Companies historically have viewed sustainability performance and statements as a voluntary under taking, largely devoid of legal or market risk. Asa result, management and oversight of a company’s environmental, social, and governance (ESG) (or sustainability, or corporate social responsibility (CSR)) programs and reports often operated free from legal department oversight or interference. However, recent years have witnessed a proliferation of voluntary frameworks that have given rise
to growing pressure on companies to adopt and report on rapidly evolving and expanding ESG standards. Further complicating matters, governments have embraced various elements of those voluntary regimes, turning them into mandatory disclosure obligations.1
Over the past decade, those developments and a growing market appetite for greater ESG information have subjected company ESG performance and disclosure to greater scrutiny in the court of public opinion and spawned new litigation.2 Those diverse and expanding legal actions fall broadly into two related categories: (1) claims challenging the veracity of ESG statements based largely on a company’s ESG conduct; and (2) suits directly contesting the propriety of company activities and performance. In the latter category, legal challenges have predominated around alleged impacts or misconduct related to climate and human rights.
Notwithstanding the success of plaintiffs in Massachusetts v. Environmental Protection Agency3 in establishing carbon dioxide and other greenhouse gases (GHGs) as air pollutants under the federal Clean Air Act (CAA),4 subsequent efforts to tag individual companies with responsibility for climate damages have been singularly unsuccessful. Those failures, though, have not diminished the appetite to pursue such claims, instead propelling litigants to craft refashioned and inventive theories in search of a viable pathway forward.
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This article also appeared on https://elr.info/news-analysis/50/10849/growing-esg-risks-rise-litigation.
1 A companion article to be published in a forthcoming Environmental Law Reporter will address the structuring and governance of ESG programs, policies, and processes to achieve high-level performance while minimizing the risk of litigation or controversy in the court of public opinion.
2 While this Article addresses the growth of ESG litigation, a company faces comparable or greater risk of reputational impairment in the marketplace stemming from perceived inaccurate ESG information or deficient performance. Stories attacking ESG performance have been particularly damaging for consumer, energy, and brand name companies. Foreshadowing the emerging trend in ESG litigation, those stories have often seized on supplier performance in criticizing company ESG performance. Further, the quickly widening range of ESG issues that is now giving rise to unflattering stories serves notice as to future avenues of potential ESG litigation attack. The recent COVID-19 and racial justice developments will only expand the breadth of ESG stories and, derivatively, litigation claims, challenging alleged performance failures and misstatements, including as to company suppliers.
3 549 U.S. 497, 37 ELR 20075 (2007).
4 42 U.S.C. §§7401-7671q, ELR Stat. CAA §§101-618.