The 2023 Litigation Trends Survey highlighted ESG as one of the ‘key dispute areas’, noting that 28% of respondents said their ESG dispute exposure increased in 2022 and almost a quarter expected their exposure to increase in 2023. In this week’s newsletter, we’re delving into ESG and litigation risk in 2023.
ESG & Litigation Risk in 2023: Key Areas of Concern
Some of the major areas of concern identified in the 2023 Litigation Trends Survey include:
- Increasing regulatory focus.
- Allegations of greenwashing or false ESG claims.
- Breaches of contractual obligations about climate change.
- Increased awareness of and willingness to engage in ESG-related class actions.
- Increased focus on modern slavery.
We’re going to delve deeper into some of these key areas of more concern below.
Regulatory Response to Increased ESG Focus & Allegations of Greenwashing or False ESG Claims
The SEC has really homed in on ESG litigation and there was a notable increase in ESG claims in 2022, including:
- A $4 million settlement against Goldman Sachs for not following its ESG policies and procedures.
- A $12 million settlement against the operator of the world’s largest underground salt mine for misleading investors.
- A $1.2 million settlement against an investment advisory firm for misstatements and omissions relating to ESG concerns.
The FTC’s Green Guides were first published in 1992 and have been subsequently updated – with the most recent update in 2012. However, the FTC is preparing to revamp its existing guides. In December 2022, it announced a public comment period seeking submissions about potential updates to its Green Guides. This comment period was extended and closed on April 24, 2023.
The FTC noted the rising consumer interest in ESG issues in its press release calling out for public comment.
“Consumers are increasingly conscious of how the products they buy affect the environment and depend on marketers’ environmental claims to be truthful,” said Bureau of Consumer Protection Director Samuel Levine. “We look forward to this review process, and will make any updates necessary to ensure the Green Guides provide current, accurate information about consumer perception of environmental benefit claims. This will both help marketers make truthful claims and consumers find the products they seek.”
It also provided a link to recent cases about environmental issues. Some notable penalties include:
- A $3 million penalty against Walmart and a $2.5 million penalty against Kohls for falsely marketing rayon textile products as (a more eco-friendly) bamboo.
- A $1.76 million settlement against Truly Organic and its founder and CEO for marketing its products as 100% organic and certified organic when neither claim was true.
- A $21 million settlement against Lights of America Inc for making misleading statements about the light output and life expectancy of its LED bulbs.
ESG-Related Class Actions
This is a relatively new area of law and, at the moment, attorneys across the country are awaiting court decisions about a number of ESG-related class actions. In the meantime, companies should tidy up ESG practices and claims to minimize risk in this area (more on this below).
Modern Slavery in the Supply Chain
We previously covered steps to reduce the risk of forced labor in supply chains. You can read that post here.
Key Steps to Reduce ESG Litigation Risk
To reduce ESG litigation risk, businesses should:
- Consider first whether there is any need to make an ESG claim. If not, don’t make one.
- Where it is necessary, only make ESG claims that can be substantiated.
- Implement ESG metrics and reporting, and have those claims audited.
- Train leadership and your teams about ESG risk.
- Identify ESG risks and publish guidance or train leaders about how to speak about them.
- Monitor trends in complaints from customers to identify any ESG risk.
- Ensure your legal guidance about your ESG risk is proactive and practical.
For assistance in identifying and reducing your ESG litigation risk, reach out. Our team would love to help.
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