"ESG, they are coming for you"
I came to recognize in those years that class action litigation evolves like pest resistance or warfare. Offense (the plaintiffs’ bar) develops tactics that work for a few years and the gravy train seems endless. There is an offensive weapon advantage. Then the defense counters with its own weapons. The train derails and the gravy spills.
Tobacco, asbestos, radiation and OxyContin all had their day. Eventually, paid-for legislation cut back liability, shortened statutes of limitations, or capped awards so as to neuter plaintiffs. Lately, there has been a spate of class actions against Google, Facebook, Zoom, and TikTok over personal data mining. Let's see how that goes once the social media lobbyists spend out their budgets. Politicians have seldom been cheaper. It is a buyer's market.
One of the most promising new offensive weapons in the class action arsenal is ESG. You know it is getting on corporate legal defense radar when you see hit pieces planted in mainstream media.
ESG is not what you put on a steak to bring out the flavor or a vitamin supplement that stops hair loss. ESG stands for environmental, social, and governance.
The term was first introduced by World Bank senior economist Herman Daly in 1996, in a paper with Robert Goodland for the Ecological Society of America:
After deploring the mystification of the term sustainability and tendencies to conflate it with society's desiderata, we desegregate three types of sustainability: social, economic, and environmental. After clarifying these three linked and overlapping concepts, and construing them with sustainable development, we distinguish quantitative throughput growth from qualitative development, and mention intergenerational equity and scarcity of natural capital that together lead to the definition of environmental sustainability by the output/input rule, i.e., keep wastes within assimilative capacities; harvest within regenerative capacities of renewable resources; deplete non-renewables at the rate at which renewable substitutes are developed. After distinguishing development from sustainability and from growth, the paper describes the concept of natural capital and uses the concept to present four alternative definitions of environmental sustainability.
Today, European companies are subject to a number of laws and regulations related to ESG, including*:
The Non-Financial Reporting Directive (NFRD) This directive, which was updated in 2018, requires large companies and groups operating in the European Union to disclose information on a range of ESG topics, including climate change, human rights, and anti-corruption measures, in their annual financial reports.
The Shareholders' Rights Directive (SRD) Updated in 2019, this requires companies to disclose information on how they engage with shareholders on ESG issues, as well as how they consider the long-term interests of the company and its shareholders.
The EU Taxonomy Regulation This regulation, which came into force in 2021, establishes a framework for sustainable finance in the EU, including a classification system for sustainable activities, which companies need to disclose in their reporting.
The EU Green Deal This package of laws and regulations aims to make the EU economy carbon-neutral by 2050. Companies operating in the EU will need to comply with the regulations and laws that come out of this package, which are expected to include measures such as emissions reduction targets, energy efficiency regulations, and green procurement guidelines.
The EU Transparency and Accounting Directive This directive, which came into force in 2019, requires companies to disclose information about the risks and opportunities related to climate change and the impacts on their business and strategy.
These are just some of the laws and regulations that European companies need to comply with. Requirements may vary by country and industry. Danone, the French yogurt company, was recently sued by Zero Waste France, Surfrider Europe and ClientEarth for making false claims about reducing single-use plastic. The company had pledged to reduce its plastic use by 12 percent from 2018 to 2021 but had instead increased plastics as its product line expanded. Single-use plastic is responsible for more greenhouse gas pollution than airplanes. The groups sued under a French “duty of vigilance” law enacted in 2017. The Paris civil court is being asked now in 2023 to force the company to produce a plan within six months to phase out plastics. Should the company fail to meet that deadline, plaintiffs are demanding damages of 100,000 euros ($108,000) per day of delay.
While not specifically termed ESG, companies in the United States and Canada are also subject to similar laws and regulations that relate to ESG principles, including*:
The Securities and Exchange Commission (SEC) has issued guidance on disclosure of climate change risks and impacts on a company's business and strategy. However, these guidelines are not mandatory and not all companies are required to disclose this information. The Commission is still reviewing thousands of comments on its proposal to force publicly traded companies to disclose the risks they face due to a changing climate—potentially stranded assets as well as the emissions in their production and supply chains (Scope 2). The SEC is expected to finalize the proposal before the end of March, opening the floodgates of industry litigation and political bribery to undo this needed regulation with new laws (potentially minting some Congressional unicorns and presidential candidates).
The Environmental Protection Agency (EPA) and other regulatory agencies have a wide range of laws and regulations related to issues such as air and water quality, hazardous waste, and emissions. EPA was gutted during the Trump years and hundreds of career specialists resigned or took early retirement so it is a mere shadow of its former self, with a decade-long backlog of violations to deal with.
The Occupational Safety and Health Administration (OSHA) has regulations related to workplace safety and health but is often accused of regulatory capture by the regulated industries. OSHA is a serious impediment to labor policy reform.
The Federal Trade Commission (FTC) has regulations related to the use of environmental marketing claims. Complaints, which are rare, can take years to process. The members of the FTC are all presidential appointments. President Trump appointed 4 of the 5 current commissioners, each with a 7-year term.
National Instrument 58-101 Disclosure of Corporate Governance Practices requires publicly traded companies to disclose information about their governance practices and policies.
Canadian Securities Administrators (CSA) have issued guidance on the disclosure of climate change-related risks and opportunities by publicly traded companies.
The Canadian government also has regulatory agencies concerned with environmental issues such as air and water quality, toxic waste and emissions; workplace safety and health; nuclear; and marketing claims.
Additionally, many companies in the US and Canada comply with international standards such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) to report on their sustainability performance.
