ESG claims: UK parent company liability and legal risks

The courts in England & Wales (E&W) are increasingly holding UK parent companies accountable for the actions or omissions of their foreign subsidiaries and suppliers. Cases have included claims for environmental damage, use of child labour in the supply chain, poor working conditions, and human rights violations.

The claimants in these actions are often based overseas but believe their claims should be heard in England & Wales (E&W) as they relate to alleged harm caused by decisions and policies made centrally by a UK parent company and/or where the UK parent company has exercised significant control and/or oversight of the operations of the foreign subsidiary or the actions of its foreign supplier. They argue that a duty of care can be established and there is a serious issue to be tried in E&W.

The UK parent company, on the other hand, will often try to dismiss these claims at a preliminary stage by arguing that courts in E&W lack jurisdiction to hear the dispute. However, this argument is not always successful. For example, in Limbu v Dyson Technology Ltd [2024] EWCA Civ 1564, the Court of Appeal agreed with the claimant migrant workers that the courts in E&W have jurisdiction to hear the claim which involves allegations of forced labour and exploitative and abusive working and living conditions by a foreign supplier engaged by three companies in the Dyson group.

Another key factor in deciding that E&W is the appropriate forum can be the imbalance between the claimants and the well-resourced and commercially experienced UK parent company. In the Limbu case, the court noted that the claimants would face significant challenges in funding their case in Malaysia and that they would have better access to legal representation in England.

What this means in practice

• It is clear following the recent decision in Limbu and the Supreme Court decisions in Okapi v Royal Dutch Shell plc [2021] UKSC 3 and Vedanta Resources Plc v Lungowe [2019] UKSC 20 that non-UK claimants may be able to bring claims against UK parent companies in the courts of E&W for the overseas acts of foreign subsidiaries and suppliers.

• To establish a duty of care, claimants must show that the UK parent company exercised a degree of control over the foreign subsidiary or supplier. The court will consider how much the parent company managed or shared management with the subsidiary or supplier of the relevant activity and whether the corporate structure allowed for delegation of authority.

• Review your organisational structure and ensure that there is clarity in the delegation of authority and control between your UK parent company and any foreign subsidiaries or suppliers. Ensure that clear guidelines and standards are in place and that these are regularly reviewed and updated to address any risks that could lead to a potential claim.

• Any failure to mitigate risks by a UK parent company could result in high-profile litigation, possible media coverage and damage to your reputation and the wider group of companies as well as financial harm. Such allegations can severely damage a company's reputation and brand image, especially if they are not addressed quickly, transparently or effectively.

• There is increasing scrutiny by investors and the general public of a company’s ESG goals and obligations. Any failure to meet those obligations could lead to a withdrawal of investor support or could potentially lead to a consumer backlash.

Mitigating risks

• Evaluate your business’s exposure to this type of claim including your oversight and control over foreign subsidiaries within your supply chains. Conduct regular audits and risk assessments and ensure that suppliers comply with relevant legislation and ethical standards. Make sure clear documentation is in place and written and oral communications are clear. Keep detailed records.

• Conduct due diligence and take pre-emptive steps so that ESG related issues are respected and protected. Establish robust policies and procedures that are adhered to. Where issues are identified, deal with them head on - take remedial action immediately. Where necessary, reassess your risk management strategies.

• Remember that there is no single source of UK law and regulation on ESG. The legal and regulatory landscape is fragmented. Keep on top of legislation and regulation to fully understand your duties both here in the UK and indeed in any other jurisdiction(s) that you may operate.

• Ensure public statements about your ESG obligations and commitments are checked for accuracy and any statements are verified.

• Develop training programs for the Board, key senior personnel and employees at all levels to ensure awareness of the company's ESG obligations and the importance of adhering to policies and standards.

Our Disputes Outlook 2025 covers this issue and other litigation trends, driven by economic, environmental, technological, and political developments.

Co-author: Shelley Bishop, Legal Director - Knowledge. 

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2025. Specific advice should be sought for specific cases. For more information see our terms and conditions.