As the 2020s progress, discussions about climate change, the environment and issues related to equality and diversity are at the center of many people’s minds.
Business is no exception, with banks, energy producers and a host of other large companies eager to propagate their sustainability credentials through advertising, pledges, social media campaigns and a range of other initiatives.
Many of these claims are now viewed through the prism of ESG, or environment, society and governance.
It has become a hot topic in recent years, with a wide variety of organizations seeking to boost their sustainability credentials – and public image – by developing business practices that they claim fit ESG-related criteria.
But here’s the problem: definitions of ESG often vary and are difficult to pin down. That, in turn, can cause headaches for companies looking to line up with regulators and authorities.
Take the situation in the UK. “One of the biggest problems in this area is that there is no overarching regulation or statute in the UK governing ESG compliance,” Chris Ross, a commercial partner at London law firm RPC, told TSWT via email.
“There is rather a patchwork of national and international regulations.”
Those rules, he said, were “administered by a diverse set of bodies” including Companies House, the pension regulator, the Financial Conduct Authority, the Environment Agency, the Financial Reporting Council and “relating to European law, the European Commission”.
Ross further detailed his point, describing ESG as “an umbrella term.”
It covered “a very broad spectrum of considerations, from climate and pollution-related issues through bribery and corruption, anti-money laundering, diversity and inclusion… health and safety, to modern slavery,” he said.
“Developing a universal definition would be practically impossible,” Ross added, “and in the near future, companies will have to ensure that they comply with relevant laws and regulations.”
Control, prohibitions and punishments
Today, companies that label their products or services as ESG, sustainable or similar find their business practices and claims under scrutiny by lawyers, the public, environmental organizations and regulators.
At the end of August, for example, an advertisement by Unilever, the consumer goods giant, for its detergent brand Persil was banned by the British Advertising Standards Authority.
In a detailed statement, the ASA concluded that the ad, describing Unilever’s product as “kinder to our planet”, “would likely be misleading” and “should not appear in its current form again”.
In a statement to TSWT, a Unilever spokesperson said it was “surprised” by the ASA’s decision and that the ad had “been cleared for broadcast on a number of occasions”.
“We recognize that this decision reflects a recent and important evolution in the ASA’s approach to substantiating environmental claims and welcome the new benchmark the ASA sets for advertisers,” the spokesperson added.
“Persil will continue to lead the way in bold environmental improvements in the laundry category and provide evidence to support ‘tough on stains, kinder to the planet’ for future campaigns in line with evolving demands.”
Claims about sustainability and ESG are also being scrutinized in the United States.
In March 2021, the U.S. Securities and Exchange Commission announced the creation of a Climate and ESG Task Force in the Division of Enforcement, saying it would “proactively identify ESG-related misconduct.”
Since its inception, the task force has come across some big names, including BNY Mellon Investment Adviser.
In May, the regulator announced that it had charged BNYMIA for “misstatements and omissions on environmental, social and governance (ESG) considerations in making investment decisions for certain mutual funds it managed.”
The SEC said its order determined that “from July 2018 to September 2021, BNY Mellon Investment Adviser represented or implied in various statements that all investments in the funds had undergone an ESG quality assessment, although that was not always the case.”
“The order finds that many investments held by certain funds did not have an ESG quality assessment score at the time of investing,” it added.
The SEC said BNYMIA had not admitted or denied its findings, but agreed to a censure, a cease and desist order and payment of a total fine of $1.5 million.
In a statement to TSWT, a spokesperson for BNY Mellon said that BNYMIA was “pleased to resolve this matter regarding certain statements it has made regarding the ESG assessment process for six U.S. mutual funds.”
“While none of these funds were part of the BNYMIA ‘Sustainable’ fund range, we take our regulatory and compliance responsibilities seriously and have updated our materials as part of our commitment to ensuring that our communications with investors are accurate and complete,” the spokesperson added. .
This image, from January 2019, shows a rescue worker taking a break after a dam collapse at a Vale mine in Brazil’s Brumadinho.
Mauro Pimentel | TSWT | Getty Images
It’s not just the financial world that has caught the attention of the SEC.
In April, it accused Brazilian mining giant Vale of “false and misleading claims about the safety of its dams prior to the collapse of the Brumadinho Dam in January 2019”.
“The collapse killed 270 people” and caused “immeasurable environmental and social damage,” the SEC said.
The SEC’s complaint alleges, among other things, that Vale has “regularly misled local governments, communities and investors about the safety of the Brumadinho Dam through his environmental, social and regulatory disclosures.”
When contacting TSWT, Vale — which has an “ESG portal” on its website — referred to an April 28 statement.
“Vale denies the SEC’s allegations,” the company said, “including claims that the disclosures violated U.S. law, and will vigorously defend the case.”
“The company reiterates the commitment it made immediately after the dam burst, and which it has since led, to remediate and compensate for the damage caused by the event.”
More greenwashing lawsuits
In June, the Grantham Research Institute on Climate Change and the Environment and the Center for Climate Change Economics and Policy published the latest edition of a report on trends in climate change disputes. It revealed a number of important developments.
Globally, the cumulative number of climate change-related lawsuits has more than doubled since 2015, the report said.
“Just over 800 cases were filed between 1986 and 2014 and over 1,200 have been filed in the past eight years, bringing the total in the databases to 2,002,” it added. “About a quarter of this was filed between 2020 and 2022.”
The report also pointed to growing momentum on the greenwashing front. “Climate-related greenwashing lawsuits or ‘climate-washing’ lawsuits are gaining momentum,” it said, “with the aim of holding companies or states accountable for various forms of inaccurate climate information before state courts and other agencies.”
The greenwashing debate is heating up, with the accusation often being leveled at multinational companies with huge resources and significant carbon footprints.
It’s a term environmental organization Greenpeace UK calls a “PR tactic” used “to make a company or product appear eco-friendly without meaningfully reducing its environmental impact”.
An ongoing trend?
In Europe, Reuters reported in late May that the offices of asset manager DWS and the headquarters of Deutsche Bank, its main owner, had been raided by German prosecutors. Citing prosecutors, Reuters said the raids were related to “accusations by misleading investors about “green” investments.”
Deutsche Bank has not responded to TSWT’s request for a statement on the matter. In August, DWS said the allegations reported in the media were “baseless,” adding that it stuck with its “annual report disclosures.” We firmly reject the allegations made by a former employee. part of his fiduciary role on behalf of his clients.”
This summer, a number of environmental organizations also filed a lawsuit against aviation giant KLM.
In a statement dated July 6, ClientEarth, one of the groups involved, said the lawsuit was filed “after the airline refused to stop advertising misleading claims that they make flying sustainable”.
KLM, which says on its website that it is “committed to creating a more sustainable future for aviation”, did not respond to a request for comment.
For his part, RPC’s Chris Ross said high-profile lawsuits, such as the one against KLM, showed there was both “the willingness and the resources to file claims against major companies to test and scrutinize their ESG claims. “
Ross continued on his point, also referring to the submission of a resolution to HSBC by private shareholders and institutional investors in February 2022.
“We can expect this trend of scrutiny and direct action to continue,” Ross added. “Against that background, it is in the interest of organizations to ensure effective governance and strict compliance with ESG requirements to prevent, or at least reduce, the risk of lawsuits.”