It is no secret that I am skeptical of the usefulness of ESG as an analytic tool and even as an intellectual concept. As I have contended, there are fundamental disagreements about what ESG actually means, and the idea that it can be objectively measured and quantified is illusory, at best. Now, in an October 21, 2023, Financial Times op-ed column (here), NYU Business School Professor Aswath Damodaran argues that ESG is “beyond redemption” and it may be time to administer last rites.Continue Reading Time to Say RIP to ESG?
Ever since March 2022, when the SEC released its proposed climate change disclosure guidelines, observers and commentators have watching and waiting to see when the agency would release its final disclosure rules. But in the meantime, important developments elsewhere may mean that many companies may face climate change-related disclosure requirements regardless of the shape the SEC’s final guidelines take. As I noted (here), in July, the European Union adopted its first set of sustainability reporting standards, which will have extensive impact both within and outside the EU. Now, the California legislature has adopted two far-reaching climate-related disclosure bills, which could affect thousands of companies – both public and private, and both within and outside California – and that together could, as the Wall Street Journal put it, represent “among the biggest changes in corporate disclosure in decades.”Continue Reading California Enacts Far-Reaching Climate-Related Disclosure Requirements
In early August 2023, wildfires broke out on the Hawaiian island of Maui. The wildfires caused the deaths of at least 115 people, and also caused massive property damage. In the aftermath, questions began to circulate about what had caused the fires. Among those under the spotlight is Hawaii’s largest electrical utility, Hawaiian Electric Industries. Indeed, on August 24, 2023, Maui County filed a lawsuit against the utility, alleging that its power lines caused the wildfire. With the adverse publicity, the utility’s share price has slumped. Now, a plaintiff shareholder has filed a securities lawsuit against the company. As discussed below, the new securities lawsuit may represent something of a prototype for future litigation involving companies whose business operations are disrupted by changing climate conditions and by the increase in extreme weather conditions and events. A copy of the securities suit complaint can be found here.Continue Reading Electric Utility Linked to Maui Wildfires Hit with Securities Suit
The SEC has not yet adopted the long-anticipated final version of its proposed climate change disclosure guidelines, although there is some speculation that the final guidelines will be adopted in the Fall. In the meantime, however, sustainability reporting standards are going into effect elsewhere, with important ramifications for all companies.
On July 31, 2023, the European Commission adopted the first set of European Sustainability Reporting Standards (ESRS), which require EU and non-EU companies with specified levels of EU activity to file annual sustainability reports with their financial statements. The standards will soon become law and apply in all 27 EU Member states, with compliance requirements effective as early as 2025 for the 2024 reporting period. The ESRS as adopted on July 31, 2023, by the European Commission can be found here. The European Commission’s adoption of the first set of ESRS and the reporting standard’s requirements are described in detail in an August 11, 2023, memo from the Cooley law firm, here.Continue Reading EU Adopts Mandatory ESG Reporting Requirements
In numerous recent posts, I have detailed how activist investors have been trying to use the courts to advance their ESG-related agenda, whether the groups’ goals are to advance or oppose ESG initiatives. For example, earlier this week I discussed the recent Delaware case in which activist investors sought to hold the Disney board liable for the company’s actions regarding Florida’s “Don’t Say Gay” legislation. A high-profile example of litigation from the other direction, in which activists seek to hold board accountable for the company’s alleged insufficient actions on ESG issues, is the claim brought in English courts earlier this year against the Board of Shell, alleging that the company’s actions to address climate change were insufficient.
As detailed in an excellent June 1, 2023, memo from the Shearman & Sterling law firm (here), earlier this year the High Court ruled that the plaintiff in the case against the Shell board had failed to state a prima facie case. Just like the Disney case I discussed earlier this week, the Court’s reasoning has significant implications for those who would seek to use the courts to advance ESG-related agendas.Continue Reading English Court Rejects Climate Change Case Against Shell Board
Readers of this blog know that one of the more significant recent developments in the ESG arena has been the rise of the ESG backlash – that is, moves by state legislators and others to try to push back against a supposed ESG agenda. These developments have put company executives squarely in the crossfire, as they struggle, on the one hand, to address continued efforts by activist stakeholders to push companies toward expanded ESG commitments, and conflicting efforts by conservative politicians to punish companies for supposedly pursuing a “woke” agenda. How are companies to respond to these competing forces? Evidence suggests that increasingly companies are responding by “greenhushing” – that is, by keeping quiet about their ESG initiatives.Continue Reading Next Up on the ESG Front: Greenhushing?
Many readers may have seen that earlier this week, President Biden made his first use of his Presidential veto powers to block a Congressional measure that would have reinstated Trump-era Labor Department ban on retirement plans considering factors such as climate change, social impacts or pending lawsuits when making investment choices. However, readers may not have seen that last week, in apparent anticipation of the Presidential veto, a group of governors of 19 states announced that they had formed an alliance, led by Florida Governor Ron DeSantis, to “push back against President Biden’s environmental, social, and corporate governance agenda that is destabilizing the American economy and the global financial system.”
The 19 state governors issued a joint statement that further explained their reasoning for forming the alliance. The March 16, 2023, press release from Governor DeSantis’s office about the alliance can be found here. The March 16, 2023, joint statement of the governors can be found here. A March 21, 2023 memo from the Cadwalader law firm about the governors’ alliance can be found here. The details of the Department of Labor guidelines, the Congressional measure, and President Biden’s veto are discussed in a March 20, 2023 post on The Nickel Blog, here.Continue Reading Governors Form Alliance to Fight ESG
In a recent post, I discussed the lawsuit filed in a UK court by the environmental advocacy group ClientEarth against the board of Shell. In the following guest post, Francis Kean, Partner in Financial Lines Team at McGill and Partners, dives deeper into the legal context of the lawsuit and its insurance implications. I would like to thank Francis for allowing me to publish his article as a guest post on this site. I welcome guest post submissions from responsible authors of topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Francis’s article.Continue Reading Guest Post: Client Earth Claim Against the Board of Shell: A Sign of Things to Come in the UK?
In recent posts on this site (for example, here), I have discussed the developing ESG-related litigation phenomenon in which claimants file suits not against ESG laggards bur rather against companies that have taken the initiative on ESG-related matters. However, the existence of this trend, while noteworthy, does not negate the possibilities for litigation involving the ESG laggards, as well. There are in fact noteworthy instances of this latter type of litigation, much of it in Europe, as is well-detailed in a December 2022 white paper from the Jones Day law firm entitled “ESG – Climate Change and Related Litigation Takes Center State in Europe” (here). The white paper not only catalogs recent European ESG-related litigation but also identifies regulatory developments and other trends that could contribute to further litigation in the future.
Continue Reading Lessons from Climate Change-Related Litigation in Europe
In prior posts on this site (for example here), I have expressed my concern that the current hot topic of ESG has a fundamental underlying flaw in that the term lacks definition and that this lack of precision has led to a great deal of sloppy thinking. A recent post on the Harvard Law School Forum on Corporate Governance provides a good examination of these ESG-related concerns. In an October 14, 2022 post (here), Douglas Chia of Soundboard Governance LLC, shows, using cybersecurity as an example, that one of the “biggest flaws” of ESG is “the subjective open-endedness of what counts as E, S, or G.”
Continue Reading ESG’s “Biggest Risk”?