This blog frequently covers the evolving legal landscape surrounding ESG. There’s no doubt that over the past several years, anti-ESG has become a driving force in ESG litigation. Investigations and cases started emerging in 2022 and have only grown in number. The legal theories underpinning the movement seldom find success, but that hasn’t slowed anti-ESG down. A recent article in The D&O Diary examines Texas’s most recent suit against proxy advisory firm ISS, and explains the ramifications for D&O risk exposure:
“If proxy advisors face increasing legal or political pressure concerning ESG-related recommendations, the effects could ripple throughout the broader governance landscape. Boards may face evolving shareholder expectations, inconsistent voting standards, and greater uncertainty regarding governance best practices. That uncertainty itself may contribute to D&O exposure because governance disputes often arise not because boards ignored risks entirely, but because stakeholders disagree regarding which governance approach was appropriate under evolving standards and expectations.
The Texas lawsuit against ISS demonstrates that ESG-related D&O exposure is not disappearing even as portions of the ESG movement encounter political resistance. Instead, the litigation theories continue to evolve. ESG disputes increasingly are being reframed through the language of fiduciary duty, governance integrity, shareholder rights, and disclosure accuracy. Public companies, institutional investors, proxy advisors, and governance professionals now face litigation risks not only for allegedly overstating ESG commitments, but also for allegedly incorporating ESG considerations into governance decision-making at all.”
The possibility of a ripple effect is serious and could undermine governance efforts across the economy. If ISS, one of the major players in setting the standard for good governance, is found liable, then that could create a cascading effect across all public companies. However, ISS is currently committed to fighting the Texas litigation.
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