Turning green: ESG litigation risks for fund sponsors

"Portfolio companies are also increasingly likely to come into the firing line on environmental issues"

The global development in ESG regulation and practice poses myriad litigation risks for fund sponsors, including at least two relating to their investment portfolio.

First, regulators or investors may challenge whether an investment satisfies the ESG mandate; and second, actions by a portfolio company can extend up to the fund or its affiliates. Both risks exist with any investee company but recent developments in ESG have thrown them into sharp focus. The EU's new Sustainable Finance Disclosure Regulation (SFDR) requires fund managers based in, or marketing into, the EU (such as through national private placement regimes) to categorise their products according to their ESG classification, and disclose, at a firm and product level, how ESG is integra...