Tag: ESG

Red States Move to Penalize Companies That Consider Climate Change When Making Investments

A number of conservative-leaning states, particularly those with a significant fossil fuel industry (e.g., Texas, West Virginia), have begun implementing polices and enacting laws that penalize companies which “pull away from the fossil fuel industry.”  Most of these laws focus on precluding state governmental entities, including pension funds, from doing business with companies that have adopted policies that take climate change into account, whether divesting from fossil fuels or simply considering climate change metrics when evaluating investments.

This trend is a troubling development for the American economy.  Irrespective of the merits of the policy, or fossil fuel investments generally, there are now an array of state governments and associated entities, reflecting a significant portion of the economy, that have adopted policies explicitly designed to remove climate change or other similar concerns from consideration when companies decide upon a course of action.  But there are other states (typically coastal “blue” states) that have enacted diametrically opposed policies, including mandatory divestments from fossil fuel investments (e.g., Maine).  This patchwork of contradictory state regulation has created a labyrinth of different concerns for companies to navigate.  And these same companies are also facing pressure from significant institutional investors, such as BlackRock, to consider ESG concerns when making investments.

Likely the most effective way to resolve these inconsistent regulations and guidance, and to alleviate the impact on the American economy, would be for the federal government to issue a clear set of policy guidelines and regulatory requirements.  (Even if these were subject to legal challenge, it would at least set a benchmark and provide general guidance.)  But the SEC, the most likely source of such regulations, has failed to meet its own deadlines for promulgating such regulations, and it is unclear when such guidance will be issued.

In the absence of a clear federal mandate, the contradictory policies adopted by different state governments will only apply additional burdens to companies doing business across multiple state jurisdictions, and by extension, to the economy of the United States.

“Republicans and right-leaning groups fighting climate-conscious policies that target fossil fuel companies are increasingly taking their battle to state capitals. Texas, West Virginia and Oklahoma are among states moving to bar officials from dealing with businesses that are moving to ditch fossil fuels or considering climate change in their own investments. Those steps come as major financial firms and other corporations adopt policies aligned with efforts to reduce greenhouse gas emissions.”

Article By Jacob H. Hupart of Mintz

For more environmental legal news, click here to visit the National Law Review.

©1994-2022 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Restaurant Greenwashing: Diners Beware or Industry Beware?

In June 2021, a class action lawsuit was filed in California in which restaurant greenwashing was alleged due to sustainability statements made on Red Lobster’s menus. Now, Red Lobster has filed pleadings with the court seeking to have the case dismissed, arguing that plaintiffs failed to establish any colorable claim on which they can prevail. While it remains to be seen what the court will do with the lawsuit, the critical takeaway from the litigation is that any industry, not just the consumer goods industry, must realize that marketing buzzwords such as “sustainable”, “environmentally friendly”, and “responsibly sourced” are in the crosshairs. Now more than ever, globally situated companies of all types that are advertising, marketing, drafting ESG statements, or disclosing information as required by regulatory agencies must pay extremely close attention to the language used in all of these types of documents, or else run the risk of enforcement action or lawsuits.

Restaurant Greenwashing Lawsuit

The 2020 Red Lobster lawsuit alleged that “Seafood With Standards” statements on Red Lobster’s menus regarding the sustainability, traceability and responsible sourcing of its lobster and shrimp were false. Instead, the lawsuit argues, the Maine lobster served by Red Lobster are not sustainably sourced and the farmed shrimp used by the restaurant chain are not responsibly sourced. The lawsuit alleges that Red Lobster’s purveyors instead use environmentally damaging and inhumane methods for catching or harvesting the seafood supplies.  As such, marketing statements made on Red Lobster’s menus and in other advertising were false and misleading.

The claims in the Complaint range from allegations that fishing practices harm whale populations to allegations of inhumane treatment of female shrimp to boost reproductivity to allegations of antibiotic and chemical use in shrimp farms to promote rapid growth. The relief sought in the lawsuit is injunctive relied for the court to stop any practices found to be deceptive and misleading, as well as over $5 million in damages (which are as of yet unspecified in terms of exact amount).

Last week, Red Lobster fought back, arguing that the plaintiffs’ allegations regarding the marketing slogan and the information on the restaurant chain’s menus are overbroad. Instead, the company argues, the language on the menus merely invites diners to visit the Red Lobster website to learn more about the company’s commitment to sustainable, tracing and sourcing initiatives. The plaintiffs disagree and argue that an ordinary consumer would not view Red Lobster’s menus as merely a “redirect” to the company’s website, but instead an assertion about the products found on the menu.

