INTRODUCTION

The climate crisis is no longer a far-off concern, but one we are currently experiencing with rising sea levels, extreme weather events, and biodiversity collapse. Governments, corporations, and international institutions are under increasing legal and moral duty to act to limit its effects. While earlier, the countries were the only subjects of international environmental law, currently corporations, particularly multinational enterprises are increasingly becoming recognized as actors causing and addressing climate change.

Climate litigation is an avenue to fill regulatory gaps. For example, while state obligations exist in agreements like the Paris Agreement (2015), corporations are increasingly the subjects of tort claims, human rights claims, and ESG lawsuits. This shows recognition that achieving climate objectives involves both state obligations as well as corporate accountability.

THE ESG OBLIGTIONS

HISTORY OF ESG

The Pax Fund’s introduction into the US market in 1971 was the starting point of ethical investing, as it purposefully eliminated investments associated to the Vietnam War, followed by the UK’s first ethical unit trust by Friends Provident in 1984.  The concept of sustainable development began to gain traction with the 1987 publication of the UN Brundtland Commission’s report ‘Our Common Future’, encouraging the need to balance environmental protection, social progress and economic growth. The ESG movement gained further ground in 2004, with the UN Global Compact introducing the term “ESG” in its “Who Cares Wins” report, and is widely viewed as the key beginning point of ESG. This was also followed in 2006, with the global launch of the Principles for Responsible Investment (PRI), providing investors with a robust framework to practically and proactively include ESG considerations in investment decisions. Simultaneously, green building certifications such as BREEAM, ENERGY STAR, and LEED began to motivate some of the key industries to integrate ESG concerns into their approaches to demonstrate how sustainability was both an ethical obligation and in the industries’ economic interests.

CONCEPT OF THE OBLIGATION

The concept of “ESG” respectively represents environmental issues, social responsibilities, and corporate governance factors. The environmental dimension entails how businesses manage waste, use renewable energy, pollute the atmosphere due to their operations, and respond to climate change problems. Under the environmental dimension, stakeholders raise concerns about how to address climate change, manage water, and treat garbage.

The social dimension addresses issues and duties relating to the organisation of social connections, policy, diversity, and politics. As proposed by ethical questions about the social dimension include how poverty can be eradicated or whether wages are being paid to employees within the standard rates.

The governance dimension focuses on the management of the business and the interactions between the board and other stakeholders like clients, shareholders, staff, and authorities. The governance aspect addresses various stakeholders’ concerns, such as efforts rewarded in the organisation or whether the organisation provides reports on its governance or encourages ethical standards.

ESG AND SUSTAINABLE DEVELOPMENT GOALS

The Sustainable Development Goals (SDGs) by the United Nations and the Environmental, Social, and Governance (ESG) criteria are two associated, yet distinct, concepts engaged in – and therefore affect – sustainable development. The SDGs are 17 umbrella goals established by the United Nations in 2015, which aim to address global challenges such as poverty, inequality, and climate change, which are primarily aimed to governments but call on the engagement of businesses and social organisations. The ESG criteria, in contrast, are specific criteria used by investors to assess a company’s sustainability performance with respect to resource management and environmental impact, labour relations and community engagement, and the management structure and ethics.

HOW ESG AND SDGs ARE INTERCONNECTED

The interconnectedness lies in the fact that SDGs provide the necessary global objectives and context for sustainability, while ESG frameworks effectively adjust these broad themes for implementation within specific industries and companies.Consequently, ESG serves as the functional framework for measuring, standardizing, and implementing specific business activities based on the overarching SDG targets the business aims to achieve. Aligning existing ESG considerations with SDGs also serves as a common communication framework at the macro level to articulate business decision-making processes and investment strategies.

In practical business application, the integration of SDGs and ESG criteria guides companies toward establishing specific, measurable sustainability goals. SDGs highlight key impact areas and provide a framework that complements and supports ESG reporting, which is now a fundamental research method for investors interested in sustainable development.

CORPORATE ACCOUNTABILITY IN CLIMATE LITIGATION

Corporate accountability in climate litigation is increasing more crucially, in recent times, with around 230 lawsuits aimed at companies and trade associations globally in 2024. Climate litigation against corporations involves ‘prospective’ cases, which target current and future emissions, and ‘retrospective’ cases, which seek to make companies responsible for past emissions, which caused serious climate changes. These lawsuits are brought by private claimants and state authorities, for example, asking a court to order companies to reduce their emissions and/or to hold a company liable for existing climate change impacts.

