As I noted in recent posts (for example, here), an anti-ESG backlash has been forming. The backlash has already taken a variety of forms, including anti-ESG legislation and anti-ESG litigation. Now, in what one media source called a “new front in a campaign against companies” related to ESG activities, a group of five Republican senators has sent letters to 51 large U.S. law firms warning the firms that the Senators plan to use their congressional oversight powers “to scrutinize the institutionalized antitrust violations being committed in the name of ESG.” The Senators’ letter campaign is described in a November 4, 2022 Reuters article (here). The Senators’ November 3, 2022 letters to the law firms can be found here.
The letters were sent to the law firms by the following five Republican Senators: Tom Cotton, Charles E. Grassley, Marco Rubio, Michael S. Lee, and Marsh Blackmun. The addresses of the letters include some of the largest and most prominent law firms in the U.S., including Kirkland & Ellis, Latham & Watkins, Morgan, Lewis & Bockius; Paul Hastings, Paul Weiss, Skadden Arps, and Winston & Strawn. The letters were addressed to top partners and ESG practice leaders at the firms.
In the letters, the five Senators referred to what they called a “collusive effort to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad.” The letters cite supposed testimony of FTC Commissioner Lina Khan and Assistant Attorney General Jonathan Kanter as having said that there is no ESG exemption to antitrust laws and as having said that when firms with substantial power use that power to achieve anticompetitive ends, “that should be actionable under antitrust laws.”
The letters go on to say that the “ESG movement attempts to weaponize corporations to reshape society in ways Americans would never endorse at the ballot box.” The letter warns that over “the coming months and years” Congress will “increasingly use its over oversight powers to scrutinize the institutionalized antitrust violations being committed in the name of ESG,” and will refer those alleged violations to the federal antitrust authorities.”
The letter warns further that “your firm has a duty to fully inform clients of the risks the incur by participating in climate cartels and other ill-advised ESG schemes.” The letter ends, ominously, by saying that “to the extent that your firm continues to advise clients regarding participation in ESG initiatives, both you and those clients should take care to preserve relevant documents in anticipation of those investigations.”
These letters, while essentially a mere political gesture, nevertheless do represent one more sign showing how politicized and divisive the ESG is increasingly becoming. The anti-ESG backlash may be gaining momentum as certain political players see the issue as one out of which they can gain politically. Companies, under pressure from many constituencies to demonstrate their ESG credentials, may increasingly find themselves caught in the crossfire as participants in the political process seek to score points with certain audiences and to advance their political agendas.
I also have to say that the Senators’ letter campaign represents one more set of facts underscoring how multi-faceted the ESG issue is becoming. Up to this point, I think the basic premise is that companies that are “good” on ESG represent better D&O risks and therefore should qualify for (usually unspecified) preferred treatment. However, the actual circumstances increasingly show that reality is much more complicated than reflected in this premise. As I have pointed out (most recently here), companies that are active on ESG issues increasingly are the ones that are attracting litigation, more so than the ESG laggards. And as the Senators’ letters to the big corporate law firm suggests, the ESG active companies could find themselves caught in the growing political crossfire on ESG issues.
I will say it is an interesting approach for the Senators to take, to try to leverage the big corporate law firms to put pressure on the law firms’ corporate clients. I suspect the law firms will continue to advise their clients just as they have been doing, consistently with the ethical and professional obligations. Whether the letters’ antitrust threats have any substance may have to await another day, until threats materialize in actions, which can then be assessed.
The Senators’ letter do suggest the kinds of spectacles we may be in for as a result of the outcome of the mid-term elections. In the newly constituted Congress, these kinds of political gestures may be more quickly translated into political actions.
I doubt these Senators are thinking in these terms, but their letters are forming part of the historical record. We can only imagine what our grandchildren will think of these Senators’ positions and actions on these issues.
The Above the Law Blog has an interesting post about the Senators’ letter, here.
Special thanks to a loyal reader for sending me a link to the Reuters article.