Lockton has highlighted increasing corporate governance risks linked to climate activism and associated litigation.
Directors and officers in industries involved in environmental and social justice issues are facing higher levels of legal exposure, even when their connection is indirect.
These evolving risks present significant financial and reputational challenges for organisations, including non-governmental organisations (NGOs) and not-for-profits (NFPs), which may find themselves unexpectedly drawn into costly legal battles.
Lockton said a recent Federal Court ruling in Australia illustrates these emerging risks.
The court ruled in favour of a major energy company, allowing it to proceed with a gas pipeline project despite opposition from an Indigenous community.
In an uncommon legal strategy, the energy company is now attempting to recover its legal expenses from environmental organisations that supported the Indigenous plaintiffs rather than from the plaintiffs themselves.
The company has successfully subpoenaed three environmental groups, claiming their support for the lawsuit was politically or ideologically driven.
Interestingly, none of the environmental groups were direct participants in the lawsuit. They had not been named as plaintiffs or called as witnesses. Instead, their connection to the case was largely through public support, expressed via social media and reports.
Lockton pointed out that this case underscores the growing risk for directors and officers of NGOs and NFPs. Simply offering public or moral support for environmental causes – through social media posts, for example – could now trigger legal consequences.
From an insurance perspective, this development brings into focus the importance of ensuring adequate coverage for directors and officers.
Lockton said insurance policies like management liability, directors and officers insurance, professional indemnity, and media liability insurance are becoming more critical in protecting against these types of emerging risks. Defence costs in particular are often significant and, in many cases, exceed settlement amounts.
The uncertainty surrounding new forms of legal liability related to climate activism adds another layer of complexity.
Lockton emphasised that the evolving nature of climate-related litigation presents increasing challenges for directors and officers.
For example, research from the Grantham Research Institute on Climate Change and the Environment found that 230 new climate-related lawsuits were filed globally in 2023. The research also reported a rise in greenwashing cases, with more than 70% resulting in successful outcomes, and a marked increase in anti-environmental, social, and governance (ESG) lawsuits, particularly in the US.
As the situation in Australia develops, Lockton suggests that legal risks for directors and officers could grow, especially in industries tied to natural resources or environmental litigation.
The recent energy company case may set a precedent, encouraging other companies to seek legal cost recovery from NGOs and NFPs that publicly support environmental causes.
To mitigate these growing risks, Lockton recommends that directors and officers of NGOs and NFPs carefully assess their insurance coverage and risk management strategies. Organisations involved in public interest litigation or advocacy should ensure they maintain comprehensive management liability, D&O, and professional indemnity policies.
In addition, Lockton advises that organisations conduct thorough reviews of their insurance policies alongside directors’ indemnity agreements to detect any gaps in coverage.
A common misconception is that directors of NGOs and NFPs face lower legal standards than those of larger corporations. However, Lockton clarified that all directors are held to the same legal responsibilities under Australia’s Corporations Law, meaning they could face unlimited personal liability in the event of litigation.
In response to the rising risks associated with ESG-related litigation, some insurers are introducing products specifically tailored to these exposures. New options include protections for directors involved in shareholder activism and customized D&O policies for NGOs and NFPs.
Lockton advises organisations to engage with brokers who specialise in ESG-related risks to ensure their insurance programs are up to date and aligned with the evolving legal landscape.
