In recent years, companies and investment funds have touted their commitment to ESG – environmental, social and (corporate) governance — priorities. A commitment to these s something that many investors look for when determining where to put their money.
Not surprisingly, many companies claim prominently feature ESG in their marketing and investor materials – particularly the first one, with a lot of talk about sustainability and carbon neutrality. However, they don’t always live up to their hype. There’s even a term for this: greenwashing.
Thousands of greenwashing lawsuits worldwide
Regulators, environmental groups and investors are taking notice – and legal action. One research group found over 2,000 lawsuits in the U.S. and around the world over ESG claims – some against massive corporations. Companies including Shell, Nestle, Exxon Mobil and Coca-Cola have been accused of misrepresenting their commitment to sustainability. When they make specific pledges to things like emissions reductions that are measurable, it can be easier to hold them accountable when they fail to live up to those commitments.
Security and Exchange Commission actions
Earlier this year, Shell was the subject of an SEC action. The SEC is also investigating greenwashing allegations against the German investment fund manager DWS affiliated with Deutsche Bank. It’s been reported that the agency will announce a fine and likely reach a settlement this fall. The company has reportedly already set aside the equivalent of over $8.8 million to deal with civil lawsuits as investigations in its home country continue.
Financial and investment companies in the U.S. are also under the scrutiny of the SEC, which has committed to cracking down on greenwashing. Last year, it fined Goldman Sachs $4 million.
One researcher who studies ESG notes that “it’s hard to tell how much greenwashing there is, generally. Being sued, actually, seems to be probably the best mechanism to make sure that they really report honestly.”
One analyst noted, “The primary risks to issuers facing ESG litigation may not be financial, but reputational and operational.” All of this can, of course, be costly for investors. This kind of action required experienced legal guidance. If you’re considering such action, seeking that guidance is a wise first step.