TheCorporateCounsel.net

Lawrence has been blogging on PracticalESG.com about “greenwashing” investigations and consumer lawsuits. This “D&O Diary” blog from RT ProExec’s Kevin LaCroix highlights another flavor of litigation that (not surprisingly) is becoming more common: securities class action lawsuits that allege that company’s have misrepresented their ESG progress.

Kevin describes a recent case that came about after a short report targeted a company that positioned itself as an ESG leader. Here are thoughts from Kevin:

All of these examples (and many others I have previously documented on this site) underscore a point I have made many times, which is that it is not the ESG laggards that are attracting D&O claims. The companies getting hit with ESG-related claims are in fact companies that have taken the ESG initiative. All of this is inconsistent with the D&O insurance industry’s current operating premise about ESG, which is that companies that are supposedly “good” on ESG are better D&O risks and therefore entitled to some (usually unspecified) underwriting advantage or break. All of the available data suggests that this premise is at a minimum incomplete and arguably misguided. The fact is that ESG as a D&O risk is a much more nuanced and multilayered issue than the D&O marketplace have been assuming.

I find this lawsuit interesting to contemplate in the context of a financial marketplace environment where companies are under pressure to demonstrate their ESG credentials. Activist investors, institutional investors, and, yes, D&O insurance underwriters, are creating an environment where companies are motivated to wrap themselves in the ESG flag. The danger is that companies eager to demonstrate their ESG virtues may be vulnerable to allegations of exaggeration, or execution error, or failure to follow through. All of these concerns may, as this case show, translate into D&O claims risk. For that reason, as I have said, even if the ESG laggards may be vulnerable to D&O claims, the companies taking the ESG initiative also may face D&O claims risk, perhaps even more so than the ESG laggards.

The uptick in greenwashing allegations shows that ESG disclosure controls are not a “nice to have” – they are necessary from a risk perspective. We discussed ESG litigation & investigation risks at our 1st Annual Practical ESG Conference a couple of weeks ago, with guidance delivered by Morrison Foerster’s Jina Choi, Beveridge & Diamond’s John Cruden, Ecolumix’s Doug Parker and Baker Mckenzie’s Peter Tomczak. The on-demand video archive & transcript of that conference is still available for purchase by emailing sales@ccrcorp.com. Members of PracticalESG.com can also take advantage of the practical checklists and other resources on that site, which walk through how to verify data, as well as give tips for how to deliver on your claims.

– Liz Dunshee