In previous blogs, we’ve discussed the importance of businesses taking the time to evaluate how ESG can help spur growth. In this week’s blog, we invited commercial litigator and ESG expert, Richik Sarkar, to share his perspective on rising trends in ESG litigation and his ideas to mitigate risk.
Many authors have predicted the downfall of Environmental, Social, and Governance (ESG) investing to minimize investor fears. These accounts point to political and corporate pushback on recent Securities and Exchange Commission (SEC) climate rules, investigations of ESG funds, and hedge fund statements tempering governance expectations. Focusing on these issues risks missing the point. At its core, ESG is a stakeholder initiative — including shareholders, consumers, employees, communities, etc. — and these groups will not abandon their values after the Business Roundtable utilized their perspective to define corporate purpose.
As a commercial litigator, I have a two-part theorem: (1) Business trends — especially those led by consumers and shareholders — attract regulatory attention; and (2) Increased regulation triggers increased litigation. ESG is following these rules. (1) Tracking the massive growth of ESG investments and corporate proclamations exalting commitment to ESG, (2) Increased regulation triggers expanded litigation. For example:
Consequently, enforcement and stakeholder litigation based upon regulatory, guideline, and rating failures, is increasing.
These actions and suits focus on (a) false information material to investment decisions or (b) a company’s failure to act per their rhetoric adversely affecting a stock’s value. For example:
Shoppers and investors spurred the desire for socially and environmentally positive products, feeding the inherent profit motive in “doing well by doing good.” Despite this, ESG has its business enemies. And while regulators may lose their political will to impose broad rule, once a litigation cycle begins, and checks are written, it will not end absent significant defense victories or governmental protections — both of which will take time to emerge. In the meantime, companies should:
Economic analysis of ESG issues will be largely academic, but managing shareholder ESG expectations to mitigate actual litigation risk will ultimately drive ESG’s impact on the corporate community.
Every business has environmental, social, and governance concerns. It is important to identify the risks, set standards, and find growth opportunities, especially for your stakeholders. We can help you address the environmental issues. Click below to reach out to us and we can help you identify, strategize, and implement your goals!
A litigation, data privacy, and ESG partner at Dinsmore & Shohl, Richik Sarkar, is a courtroom advocate, boardroom strategist, and collaborative leader. Richik advises owners, executives, and boards in the retail, financial services, and industrial sectors concerning business litigation and disputes, ESG, data privacy, corporate governance, and regulatory investigations. He also helps lead Dinsmore’s national ESG practice and translates ESG guidance into legal and practical implications for clients. Richik’s diverse background brings a unique perspective to situations, as he quickly identifies business and vision gaps and deploys creative and pragmatic ideas and leverage to ensure success. The former Chief Privacy Officer of a private company, Richik, is a data privacy expert.