The hot button topic in both the investing world and the D&O insurance world these days is “ESG.” Setting aside the fundamental problem that nobody actually knows what ESG is, there is the inextricably related problem that the D&O claims risk related to ESG is fundamentally misunderstood. The current basic premise in the D&O insurance world is that companies that are “good” on ESG (whatever that means) represent better D&O insurance risks. Yet, as I have documented in numerous posts on this site (most recently here), it is not the ESG laggards that are getting hit with D&O claims; the claims are in fact being filed against companies that are proactive on ESG issues.


The latest example of this phenomenon is the securities class action lawsuit filed late last week against wood products company Enviva, which promotes itself as growth-oriented environmental, social, and governance (ESG) company. The lawsuit follows publication of a short seller report that, among other things, characterized the company as “the latest ESG farce” engaged in “textbook greenwashing.” A copy of the November 3, 2022 complaint against Enviva can be found here.



Enviva develops, constructs, and operates wood pellet production plants. The company’s wood products are used as a substitute for coal in power generation. The company presents itself as a “growth-oriented” environmental, social, and governance (ESG) company with a “platform to generate stable and growing cash flows.”


On October 12, 2022 short-seller Blue Orca Capital published a report about Enviva. The highly critical report makes a number of allegations against Enviva. Among other things, the report asserts that “Enviva claims to be a pure play ESG company with a healthy, self-funded dividend and cash flows to provide a platform for future growth. We think this is nonsense on all counts.” The report claims that “Enviva is a dangerously levered serial capital raiser whose deteriorating cash conversion and unprofitability will drain it of cash next year.”


The report goes on to state that the short seller believes Enviva is “flagrantly greenwashing” and is “the latest ESG farce” and “a product of deranged European climate subsidies which incentivize the destruction of American forests so that European power companies can check a bureaucratic box.”  In what the report calls “an Orwellian twist,” burning wood of the type involved in Enviva’s products “emits more CO2 than any major energy source (including coal),” all, the report claims, “in the name of climate activism.” The report asserts that “we think any legitimate ESG investor or allocator should be embarrassed to own this stock.”


The Lawsuit

On November 3, 2022, a plaintiff shareholder filed a securities class action lawsuit in the District of Maryland against Enviva and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased Enviva securities between February 21, 2019 and October 11, 2022.


The complaint alleges that the defendants made false and misleading statements regarding the Company’s business, operations, and compliance policies. Specifically, the complaint alleges that the defendants made false and misleading statements and/or failed to disclose that: “(i) Enviva had misrepresented the environmental sustainability of its wood pellet production and procurement; (ii) Enviva had similarly overstated the true measure of cash flow generated by the Company’s platform; (iii) accordingly, Enviva had misrepresented its business model and the Company’s ability to achieve it’s the level of growth that Defendants had represented to investors; and (iv) as a result, the Company’s public statements were materially false and misleading at all relevant times.”


The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the plaintiff class.



The basic allegation in this complaint is that this company engaged in so-called “greenwashing”; indeed, the complaint expressly quotes the language from the short seller’s report that the company is “flagrantly greenwashing.”


This complaint is not the first to raise securities fraud allegations based on supposed greenwashing. There have been prior securities complaints based on similar allegations, even if not expressly referred to as greenwashing. For example, as discussed here, in May 21, 2021, a plaintiff shareholder filed a securities class action lawsuit against biodegradable products company Danimer Scientific alleging, among other things, that the company’s claims about its product’s biodegradability  were “exaggerated and misleading.”


Similarly, the SEC’s ESG Task Force recently has filed enforcement actions relating to, for example, a company’s assertions in its Sustainability statement about its mining dam safety (discussed here) and an investment fund’s claims about its “green” investing options (discussed here).


All of these examples (and many others I have previously documented on this site) underscore a point I have made many times, which is that it is not the ESG laggards that are attracting D&O claims. The companies getting hit with ESG-related claims are in fact companies that have taken the ESG initiative. All of this is inconsistent with the D&O insurance industry’s current operating premise about ESG, which is that companies that are supposedly “good” on ESG are better D&O risks and therefore entitled to some (usually unspecified) underwriting advantage or break. All of the available data suggests that this premise is at a minimum incomplete and arguably misguided. The fact is that ESG as a D&O risk is a much more nuanced and multilayered issue than the D&O marketplace have been assuming.


I find this lawsuit interesting to contemplate in the context of a financial marketplace environment where companies are under pressure to demonstrate their ESG credentials. Activist investors, institutional investors, and, yes, D&O insurance underwriters, are creating an environment where companies are motivated to wrap themselves in the ESG flag. The danger is that companies eager to demonstrate their ESG virtues may be vulnerable to allegations of exaggeration, or execution error, or failure to follow through. All of these concerns may, as this case show, translate into D&O claims risk. For that reason, as I have said, even if the ESG laggards may be vulnerable to D&O claims, the companies taking the ESG initiative also may face D&O claims risk, perhaps even more so than the ESG laggards.


Regular readers may recall one of my posts from earlier this year in which I quoted statements by Chubb CEO Evan Greenberg to the effect that insurers that are stating bold climate change and greenhouse gas emissions goals could face the risk of shareholder litigation, particularly with respect to insurers’ statements about reaching a net-zero carbon footprint. He said the necessary tools to measure this item “don’t exist today,” and he speculated that “at some point that’s going to be called out in [shareholder] suits.”


What Mr. Greenberg said about insurance companies in particular is a point that I think needs to be understood about companies in general – which is that companies that are making statements to enhance their ESG credentials could be setting themselves up for later claims, based on greenwashing allegations or otherwise. All of which says to me that the basic operating premise in the D&O insurance industry about companies that are “good” on ESG issues make better D&O risks is a premise that is at best incomplete and that in any event warrants close and critical scrutiny.


I know that many readers will be focused on the fact that the plaintiff’s complaint is essentially a recapitulation of a short seller’s report. Many observers worry about securities complaints based on nothing more than the financially motivated allegations of a short seller. This is an important question because a great deal of recent securities litigation is based on allegations first made in short seller reports (particularly litigation involving SPACs and de-SPACs).


The short seller involved here is very direct in confronting the objections based on its financially self-interested bias. In a preamble posted in its report’s masthead, the company states (rather cheekily, in my view) that “We are short sellers. We are biased. So are long investors. So is Enviva. So are the banks that raised the money for the company. If you are invested (either long or short) in Enviva, so are you. Just because we are biased does not mean we are wrong.”