Despite signs of political hesitation around strengthening environmental, social and governance (ESG) rules, companies are facing growing legal challenges related to ESG obligations. From greenwashing allegations to climate-related lawsuits, there’s a clear rise in scrutiny by regulators, investors, and civil society, raising the question: Is a wave of ESG litigation around the corner?

Political Backpedaling but Persistent Legal Risks

Recent developments suggest a slowdown in some ESG regulatory initiatives. For instance, the European Commission is considering withdrawing the EU Green Claims Directive, which aimed to crack down on misleading environmental claims. Implementation deadlines for the Corporate Sustainability Due Diligence Directive (CSDDD) have also been postponed. In Germany, reporting requirements under the Supply Chain Due Diligence Act are expected to be scaled back.

Across the Atlantic, the U.S. is seeing similar trends. A few years ago, Texas passed a law preventing state agencies from working with financial firms that boycott the fossil fuel industry. Even California, known for its progressive environmental stance, has delayed its climate reporting rules. Earlier this year, the U.S. also withdrew from the Paris Agreement once again, reinforcing the perception of a regulatory slowdown.

Yet, legal experts caution against seeing these developments as the end of ESG momentum. Litigation risks are still mounting.

Read More: How ESG Backlash Is Driving Climate Litigation Battles

Growing Legal Action Around ESG

Although Germany has yet to experience a surge in ESG litigation, various legal battles hint at what’s to come. In competition law, companies face increasing challenges over “green claims” like “climate neutral” or “CO₂ positive,” with lawsuits often succeeding in court. A growing body of case law tracks these claims, shaping future enforcement.

In investor protection and capital markets, the stakes are rising. A recent €25 million fine imposed on an asset manager for misleading ESG marketing is now the subject of a civil greenwashing lawsuit. German commercial and securities laws already require ESG-related disclosures, and failing to comply may trigger liability under market abuse and insider information provisions.

Even civil law is becoming a battleground. In one high-profile case, a Peruvian farmer sued German utility RWE, claiming its emissions posed a direct threat to his property. Legal claims invoking Section 823(2) and Section 826 of the German Civil Code (BGB) for intentional misrepresentation or damage are being tested. These cases mirror the structure of past “dieselgate” lawsuits and could reshape consumer protection law around ESG disclosures.

Strategic litigation by environmental groups and individuals is also on the rise, aiming to challenge corporate strategies and force accountability. These lawsuits, even when unsuccessful, often attract significant media attention and harm a company’s reputation.

Also Read: Climate Lawsuits Rising in Nearly 60 Countries, Says Report

Proactive ESG Compliance is Key

To avoid potential lawsuits and mitigate reputational damage, companies must treat ESG compliance as more than a checkbox exercise. This includes:

• Monitoring applicable ESG regulations and staying ahead of legal changes.
• Regularly reviewing ESG reporting and marketing claims.
• Ensuring product-related environmental disclosures are accurate and substantiated.
• Embedding ESG goals into core business strategy and supply chain due diligence.

While the full wave of ESG litigation has yet to crash, warning signs are everywhere. Disputes are intensifying over causality, damages, and disclosure standards, and future rulings will likely define the limits of corporate liability.

The introduction of new legal instruments like the Consumer Rights Enforcement Act could make collective legal action more feasible, particularly in ESG-related disputes. Some legal experts believe this could accelerate litigation, even if early cases haven’t been especially successful.

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Source: TaylorWessing