Corporate climate litigation and the ESG agenda

Corporate Climate Litigation - Imagem (The Telegraph)

Beyond State Accountability, the Climate Litigation Movement Begins to Encompass Corporate Duties and to Align with ESG Standards.

In Brazil and worldwide, debates surrounding the climate litigation movement are intensifying. For the United Nations, the term refers to an important instrument in combating climate change, materialized through the use of legal strategies and tools—whether judicial or extrajudicial—aimed at enforcing climate-related obligations.

The agenda has seen significant progress. In March 2023, the UN General Assembly approved a historic resolution. The text requests the International Court of Justice (ICJ) to issue an opinion on whether governments have a legal obligation to protect individuals from global warming and, further, whether the failure to do so may give rise to legal consequences and liabilities.

Unlike climate litigation directed at governments and public entities—where landmark cases and legal foundations are relatively advanced—so-called corporate climate litigation has emerged as the central challenge in the pursuit of mitigation, adaptation, and reparation for damages and violations of climate-related policies and regulations.

This shift is largely attributable to the growing number of lawsuits and claims brought against corporations and private actors, prompting specialists across the globe to analyze the issue in greater depth.

One notable example is the action filed by the NGO ClientEarth before the British courts, involving members of Shell’s Board of Directors and their duties of diligence regarding climate risks.

Another case contributing momentum is Lliuya v. RWE (Rhenish-Westphalian Power Plant). The lawsuit, filed in Germany, addresses environmental civil liability for pollutant emissions and the melting of glaciers in the city of Huaraz, Peru.

In addition, other cases highlight the relationship between climate litigation and the ESG agenda, as documented by the Climate Change Litigation Databases of the Sabin Center for Climate Change Law at Columbia University. This database includes lawsuits and representations—both judicial and extrajudicial—filed before the OECD, which bear implications for regulatory frameworks and corporate governance.

One example classified as corporate climate litigation by the Sabin Center is the case brought by the Polish NGO Development YES – Open-Pit Mines NO. The initiative involved a complaint submitted to Poland’s OECD National Contact Point against Group PZU, questioning its environmental, human rights, and due diligence practices. These practices, although mandated by the OECD Guidelines for Multinational Enterprises, were allegedly not observed by the company. The case particularly emphasized the management and disclosure of information concerning climate-related risks and impacts.

The proceeding culminated in a 2019 agreement between the NGO and Group PZU, under OECD auspices, whereby the company committed to aligning with OECD Guidelines and to implementing recognized practices, such as the Global

Reporting Initiative (GRI) framework for ESG-related reporting, covering greenhouse gas emissions and climate risk management.

In Brazil, there is also a National Contact Point (NCP) tasked with implementing the OECD Guidelines for Multinational Enterprises. Established in 2003 and updated by Federal Decree 11.105/2022, NCP Brazil represents a relevant institutional channel for such initiatives.

As the number of cases increases, corporate climate litigation has become more complex. The legal foundations of these disputes are often tied to alleged violations or omissions concerning corporate duties, closely aligned with the principles set forth in today’s ESG agenda (Environmental, Social, and Corporate Governance).

From the Sabin Center’s repository, one also finds initiatives that challenge misleading disclosures or greenwashing practices, particularly those involving Net Zero commitments or carbon-neutral claims lacking standardized verification or substantive evidence.

Other demands are associated with disclosure duties regarding environmental, human rights, and climate-related risks. This encompasses practices of transparency, accountability, and reporting, within the scope of fiduciary and corporate due diligence obligations.

This intersection between the ESG agenda and corporate duties will, in all likelihood, exert decisive influence on the trajectory of corporate climate litigation in the coming years.

On this matter, it is worth noting that in late 2023, the Office of the United Nations High Commissioner for Human Rights (OHCHR) conducted a global consultation, inviting contributions on corporate responsibility in the context of human rights and climate change. Specifically, the inquiry examined whether ESG standards could meaningfully support corporate compliance with human rights obligations and the targets set by the Paris Agreement.

Despite the importance of these cases and early developments in corporate climate litigation, the binding force of such claims remains subject to controversy. Much of this uncertainty arises from ongoing debates over the application of soft law or hard law, and the emergence of a hybrid legal framework spanning commercial, constitutional-administrative, and environmental law, alongside international standards.

