Energy & Sustainability Litigation Updates — October 2022
Regulatory Developments Among State AGs. Over the past few weeks, various state attorneys general have either issued guidance or initiated enforcement actions in connection with ESG ratings. Specifically, among other things, nineteen state attorneys general, spearheaded by the Attorney General of Missouri, have announced an “investigation into ESG (environmental, social, governance) investing ratings company Morningstar Inc. and its subsidiary Sustainalytics for alleged consumer fraud or unfair trade practices” in connection with certain allegedly misleading ESG ratings. This particular investigation has focused in particular on how certain ESG ratings may have violated state laws against the BDS movement (a Palestinian-led campaign for “boycott, divestment, and sanctions” against Israel), although it also seeks to investigate the reliability of ESG ratings generally. Additionally, the attorneys general of Louisiana and Indiana each separately issued guidance that investment firms that “utilize ESG factors or criteria without full disclosure . . . are likely in violation of their fiduciary duties.” This suggests that these state attorneys general, among others, will be closely scrutinizing investor disclosures from investment firms that publicly state their support or reliance upon ESG criteria to evaluate whether such disclosures are deemed adequate. And, since this issue is seen as politically salient, prosecutions concerning the use of ESG criteria should be expected. Based upon these developments, it should be expected that firms — especially in financial services — that employ ESG criteria or ratings should expect considerable regulatory scrutiny from state attorneys general, who are apparently devoting resources and attention to this issue.