An area that is often common in litigation is referring to claims related to false and misleading corporate statements regarding climate mitigation, otherwise referred to as ‘climate washing’. Climate washing claims have expanded beyond the historically targeted Carbon Majors to include industries such as agriculture and the food and beverage supply chains. Also seeking corporate accountability is the targeting of directors and officers from their management of climate risks, often through derivative claims. For example, in ClientEarth v. Shell Board of Directors, an NGO brought a lawsuit in its capacity as a shareholder, or a type of derivative claim that continued investment in new fossil fuel projects was a breach of the directors’ duties to act in the best interests of the corporation according to the UK Companies Act 2006.

Legal challenges involve various obligations under contract and tort law, but they increasingly rely on human rights law. Generally, applicants argue corporations have a duty to reduce greenhouse gas emissions that cover Scope 1-3 emissions. In addition, there is a growing use of soft governance tools such as National Contact Points (NCPs), which are operating under the OECD Guidelines, to review company climate practices across the globe.

ROLE OF INTERNATIONAL INSTITUTIONS AND TREATIES

International institutions and treaties play a fundamental role in establishing and monitoring ESG standards across borders, ensuring improved corporate responsibility, investment practices, and proper sustainable outcomes. 

Setting Global Standards and Guidance

Treaties like the Paris Agreement define clear climate targets, reporting requirements, and transparency protocols, which operationalize the environmental (E) pillar of ESG for states and corporations worldwide. The OECD Guidelines for Multinational Enterprises act as leading soft law, promoting principles of responsible business conduct, supply chain due diligence, and disclosure on all three ESG dimensions.  

Promoting Due Diligence and Disclosure

International frameworks such as the UN SDGs, OECD due diligence standards, and sectorial reporting guides, help unify the ESG requirements, enhance quality and comparability of disclosures, and enhance due accountability for environmental and social risks.  

Driving Sustainable Investment and Finance

The OECD and UN work to align international investment agreements with ESG priorities, enabling policy space and safeguarding provisions that promote responsible investing. Institutions like the Principles for Responsible Investment (PRI) foster more global ESG integration among asset owners that tightens stewardship and engagement practices according to international norms.  

Monitoring, Compliance, and Grievance Mechanisms

Treaties establish uniform procedures for oversight and peer review, with accountability committees and mechanisms for state and corporate accountability. In fact, organizations like the OECD’s National Contact Points serve informally as non-judicial complaint forums, complementing ESG meet compliance and corporate remediation for businesses that are MNEs.

Advancing Sustainable Development Goals

The UN SDGs serve as an agenda that connects governments, investors, and businesses in pursuit of integrated ESG outcomes, guiding metrics and action across various jurisdictions.  

Capacity Building and Inclusive Governance

International agencies provide technical assistance, funding, and knowledge on a global scale to help nations and businesses respond to evolving ESG standards, in accordance with treaties and resulting multi-stakeholder engagements, but especially in response to escalating requests for equitable governance and just transition.

International agencies and treaties have considerable power and leverage over how and when businesses adopt, develop, and implement ESG standards and reporting through the provision of frameworks, monitoring, incentives, and support, to enable businesses and governments to catch up to global sustainability aspirations.

MAJOR INTERNATIONAL TREATIES SUPPORTING ESG

• The Paris Agreement (UNFCCC): Sets worldwide climate goals, emissions reduction targets, and transparency/accountability frameworks, forming the backbone of the “E” pillar in ESG for both nations and companies.  
• United Nations Sustainable Development Goals (SDGs): Describes 17 international global development goals closely aligned to ESG’s environmental, social and governance issues, with similar indicators to measure progress.
• Convention on Biological Diversity (CBD): Provides frameworks for biodiversity risk management, nature-related disclosure, and due diligence for corporations and states. 
• ILO Core Conventions: Provides frameworks for the global best practice of labour rights, the protection of workers, and the S in ESG, corporate responsibility.
• OECD Anti-Bribery Convention: This convention sets several global anti-corruption standards critical for governance (G pillar) in multinational operations.

