All rise: ESG investing lands on judges’ desks

A newsletter from POLITICO for leaders building a sustainable future.

Jun 18, 2024 View in browser   By Jordan Wolman and Allison Prang THE BIG IDEA House Judiciary Chair Jim Jordan is still going after ESG in Congress, but courtrooms are increasingly where the action is at. | (Francis Chung/POLITICO via AP Images) SHIFTING VENUES — The rowdy political battles Republicans have waged in Congress and state capitals to limit corporate sustainability policies over the past three years are steadily being supplanted by some must-watch courtroom dramas. Judges in at least six states will weigh in on a wide range of environmental, social and governance litigation this year, including restrictions on climate advocacy among shareholders and laws in red states designed to protect fossil fuel interests. Courts are now the crucial testing ground for the future of these practices. “The main ramification is that judicial scrutiny helps refine the notion of ESG and pushes companies to seek and clearly explain its strategic value,” Matteo Tonnello, managing director of ESG at The Conference Board, a global think tank, said of the litigation. “The business judgment rule will continue to protect bold executives and board members who make informed and strategically meaningful decisions in the interest of the sustainability of their companies.” A federal judge in Texas on Monday dismissed a lawsuit brought by ExxonMobil against shareholder advocacy groups, one of the most prominent ESG cases to go to court. Exxon targeted the groups for previously backing a proposal urging the oil giant to speed up work to curb its greenhouse gas emissions, though they withdrew the proposal and vowed to never raise it again following the lawsuit. In Oklahoma, a state court blocked the enforcement of one of the most aggressive anti-ESG laws in the country earlier this year. On top of that, two other red states have hit BlackRock with legal complaints over the firm's ESG practices. And both the SEC and California are facing legal challenges over their attempts to compel companies to report on their carbon footprints. In a report last week, House Republicans argued that the push for corporate environmentalism would ultimately restrict Americans' ability to “drive, fly and eat.” But the legal cases also come with some risk for conservatives: They could lose, making a clearer path for ESG-related policymaking. A conservative federal judge in Texas last year allowed a Labor Department rule to take effect, giving retirement fund managers the option to consider ESG factors. “This is a new chapter in a broader deregulatory story that's a century old,” said Luke Morgan, an attorney with As You Sow, a shareholder advocacy nonprofit. “The reason that this has moved to focus on litigation is because the political movement failed. There was no popular support for this whatsoever.” The anti-ESG crusade, backed by conservative megadonor Leonard Leo, is having an outsized market impact despite little voter support for the campaign, which was reaffirmed by polling this month from the National Taxpayers Union, a fiscally conservative D.C.-based nonprofit. A new report out today from Pleiades Strategy, a climate policy and research firm, suggests there’s also been a slowdown in ESG animosity in red states even as House Republicans continue their drumbeat in Congress: Only six anti-ESG bills have passed in states this year out of 161 measures, down from 23 such laws last year. The growing body of ESG-related cases is poised to affect how far companies, pension funds and states can go in evaluating climate risk or punishing firms for doing so. But the biggest claims from GOP officials — allegations of antitrust violations and discrimination against fossil fuels on the part of Wall Street and industry net-zero groups — remain untested in court. Still, even if more legal clarity surfaces in the future, the litigation is already having a chilling effect, supporters say. “It largely makes business more cautious,” said Maura Hodge, sustainability reporting leader at accounting firm KPMG. “When these more controversial issues come up, the litigiousness in the U.S. just fans the fire. Particularly for some smaller companies, they will hold off on implementation until they have more insight into actual effective dates and final regulations.” The ultimate outcome from the case in Oklahoma, where a judge blocked enforcement of an anti-ESG law, could prompt players in other states to sue over other similar laws, said Leah Malone, head of the law firm Simpson, Thacher & Bartlett’s ESG and sustainability practice, as judges apply more scrutiny to such efforts and wade into the wonky ESG details. “Once we have a little bit more guidance from that court, I expect to see more challenges and I'm a little surprised that I haven't seen any more [filed] yet,” Malone said. BUILDING BLOCKS GREEN BOND WHIPLASH — North America’s sustainable debt issuance had a blistering start to the year. The financing mechanism geared toward climate-friendly projects grew 68 percent in North America in the first quarter of 2024, compared with the same period in 2023. It included specific deals in the U.S. and Canada earmarked for nuclear energy financing. That tracked with an overall record-setting quarter, with global issuance reaching more than $272 billion — fueled by expectations of a Fed rate cut. But that’s unlikely to last due to anti-ESG sentiment, election jitters and persistently high Fed interest rates, said Candace Partridge, a spokesperson for the Climate Bonds Initiative. There’s a strong chance the surge in interest was a blip after the market has faced a bumpy road in recent years. The U.S. in particular “could see a reversion to the mean with strong headwinds,” Partridge said, as still higher-than-expected Fed rates “could have a cooling influence for the rest of the year.” WORKPLACE GREEN GAP — Members of Gen Z are eager to work green jobs, but lack those skills more than the broader workforce, LinkedIn found. Over the next five years, more than half of people in the Gen Z generation — which LinkedIn considers those born between 1997 and 2012 — want to have a green job. However, only one out of 20 Gen Zers “have the green skills needed to tackle the climate crisis,” LinkedIn says. That’s a steep drop-off compared to looking at the workforce as a whole, where LinkedIn says 1 out of 8 workers has the necessary green skills. The younger generation could also be facing a knowledge gap in wanting green employment. LinkedIn found that less than one in five members of Gen Z is very aware of different career paths to get a green job. Gen Z, meanwhile, is becoming a bigger chunk of the workforce as the percentage of Baby Boomers and Generation X in the workforce declines. Workers in those two generations also have the highest percentages of green skills. That percentage drops off for millennials and is even lower for Gen Z, according to LinkedIn. “Gen Z is entering the green workforce at a higher rate than every other generation,” LinkedIn said. “Despite this desire, developing the skills required to meet climate goals remains a global challenge.” AROUND THE NATION FLAMING HOT — The next wave of targets on gas stoves: blue states pushing for them to come with labels warning consumers about their health impacts. California, New York and Illinois are readying fresh legislative efforts behind the effort while major brands like Samsung and LG are fighting back, Wes Venteicher and Marie J. French report. A defeat for Democrats on the warning labels would pile on another setback after courts quashed stove bans that proliferated across liberal cities after Berkeley passed the first ban in 2019 and provide election-year fodder for Republicans. Some Democrats aren’t embracing the push, either. But others are forging ahead as the issue is poised to bubble over. “We’re not banning gas stoves,” said Assemblymember Gail Pellerin, a California Democrat who authored the state’s warning label proposal. “We’re just basically requiring them to be labeled, warning people about how to best use them with good ventilation.” YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. Join us every Tuesday as we keep you in the loop on the world of sustainability. Team Sustainability is editor Greg Mott and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, jwolman@politico.com and aprang@politico.com. Sign up for the Long Game. It's free! WHAT WE'RE CLICKING — Check out this list from Bloomberg featuring 13 top people to watch in green innovations. — It's really hot for us East Coasters this week. And it's only June, the New York Times reminds us. — A carbon removal fund backed by Meta and Alphabet landed its first deal in Europe. Bloomberg also has that story.   Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

To change your alert settings, please log in at https://login.politico.com/?redirect=https%3A%2F%2Fwww.politico.com/settings This email was sent to rouf@idiot.cloudns.cc by: POLITICO, LLC 1000 Wilson Blvd. Arlington, VA, 22209, USA Unsubscribe | Privacy Policy | Terms of Service