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ESG: A lawyer's dream (or nightmare)

A newsletter from POLITICO for leaders building a sustainable future.
Jan 30, 2024 View in browser
 
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By Jordan Wolman

THE BIG IDEA

BlackRock headquarters stands in Manhattan.

A recent lawsuit against BlackRock targeting its ESG principles is the backdrop to a year potentially heavy in similar disputes. | Spencer Platt/Getty Images

TOP OF THE HEAP — If you're a regular reader of the Long Game, it shouldn't come as a surprise to learn that corporate lawyers now see environmental, social and governance disputes as their companies' biggest litigation risk in 2024.

ESG's rise to the top spot in the annual year ahead report from global law firm Baker McKenzie reflects the topsy-turvy world corporations are facing, where what's banned in one jurisdiction is encouraged in another and where what one side says goes too far is countered by the other side saying it doesn't go far enough.

If we weren’t already there, 2024 marks the messy era of ESG.

“In the U.S., you actually have political paralysis at the state level with conflicting regulations saying, ‘You're going to do this,’ and the other side saying, ‘If you do that, you're in trouble,’” said Peter Tomczak, co-chair of global investigations, compliance and ethics at Baker McKenzie. “That's the unfortunate tension. If there was a magic bullet, I haven't heard of it yet.”

The fact that the report draws from 600 senior legal and risk leaders at large organizations from the U.K., U.S., Brazil and Singapore sheds new light on the global attention to the issue.

Large asset managers continue to take the most heat from the anti-ESG movement, which contends that their sustainability policies violate their fiduciary duty. And a string of recent legal cases is continuing to expand the movement, including Tennessee’s lawsuit against BlackRock, a suit challenging New York City’s fossil fuel divestments and a failed effort by Republican AGs to upend a Biden administration rule allowing ESG factors to be considered in retirement plans.

ExxonMobil’s lawsuit against shareholders in an attempt to block a climate-focused resolution reminds us not to ignore the “G” in ESG, either.

But ESG litigation could strike the other way, too, and companies of all stripes could be caught up in it.

John Bueker, global co-chair for litigation and enforcement practice at Ropes & Gray, for instance, pointed out the real threat of securities fraud claims from green groups and litigation-hungry private plaintiff lawyers stemming from new climate disclosure requirements out of Europe, California and potentially the federal government. Paul Washington, executive director of The Conference Board’s ESG Center, said companies need to start getting used to applying the same level of scrutiny to their ESG reports as is applied to other legal and financial filings.

Enviros and their lawyers will be watching for greenwashing in corporate advertising and labeling, like the lawsuit challenging Delta’s carbon neutrality claims. Unions and fiduciaries are also poised to continue to assert legal damages and lost pension returns in response to anti-ESG laws in red states.

It’s a hot time for ESG-focused lawyers as regulations, politics, market realities and courts converge on the issue.

“The anti-ESG movement opens a new front in the litigation,” Washington said. “Many of the people who are filing these suits are well-funded, and it's often a coordinated effort. This is not unusual, in some ways. What's different now is the subject matter. The fact that you can face claims from two different sides is different. There's a feeling of vulnerability.”

Oh, and don’t forget the “S”: Almost twice as many respondents said social disputes are a concern this year compared with last year.

No wonder only 16 percent of respondents said they were fully or very confident about their organization’s level of preparedness for litigation across all risk types — with ESG ranking as the top expected dispute type.

“These are novel issues in many respects,” said Melissa Tea, lead for the K&L Gates global litigation and dispute resolution practice area. “The causes of action are novel. The universe of stakeholders who are asserting claims continues to broaden. So from the lawyer standpoint, we are trying to get our arms around this emerging litigation, and the regulations are evolving in real-time.”

WASHINGTON WATCH

GREEN  POLITICS — Climate activists’ responses to President Joe Biden’s policy choices have see-sawed between fierce ire and outright jubilation with occasional stops at tough love, but his election-year move to pause exports of liquefied natural gas could help seal their support when voters go to the polls in November.

The decision has already prompted activists to cancel plans for a sit-in next month at U.S. Department of Energy headquarters, which would have provided headlines and video of liberal activists slamming the administration on one of its core issues.

“I can’t remember a bigger win,” said Bill McKibben, the climate activist and author who had been planning to get arrested at the protest. “This is a watershed moment in a lot of ways, and to see a Democratic president stand up to the natural gas industry is a powerful moment.”

But don’t hold your breath on climate activists’ completely cutting off their criticisms of Biden, Scott Waldman reports for POLITICO’s E&E News. Some activists see the decision to halt LNG exports as a clear signal that their pressure is working, and they’ve set their sights on targets including the Mountain Valley Pipeline project and financing of international oil and gas projects.

At the same time, there’s also a risk of going too far. Highlighting deficiencies in Biden’s green record could prompt some young climate-minded voters to stay home in November, boosting the likelihood that the White House is handed back to climate-hostile former President Donald Trump.

“I’m worried publicity-seeking activists are going to undermine Biden's sterling climate reputation with just enough impressionable young voters that it could be a problem in key swing states,” said Paul Bledsoe, who worked on climate change in the Clinton White House and is now a lecturer at American University’s Center for Environmental Policy.

EXTREMES

LESS FLAME — The “war on gas stoves” that took over Capitol Hill last year flamed out on Monday when the Energy Department released its final regulation on efficiency requirements for a small fraction of gas stoves on the market, Kelsey Tamborrino reports.

The rule was more modest than what DOE initially proposed, which was enough for Republicans to claim victory in the battle, which would never have resulted in the gas stove ban that fueled the GOP furor.

The measure does, however, apply first-of-its-kind efficiency standards for gas stoves, which the department said would affect just 3 percent of existing models. Compliance will be required in newly manufactured models, including imported ones, beginning in 2028.

The fracas may have been resolved at the federal level, but gas stoves are still spurring debate and legal fights in liberal regions where climate activists are seeking to ban them.

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

The Washington Post takes a look at a Louisville science experiment aimed at proving that urban greenery is beneficial to human health.

— Influential auto dealers are urging General Motors to add hybrid models to attract buyers who aren’t fully sold on EVs, according to the Wall Street Journal.

— Spain’s Catalonia region, which includes Barcelona, is investing heavily in a project meant to help it cope without rainwater, Bloomberg reports.

 

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