Investors and consumers are demanding corporations provide environmental, social and governance (ESG) information. With the increased information sharing potentially comes increased litigation exposure. This article highlights potential litigation risks associated with ESG-related statements, a Pennsylvania litigation case example, and ways to mitigate ESG litigation risk.

Potential Causes of Action

Litigation concerning ESG statements arise primarily under consumer protection and anti-fraud statutes. The SEC has emphasized its plans for rulemaking and its focus on ESG-related disclosures, particularly with respect to climate risk. Federal and state governments have filed climate change nuisance lawsuits seeking to hold corporations liable for alleged false or misleading statements regarding the impact of the corporation’s business operations on climate change. Securities fraud litigation under Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 provide instructive examples of how ESG-related disclosures may be subject to close scrutiny after an adverse event impacts stock prices.

Elements of a Securities Fraud Claim