In recent years, investors and consumers have expanded the concept of “ESG”, and more change is on the horizon as the SEC is likely to ramp up disclosures on ESG topics this year.
Despite the current uncertainty surrounding the ESG landscape, policies and practices that impact ESG issues will continue to face legal challenges. ESG disclosure, environmental, and social topics appeared more frequently in federal court complaints in 2022 than in 2021—and 2023’s dockets are likely to include many of these core ESG topics.
To determine how frequently environmental-, social-, governance-, and ESG disclosure-related issues are mentioned in federal complaints, I conducted specific keyword dockets searches, outlined below.
- Environmental: biodiversity, climate change, climate goals, emissions, environmental justice, green and sustainable product labeling, pollution, sustainable supply chains, and sustainable business operations.
- Social: affordability and accessibility of products, conflict minerals, employee and customer data breaches, DEI policies and goals, ethical supply chains, forced labor, human rights, Indigenous People and local community impacts, and product life cycles.
- Governance: board composition, board and management diversity, company audits, executive compensation, investor activists, misleading or false proxy statements, and shareholder rights and policies.
- ESG Disclosures: ESG voluntary frameworks, SEC proposed rules on ESG topics, and sustainability and ESG reports.
Complaints may include more than one ESG topic, potentially cutting across environmental, social, governance, or disclosure topics.
This list of topics serves as a benchmark for the current state of ESG. It’s important to note that as ESG—and the conceptualization of topics that fit within each pillar—continues to evolve, the items on the list above may become more or less relevant, and may be supplemented or replaced by new topics.
Green, Mean 2022
Based on my keyword search, environmental complaints accounted for the majority of complaints from 2022 mentioning ESG topics (1,467)—only slightly above the 1,455 results returned from the same keyword search conducted for 2021.
The runner-up was governance complaints, with 937 complaints mentioning topics related to this issue. This was down 30% from 2021’s 1,334 complaints. There were only 275 complaints for the social pillar of ESG, slightly above the 233 complaints in 2021.
And at 23, the number of complaints mentioning ESG disclosures or reporting was up only slightly from the 19 filed in 2021.
Greener on the Other Side of the Docket?
Based on key themes from last year’s ESG-related litigation complaints, three key areas of ESG are likely to see litigation growth in 2023: greenwashing, proxy issues, and disclosures.
Greenwashing and sustainable product claims were one of ESG’s “hot topics” in 2022—and consumer demand for these products is only likely to increase, which means litigation over green product claims will continue to show up in federal dockets.
The Federal Trade Commission recently extended the public comment timeline for its “Green Guides for the Use of Environmental Marketing Claims,” which could provide some additional guidance for companies later this year.
In 2022, complaints mentioning proxy statements that were allegedly misleading, false, or failed to adequately disclose information accounted for more than half of the governance complaints included in my keyword search. As many companies are currently preparing proxy statements, they’ll want to ensure that all information, including ESG information, is clear and accurate.
While complaints mentioning ESG disclosures and reporting lag far behind complaints mentioning environmental, social, and governance topics, a rule mandating disclosures would almost certainly cause the number of complaints to surge.
The first wave boosting complaint counts will likely come from challenges to the SEC’s authority to promulgate the rule on climate-related disclosures. Provided that the rule stands, a second wave will likely follow after the rule’s effective date (probably not until 2024 or later), as investors challenge the accuracy and comprehensiveness of company disclosures.
Bloomberg Law subscribers can find related content on our ESG Practice page, Practical Guidance: Proxy Regulation page as well as our Practical Guidance: ESG Risk Management page.
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