ESG has gone through many changes since rising to prominence. The most recent trend, anti-ESG backlash, substantially contributes to ESG-driven legal risks. What were once fringe legal theories pushed by a handful of Attorneys General are gaining traction and manifesting in actual litigation. Additionally, the new administration is overtly hostile to ESG and DEI, further driving legal risk. A recent memo from Dechert describes the trends stating:
“Since we last wrote on litigation risks related to the ESG-backlash in the United States, the market and investing environment with respect to ESG has continued to shift significantly. Coinciding with these shifts has been increasing legal risks associated with ESG strategies. This shifting landscape further underscores that ESG strategies reside at the intersection of political, reputation, commercial, and legal tensions. We anticipate these tensions will continue to increase in the second Trump administration, particularly where federal policies may create further divergence both within the United States between ‘blue states’ on the one hand and the U.S. government and ‘red state’ on the other.”
The memo lists a number of cases and developments contributing to the new legal landscape including changes in SEC policy, the first antitrust case aimed at climate pacts, and legal action against Target for risks associated with its DEI initiatives. While anti-ESG is firing on all cylinders, stepping back from ESG may not reduce litigation risks. Pro-ESG litigants will inevitably rally in blue states and new developments in international law will further fragment the world of ESG compliance. Unfortunately, many companies are in a position with no easy answers and the best path forward might be one focused on business fundamentals and risk management.
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