Government-Involved ESG Litigation

ESG’s heel turn has predictably spawned litigation, with much of it brought against the government. Given the outsize role ESG has played in policy debates in recent years, this comes as no surprise. Below, we will outline the kinds of ESG- and sustainability-focused claims pursued against private parties and contrast these claims to government-focused ESG claims which are becoming more frequent. 

ESG Litigation Against Private Parties

At least in the United States, “ESG litigation” as a concept is relatively new, and its contours continue to evolve. We previously wrote that ESG and sustainability litigation generally was intended to drive policy change. Building on this concept, we categorized ESG-related claims into the following buckets:

• Climate- and carbon-focused litigation. (For more, see here.)
• Circular economy-focused litigation. (See here.)
• Litigation focused on broader social concerns like environmental justice or supply chain issues. (See here, here, and here).

ESG-focused claims against private parties continue to proliferate, with major cases involving the petroleum industry, airlines, and plastic and petrochemical companies all featuring in the headlines in recent months. We expect that these concerns will continue through 2024 and that litigation in this space will likewise continue to proliferate.

ESG Litigation Against Governmental Entities

Throughout the past year, ESG and sustainability cases have increasingly been filed against governmental agencies. We will explore the varied reasons for this below.

Claims Focused on New Regulations

Regulatory attention to ESG issues proliferated in 2023. The US Department of Labor (DOL), Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), California, and European Union all considered or finalized ESG-related regulations in 2023, with more to come this year. DOL’s pension-related regulations already resulting in a court challenge that has been finalized in DOL’s favor and business groups challenged California’s climate disclosure laws (SB 253 and SB 261) challenged in recent weeks. Given both the financial importance of these issues as well as the degree to which they politically resonate, we expect to see litigation routinely follow regulatory actions.

Claims Stemming from ESG-related Political Pressure

A second area where ESG-related concerns are likely to result in litigation relates to non-regulatory political pressure focused on ESG issues. Given the breadth of ESG, litigation of this sort could run the gamut from diversity, equity, and inclusion (DEI)-focused litigation against military service academies rejected by the US Supreme Court this week through actions like Wong v. New York City Employees’ Retirement System, currently pending in New York state court, which we previously discussed here. Wong is a New York state breach of fiduciary duty case alleging that teachers’ retirement system plan administrators breached their duty to plan participants by divesting from fossil-fuel related businesses. The Wong complaint ties political pressure on pension plan managers to the loss in opportunities on pension plan participants as many fossil-fuel tied companies in the energy industry have had record profits in recent years.

Claims Demanding Additional Regulations Based on Right to Sustainable Governance or State “Green Amendments”

Finally, government agencies are likely to face litigation based on a right to a sustainable environment. Two cases brought by youth activists, Juliana v. United States (see here) and Held v. State of Montana (see here), have grabbed headlines this year, with Juliana reportedly headed back to the Ninth Circuit soon on an appeal of a trial court ruling permitting the case to move forward. Held was brought by youth against the State of Montana for violating their state constitutional right to a healthy environment. The youth plaintiffs prevailed in Montana District Court in August 2023 and the Montana Attorney General has appealed. Both of these cases hinge on the “public trust doctrine,” i.e. the principle that the government must run itself in a way that guarantees a habitable environment over the long term. Absent particulars in individual states, “public trust doctrine” cases are typically filed by plaintiffs as part of a broader issue-focused campaign with knowledge that they are difficult to win in court. Separate from these, “Green Amendment” language purporting to provide constitutional rights to environmental protection is being evaluated in states including Washington, New Jersey, and Hawaii; states including Montana, Pennsylvania, and New York already contain language of this type. The Held decision above is based on similar language in the Montana State Constitution. It is still too early to know whether “Green Amendment”-type language will have traction in these states.

Another youth case was recently filed against federal agencies claiming a right to sustainable governance. On December 10, 2023, 18 children from California filed a constitutional climate lawsuit, Genesis B. v. Environmental Protection Agency, a arguing that the US Environmental Protection Agency (EPA) violated the plaintiffs’ constitutional rights to Equal Protection and Due Process by failing to aggressively reduce greenhouse gas emissions. With many legal obstacles ahead, we are keeping an eye on how this case progresses.

Stay tuned for further updates.

The firm’s ESG team advises clients on understanding risks and benefits posed by increased regulatory focus on ESG and greenwashing issues.