This gives rise to the central challenge of clearly identifying the normative foundation upon which a potential violation or omission should be based, or, where applicable, determining the proper framework for attributing corporate responsibility in climate matters. The task is far from straightforward. The absence of a clear normative basis—particularly regarding the soft law vs. hard law debate—tends to hinder the advancement and resolution of corporate climate litigation.

Furthermore, there are cases where ESG standards are not integrated into the claims, whether judicial or extrajudicial. In such situations, courts and forums often fail to recognize corporate duties or hold companies accountable for omissions or damages related to climate change. This underscores the strategic importance of incorporating ESG standards into corporate climate litigation, as they can greatly assist in framing the corporate role in addressing climate challenges.

Accordingly, it becomes clear that national governments and the international community must move toward structured and specific regulation of corporate climate duties for companies and private actors—particularly for states that are signatories to the OECD Guidelines and the Paris Agreement, such as Brazil. The normative gaps, both domestic and international, also prompt a reconsideration of commercial law frameworks, a crucial step toward advancing this agenda.

In Brazil, the financial sector illustrates these developments. Resolutions issued by the Central Bank highlight corporate duties aligned with the ESG agenda, notably the fiduciary duties established by the Social, Environmental, and Climate

Responsibility Policy (PRSAC), mandated under Resolution No. 4.945/2021. Another notable example is the lawsuit filed by Conectas Human Rights against BNDESPar, questioning the subsidiary’s failure to adopt investment protocols for companies with significant greenhouse gas emissions.

Attention should also be given to Law No. 6.404/1976, the Brazilian Corporations Act, which expressly addresses the “duty-power” of controlling shareholders concerning the social function of production means.

Articles 116 (sole paragraph) and 154 of the Corporations Act establish that controlling shareholders must exercise their power to ensure the company achieves its purpose and fulfills its “social function,” with responsibilities to the communities in which they operate. In doing so, controllers must not only respect the company’s interests but also meet public interest requirements and the broader social function of the enterprise.

The notion of social function reflects the fundamental duty of private property owners to assign an appropriate social purpose to their assets. In corporate terms, it is linked to the economic power inherent in control.

This rule applies equally to managers, who, as administrators, exercise control over assets entrusted to them. While economic power is the broader category, the power of control is one of its specific forms. Controllers, therefore, effectively become stewards of economic activity, bearing responsibilities not only toward the enterprise but also toward society.

Thus, to the same extent that the law recognizes and protects corporate economic power, it also ascribes a social purpose to it. In other words, private property—including production assets, such as companies—must serve a socially appropriate function within the national economic framework.

This function is enshrined in Brazil’s 1988 Constitution, which, following previous constitutional traditions, establishes an “economic order.” This order expresses the set of interests and priorities that shape the nation’s economic and political life. It is a political design governing the national economic structure.

By setting forth these priorities, the 1988 Constitution not only legitimizes economic power (of which corporate control is a part) but also imposes a social purpose upon it, electing a specific model of capitalism and market. The core of this framework lies in the systematic reading of Articles 3 and 170. These provisions establish “goal-oriented norms” that structure the economic order chosen by the Constitution. They articulate a national project aimed at ensuring a “dignified existence” for all, with markets and economic power serving as instruments toward that end.

By incorporating environmental protection into this economic order (Article 170, VI), the Constitution opens the door for the climate emergency and its repercussions to be treated as foundational elements of this national development project.

Consequently, any exercise of economic power that disregards environmental concerns or the social function of production loses legitimacy. This makes it clear that the social function of companies, as codified in the Corporations Act, operates as a form of duty of care against climate risks and harms. Among corporate duties, there are, therefore, inherent obligations to prevent or remedy actual or potential climate-related damage caused by companies.

From this perspective, ESG standards emerge as practical tools to realize the social function of corporations. This function represents a “duty-power” of controllers, enforceable under the legal order. Ultimately, ESG-related duties and guidelines, grounded in both constitutional and statutory recognition of the social function, serve as instruments that legitimize corporate control in the face of contemporary climate litigation challenges.

Accordingly, the ESG agenda plays a pivotal role in shaping and even determining the field of discussion regarding corporate legal duties tied to climate change. It also reinforces the organic character of commercial law, ensuring that the notions of corporate control and enterprise serve as the foundation of the current movement in corporate climate litigation.

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Originally published on LinkedIn

Authors: Bruno Teixeira Peixoto and José Augusto Medeiros