Corporate Preparation Is Key

In less than two months in 2022, the fashion industry, the cosmetics industry, and the restaurant industry have seen litigation and regulatory agency activity increase with respect to greenwashing concerns. Restaurant greenwashing complaints provide a natural supply of potential plaintiffs for potential class action lawsuits given the number of consumers that would be subject to the reach of marketing by the industry. We predict that 2022 will see a great degree of regulatory enforcement action and legislation seeking to curb over zealous marketing language or statements that could be seen as greenwashing, and the Red Lobster lawsuit is certainly one to watch to determine the future impact on the industry.

While there are numerous avenues to examine to ensure that ESG principles are being upheld and accurately conveyed to the public, the underlying compliance program for minimizing greenwashing allegation risks is absolutely critical for all players putting forth ESG-related statements. These compliance checks should not merely be one-time pre-issuance programs; rather, they should be ongoing and constant to ensure that with  ever-evolving corporate practices, a focused interest by the regulatory agencies on ESG, and increasing attention by the legal world on greenwashing claims, all statement put forth are truly “ESG friendly” and not misleading in any way.

This article was written by John Gardella of CMBG3 law firm. For more articles on greenwashing, please see here.

Greenwashing and the SEC: the 2022 ESG Target

A recent wave of greenwashing lawsuits against the cosmetics industry drew the attention of many in the corporate, financial and insurance sectors. Attacks on corporate marketing and language used to allegedly deceive consumers will take on a much bigger life in 2022, not only due to our prediction that such lawsuits will increase, but also from Securities & Exchange Commission (SEC) investigations and penalties related to greenwashing. 2022 is sure to see an intense uptick in activity focused on greenwashing and the SEC is going to be the agency to lead that charge. Companies of all types that are advertising, marketing, drafting ESG statements, or disclosing information as required to the SEC must pay extremely close attention to the language used in all of these types of documents, or else run the risk of SEC scrutiny.

SEC and ESG

In March 2021, the SEC formed the Climate and Environmental, Social and Governance Task Force (ESG Task Force) within its Division of Enforcement. Hand in hand with the legal world’s attention on greenwashing in 2021, the SEC’s ESG Task Force was created for the sole purpose of investigating ESG-related violations. The SEC’s actions were well-timed, as 2021 saw an enormous increase in investor demand for ESG-related and ESG-driven portfolios. There is considerable market demand for ESG portfolios, and whether this demand is driven by institute influencers or simple environmental and social consciousness among consumers is of little importance to the SEC – it simply wants to ensure that ESG activity is being done properly, transparently and accurately.

Greenwashing and the SEC

The SEC has stated that in 2022, it will be taking direct aim at greenwashing issues on many different levels in the investment world. As corporations and investment funds alike increasingly put forth ESG-friendly statements pertaining to their actions or portfolio content, the law has thus far failed to keep pace with the increasing ESG statement activity. It is into this gap that the SEC sees itself fitting and attempting to ensure that the public is not subject to greenwashing. In order to tackle this objective, expect the SEC to focus on the wording used to describe investments or portfolios, what issuers say in filings, and the statements made by investment houses and advisors related to ESG.

From this stem several topics that the SEC’s ESG Task Force will scrutinize, such as: whether “ESG investments” are truly comprised of companies that have accurate and forthright ESG plans; the level of due diligence conducted by investment houses in determining whether an investment or portfolio is “ESG friendly”; how investment world internal statements differ from external public-facing statements related to the level of ESG considerations taken into account in an investment or portfolio; selling “ESG friendly” investments with no set method for ensuring that the investment continues to uphold those principles; and many others.

2022, the SEC, and ESG

Given the SEC’s specific targeting of ESG-related issues beginning in 2021, we predict that 2022 will see a great degree of SEC enforcement action seeking to curb over zealous marketing language or statements that it sees as greenwashing. Whether these efforts will intertwine with the potential for increased Department of Justice criminal investigation and prosecution of egregious violators over greenwashing remains to be seen, but it is nevertheless something that issuers and investment firms alike must closely consider.

While there are numerous avenues to examine to ensure that ESG principles are being upheld and accurately conveyed to the public, the underlying compliance program for minimizing greenwashing allegation risks is absolutely critical for all players putting forth ESG-related statements. These compliance checks should not merely be one-time pre-issuance programs; rather, they should be ongoing and constant to ensure that with  ever-evolving corporate practices, a focused interest by the SEC on ESG, and increasing attention by the legal world on greenwashing claims, all statement put forth are truly “ESG friendly” and not misleading in any way.

Article By John Gardella of CMBG3 Law

For more environmental legal news, click here to visit the National Law Review.

©2022 CMBG3 Law, LLC. All rights reserved.