One of the biggest drivers of financial disputes this year could be ESG-related issues, according to an industry expert.
Daniel Hemming, partner at law firm RPC, said that 2023 could be the year in which ESG claims against financial institutions hit the mainstream, including issues around the mis-selling of products in terms of their green credentials.
Increasing ESG disclosure requirements means any gaps between what financial institutions say on ESG and what they do could lead to more litigation against financial institutions.
This is particularly true if they overstate the ESG credentials of their products.
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“Most banks are very focussed on their potential exposure on ESG issues. There have been some claims already, mainly brought by NGOs and activists trying to get disclosure about banks’ activities,” Hemming said.
“But there could well be mis-selling claims against banks and fund managers, for example if products turn out not to have the advertised ESG credentials and investors suffer losses,” he added.
Also, further hikes in interest rates next year could also lead to a range of financial disputes, Hemming stressed.
The last time there was a significant move in interest rates was the financial crash in 2008. This was a major cause of financial disputes and affected derivatives contracts in particular.
Hemming noted that interest rate derivative contracts frequently give rise to disputes between the parties that enter into them.
They can often be profitable for banks, but leave them open to disputes when interest rates move sharply and leave customers facing substantial losses.