ESG: Are parent companies liable for their subsidiaries' impact?
ESG, which stands for Environment Social and Governance, is a phrase never too far from the headlines, in particular in respect of corporate obligations.
ESG factors can be used to analyse a business’s impact on society from a sustainability and ethical perspective.
Whatever sector a business operates in, ESG factors are a very real consideration for any business, and it is becoming increasingly important for parent companies to be aware of the practices of their subsidiary companies (including those subsidiaries which operate overseas) as the recent situation regarding the Fundao Dam Class action has shown.
In 2015 the Fundo Dam collapsed in Brazil, the country’s worst ever environmental disaster.
On 5 November 2015, the dam burst sending millions of cubic metres of toxic waste from mining activity, into surrounding areas over 400 miles away and into the Atlantic ocean. This waste destroyed everything in its path whether by destruction or contamination and ruined lives and livelihoods in the process.
19 people were killed as a result of the disaster, but hundreds were left homeless as a consequence.
As a result of the disaster, more than 200,000 people are bringing a claim worth in excess of £5bn which puts it amongst the largest group claims in English legal history.
So how does a claim caused by a Brazilian dam failing end up in the English courts?
The Fundo Dam was owned by Samarco Minerao SA, a Brazilian joint venture between Vale SA and BHP Brasil Ltda. BHP Brasil Ltda was an Anglo – Australia venture owned by BHP Group (UK) Limited (based in England) and BHP Australia (based in Australia).
Initially a number of claims commenced in Brazil, however claimants were able to argue that they would not receive sufficient or efficient compensation due to the process required by that jurisdiction.
A parent company liability claim therefore was initiated against BHP Brasil Ltda as a breach of its duty of care.
Jurisdiction in England was established against both BHP companies as a result of the Regulation (EU) No 1215/2012 ("Brussels Recast") in respect of BHP Group (UK) Limited and because BHP Australia carried on business in offices located in England.
In January 2021, the claim in England was struck out by the High Court after a challenge by BHP claiming an abuse of process given that compensation claims were already under way in the Brasilian courts.
An appeal against that decision was denied in March 2021; however, a further application was made and in June 2021, the Court of Appeal granted the claim to proceed in the English courts having ruled that the claims under this jurisdiction were not an abuse of process.
The Court of Appeal’s ruling reminds us of the benefits to international claimants using the English courts given their case management powers particularly where claims are complex in their issues to be decided.
The judgment clearly defines environmental claims as such claims and also gives hope to claimants who suffer loss and damage as a result of environmental disasters.
Further the judgment states this claim to be of “exceptional importance, both because of the number of claimants and the importance to them of obtaining such compensation as they may prove to be entitled to.”
Katie Byrne, Commercial Dispute Resolution Partner, comments:
“This judgment is important on a number of levels, not least in focusing the minds of parent companies of their liability in relation to the actions of their subsidiaries, particularly in the current climate crisis.
"It is important to remember that jurisdiction can be challenged, and in many situations, it will be appropriate, proportionate and in the best interests of the claimants to establish whether it is possible to bring such claims within the jurisdiction of England and Wales where the judiciary will be receptive to analysing whether this is the appropriate forum for the claim to be heard.”
More information on ESG can be found on the Irwin Mitchell webpage.