According to Bloomberg:
A survey by the law firm Norton Rose Fulbright found that 28% of more than 430 general counsel and in-house litigation leaders said their so-called ESG dispute exposure increased in 2022, and 24% expect it to deepen over the next 12 months. The key reasons are the absence of clear environmental, social and governance metrics and requirements, and the heightened regulatory scrutiny on the importance of ESG.
The growing attention of corporate litigators in industries ranging from financial services to technology corresponds with the growing tide of class actions tied to greenwashing. This is partly due to the California’s plaintiffs’ bar having “figured out the blueprint for how to bring these cases,” according to Norton Rose. In a nutshell, this means companies that put out generalized ESG statements will sometimes find themselves as targets in product-specific cases.
In other words, if a company decides, for whatever reasons, to pledge it will achieve carbon neutrality by some date, or that it will buy voluntary offsets to take away the climate footprint of customers or clients, or that it will boycott products in its supply chain that harm Amazonian indigenous peoples, Palestinians, dolphins, mountain gorillas, or whomever, it had better do it and not just claim it.
Rachel Roosth, the disputes partner at Norton Rose, told Bloomberg that the food and beverage sector had the highest proportion of respondents (40%) who expect increased exposure to ESG disputes in the coming year. Why food? Single-use plastics, she said.
If I were just starting out as a lawyer these days and wanted to retire a millionaire by 30, I would be looking at greenwashing class actions. There is likely to be a window in the US, as there is now in Europe, when ESG litigation confers a distinct advantage to plaintiffs. Such suits can be cloned, briefs written by AI engines, and settlements will likely break new records for payouts. Why? Because greenwash is an epidemic. It is as though it were being taught in business schools as a required subject. Defendants don’t yet realize how ESG is going to rock their world.
All of this is not without pushback. Over two dozen states and a coalition of oil companies are suing the Biden Administration in an effort to halt the Department of Labor’s ESG rule that would allow retirement plans and securities managers to consider climate change when selecting investments. One of the red states’ attorney generals tweeted that the rule “sacrifices Americans’ retirement accounts on the altar of woke corporations’ radical leftist agenda.” Florida has barred any state-licensed fund managers from considering ESG factors.
At US$35 trillion, ESG already represents one-third of global assets under management, according to Bloomberg Intelligence, with more than 40% growth projected through 2025. This demand has led to “ESGwashing” — deceptive signaling to appear ESG-aware, which undercuts ESG credibility more broadly. Former BlackRock CIO Tariq Fancy compared ESG investing to offering wheatgrass to a cancer patient. ESG-screened portfolios only defer society’s hard choices into the future, Fancy said, when what are needed are carbon taxes and emission penalties that actually sting. Divestment changes ownership but valuations and access to capital are functions of the market, where value hunters and less scrupulous private funding are always on the search for opportunity.
The trade publication, Advisor’s Edge, in a piece called “An inconvenient truth about ESG investing,” concluded:
The risk with engagement is that the largest managers dictate the agendas while profiting from higher-fee ESG products. The risk with regulation is that nothing will happen, and this is the most inconvenient truth of all.
* Disclosure: I used ChatGPT to identify international legal standard-setting bodies.
Meanwhile, let’s end this war. Towns, villages and cities in Ukraine are being bombed every day. Ecovillages and permaculture farms have organized something like an underground railroad to shelter families fleeing the cities, either on a long-term basis or temporarily, as people wait for the best moments to cross the border to a safer place, or to return to their homes if that becomes possible. There are still 70 sites in Ukraine and 300 around the region. They are calling their project “The Green Road.”
The Green Road is helping these places grow their own food, and raising money to acquire farm machinery and seed, and to erect greenhouses. The opportunity, however, is larger than that. The majority of the migrants are children. This will be the first experience in ecovillage living for most. They will directly experience its wonders, skills, and safety. They may never want to go back. Those that do will carry the seeds within them of the better world they glimpsed through the eyes of a child.
Those wishing to make a tax-deductible gift can do so through Global Village Institute by going to http://PayPal.me/greenroad2022 or by directing donations to email@example.com.
There is more info on the Global Village Institute website at https://www.gvix.org/greenroad
The COVID-19 pandemic destroyed lives, livelihoods, and economies. But it has not slowed climate change, a juggernaut threat to all life, humans included. We had a trial run at emergency problem-solving on a global scale with COVID — and we failed. 6.7 million people, and counting, have died. We ignored well-laid plans to isolate and contact trace early cases; overloaded our ICUs; parked morgue trucks on the streets; incinerated bodies until the smoke obscured our cities as much as the raging wildfires. We set back our children’s education and mental health. We virtualized the work week until few wanted to return to their open-plan cubicle offices. We invented and produced tests and vaccines faster than anyone thought possible but then we hoarded them for the wealthy and denied them to two-thirds of the world, who became the Petri-plates for new variants. SARS jumped from people to dogs and cats to field mice. The modern world took a masterclass in how abysmally, unbelievably, shockingly bad we could fail, despite our amazing science, vast wealth, and singular talents as a species.
Having failed so dramatically, so convincingly, with such breathtaking ineptitude, do we imagine we will now do better with climate? Having demonstrated such extreme disorientation in the face of a few simple strands of RNA, do we imagine we can call upon some magic power that will change all that for planetary-ecosystem-destroying climate change?
As the world emerges into pandemic recovery (maybe), there is growing recognition that we must learn to do better. We must chart a pathway to a new carbon economy that goes beyond zero emissions and runs the industrial carbon cycle backward — taking CO2 from the atmosphere and ocean, turning it into coal and oil, and burying it in the ground. The triple bottom line of this new economy is antifragility, regeneration, and resilience. We must lead by good examples; carrots, not sticks; ecovillages, not carbon indulgences. We must attract a broad swath of people to this work by honoring it, rewarding it, and making it fun. That is our challenge now.
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