CHALLENGES IN CLIMATE LITIGATION AND ESG ENFORCEMENT

Navigating Unfamiliar Territory in ESG Data Management and Disclosures

A number of companies find environmental disclosures to be a challenging and unfamiliar task. This means building specialized expertise and a skill set that introduces complexities around the environmental data being measured and reported (e.g., carbon emissions, water use, biodiversity, etc.). Creating reputable data around environments in different reporting and operational contexts can be overwhelming.

Establishing Data Trustworthiness and Accessibility

Developing a reliable and verifiable ESG (Environmental, Social, and Governance) data infrastructure is essential for all organizations, but Companies continue to struggle with data collection, validation and reporting. To be able to rely on ESG reporting, organizations must be able to stand behind the data being reported and trust that stakeholders validate the reliability of the data being reported. Importance is placed in being able to use the actual number(s) reported instead of flexible language that establishes an average.

Addressing Green washing Concerns

Green washing the deceptive representation of environmental efforts—presents a considerable challenge. As ever-increasing scrutiny has been brought to the corporate world, firms need to ensure that they actually reflect their stated sustainability efforts within their ESG disclosures to avoid misrepresentation and build trust with their stakeholders.

Navigating Evolving Regulatory Landscape

ESG reporting regulations are evolving every day, as a new legislation, guidelines, and reporting requirements are on a global scale. It is particularly difficult for companies with a presence in multiple jurisdictions to keep up with the pace of regulations and what they mean for reporting obligations.

Balancing Stakeholder Expectations

It is difficult for companies to align with the different expectations of different stakeholder groups, which might include investors, customers, employees and communities. Because of these varying priorities among different stakeholder groups regarding sustainability matters, it becomes difficult to effectively prioritize initiatives and allocate resources. Regardless of these challenges, it is important to follow the ESG standards and disclosure “framework” to demonstrate commitment to sustainability and maintain relevance with investors.

WAY FORWARD: STRENGTHENING CORPORATE CLIMATE ACCOUNTABILITY

In order to strengthen accountability for climate change, it is expected that corporations will have science-based, verifiable short- and medium-tern targets, public reports with specific and full building climate data, specifically full Scope 1, 2 and 3 emissions, industry assurance from independent third parties to support their claims and plans. Governance should require climate risk oversight at the board level, climate assessment recommendations for boards and executives, and examination of a compensation component to climate performance. Greenwashing measures should concentrate on specific public claims, evidence-based corporate actions and examine all offsets. Corporations should respect and meaningfully engage with supply chains and financial investors, work towards global, harmonized global standards, and a public engagement opportunity in the public reporting process. Accountability needs to mean a thoughtful commitment to a clear and measurable action towards climate protection goals and compliance.

CONCLUSION

There is no denying that climate litigation and the emergence of ESG obligations represent a definitive shift in understanding corporate accountability in the age of climate change. Corporations, which once occupied a marginal space in environmental law, are now key players with policies and practices that have direct implications for global sustainability. More and more, ESG factors are entering into governance framework, in regulatory contexts and investors’ expectations. This indicates that attention to the environment is now a component of corporate legitimacy, rather than just a goodwill aspect of corporate legitimacy.

Similarly, the evolution of international environmental law reflects the concept of corporate accountability to one in which private actors will share some responsibility with states to respond to climate risks. Enforcement and jurisdiction is not going away, but the increasing call for transparency, accountability, and sustainable practice all seem to signal a direction of travel – businesses are to think climate in their decision making ex ante. Climate governance and corporate governance are ultimately converging, again highlighting that long-term success is now intrinsically linked with and a result of, making environmental responsibility fundamental to a sustainable global order.

About Author

Nitya Ramachandran is a law student at Government Law College, Coimbatore, affiliated to Tamil Nadu Dr. Ambedkar Law University. With a keen interest in Corporate Law, Contract Law, and Intellectual Property Rights (IPR), Nitya aspires to contribute to contemporary legal disclosure and practice by engaging with emerging issues in corporate governance, commercial transactions, and the protection of intellectual creations.

REFERENCES

• https://www.sciencedirect.com/science/article/pii/S2666791624000253.
• https://glorew.com/articles/17-sustainable-development-goals-united-nations/?gad_source=1&gad_campaignid=11802760236&gbraid=0AAAAABuL4GDAABAmbL62V5vh9ngnrqzq_&gclid=Cj0KCQjw0Y3HBhCxARIsAN7931UClipX-lOHtI91Pyss3L8lbFaypUGCH8WZ_h_bpPs3W9N-JMAN3BIaAi2KEALw_wcB.
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