa or ESG-related enforcement action by South African regulators, but South African legal and regulatory laws create the platform and cater for the possibility of greenwashing claims and litigation.

For example, in terms of the Financial Markets Act, 2012, it is an offence to publish, in respect of past or future company performance, any statement, promise or forecast that is, at the time, and in the circumstances in which it is made, false, misleading or deceptive about any material fact and that the person knows, or ought reasonably to know, is false, misleading or deceptive. There are similar provisions in the Consumer Protection Act, 68 of 2008, the Competition Act, 89 of 1998 and the Code of Advertising Practice administered by the Advertising Regulatory Board.


The South African market should treat developments in the international market and crackdowns by global regulators as a warning to make sure that any ESG-related statements issued by companies and participants in the financial services industry are substantiated and true.

Officers, directors and fund managers should focus on ensuring the accuracy of ESG-related disclosures and developing robust policies and procedures to evaluate ESG-related issues. The following recommendations should be taken into account, as they could act as risk-mitigation measures:

  • Ensuring that governance and oversight committees focused on ESG-related topics work closely with directors and officers so that management and operational personnel remain well-informed about how these topics impact corporate decision-making.
  • Financial institutions should: (i) make every attempt not to over-claim climate actions the company is taking towards net-zero (or other) commitments; and (ii) review ESG disclosures with marketing, scientific and legal teams to avoid publishing potentially misleading information. That would reduce the climate litigation risk from potential climate-washing claims.
  • While the courts are deciding the contours of private ESG litigation, market participants should be mindful that ESG remains an enforcement and rulemaking priority for the regulators.

Like all claims based on misrepresentation, the truth is the best defence. If a company can support concrete statements with concrete sustainability efforts and firm data, it is more likely to be able to neutralise and defend potential greenwashing claims.

1 The European Securities and Markets Authority, or ESMA, is planning to make tackling greenwashing one of its key priorities over the next three years, as it develops rules to oversee the fast-growing environmental, social and governance investment space. According to its new sustainable finance roadmap released on February 11 2022, the regulator will seek to give a clearer definition of greenwashing amid surging demand for ESG-related investment funds.

2 On 24 January 2022, the European Banking Authority announced new ESG disclosure requirements for EU banks, effective from 2023 and 2024. Lenders will have to disclose their exposure to carbon-intensive activities and assets at risk of impacts from climate change. They will also have to disclose their exposure to fossil fuel clients, financed carbon emissions and to what extent their financing activities align with net zero goals.

3 For example, the California Senate passed a bill on 26 January 2022 requiring corporates with more than USD1 billion in annual revenue doing business in California to disclose all scopes of their greenhouse gas emissions.

4 The Institute of Directors of Southern Africa provides a number of benchmark standards for companies to meet in their public filings and business practices. Offering an overview of how companies should perform can be beneficial for standardizing industries and making an economy more appealing to foreign investors.

5 In terms of the Financial Sector Regulation Act, 9 of 2017.

6 Civil Action No.3:16-cv-03111-K, in the Northern District of Texas Dallas Division, decided on 31 March 2022 http://climatecasechart.com/wp-content/uploads/sites/16/case-documents/2022/20220331_docket 316-cv-3111_order-1.pdf

7 (CBA) NSD864/2021. A decision was handed down on 11 November 2021.

8 Civil Action No. 22-cv-2405 https://www.sec.gov/news/press-release/2022-72

9 File No. 3-20867 https://www.sec.gov/litigation/admin/2022/ia-6032.pdf

10 https://www.responsible-investor.com/german-police-raid-deutsche-bank-and-dws-offices-over-greenwashing accusations/


These materials are provided for general information purposes only and do not constitute legal or other professional advice. While every effort is made to update the information regularly and to offer the most current, correct and accurate information, we accept no liability or responsibility whatsoever if any information is, for whatever reason, incorrect, inaccurate or dated. We accept no responsibility for any loss or damage, whether direct, indirect or consequential, which may arise from access to or reliance on the information contained herein.

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Webber Wentzel > News > A look to the future: Litigation risks faced by the financial sector in relation to ESG statements
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