In Part I of this article, we introduced the litigation risks that may arise from a company’s focus on environmental, social, and governance (“ESG”) issues, which appear to be receiving heightened attention amid the COVID-19 pandemic. In Part I, we discussed securities law claims that may arise from a company’s failure to meet its own ESG-related standards. Here, in Part II, we focus on potential claims that a company’s ESG disclosures mask poor financial performance, as well as other legal risks associated with ESG.
Securities Law Claims Relating to Financial Performance As discussed above, shareholder plaintiffs may challenge ESG disclosures to the extent that a company fails to live up to its own touted standards. Additionally, ESG disclosures may expose a company to very different, but equally troublesome, claims that the company has promoted ESG factors in order to mask poor financial performance.
