ESG Weekly Update – January 19, 2024

19 January 2024

U.S.: Supreme Court Permits Minnesota Suit against Fossil-Fuel Companies to Proceed in State Court

On January 8, 2024, the U.S. Supreme Court declined a jurisdictional challenge to a Minnesota lawsuit brought against the American Petroleum Institute, ExxonMobil and three Koch Industries subsidiaries (the “Defendants”). The lawsuit, originally filed in 2020 by Minnesota Attorney General Keith Ellison, alleges that the Defendants deliberately misled consumers by concealing evidence of the connection between fossil fuel use and global warming. It asserts claims for fraud, failure to warn and violations of Minnesota state laws that prohibit false advertising and deceptive trade practices.

The Defendants applied for the lawsuit to be heard in federal court, rather than the Minnesota state court, on the basis that climate-related issues like global warming are a matter of federal law. The Supreme Court denied the Defendants’ writ of certiorari without providing reasons.

Supreme Court Order (23-168)
Defendants’ Petition for Cert
Minnesota’s Reply Brief to Petition for Cert

U.S.: Missouri Court Denies Dismissal of SIFMA Challenge to the State’s Anti-ESG Rules for Financial Advisors

On January 5, 2024, a federal district court in Missouri denied the state’s motion to dismiss the challenge brought by the Securities Industry and Financial Markets Association (“SIFMA”) against Missouri rules that require disclosure of and consent to any “nonfinancial objective(s)” used in investment decisions.

The Missouri rules went into effect last July, requiring broker-dealers, investment advisors and their agents to disclose any “nonfinancial objective(s)” used in discretionary investment decisions and to obtain customer consent before undertaking such investments. In August, SIFMA filed a federal lawsuit to challenge these rules on the grounds that they: (1) fail to acknowledge that federal law already requires financial advisors to act in the best interest of their clients when providing personalized investment advice; (2) are “grossly overbroad”; (3) treat common considerations used to make investment decisions as “nonfinancial objectives”; and (4) violate aspects of the National Securities Markets Improvement Act of 1996 (“NSMIA”) and the Employee Retirement Income Security Act of 1974 (“ERISA”), as well as the U.S. Constitution.

In denying the motion to dismiss, the court found that SIFMA had adequately alleged that the Missouri rules are preempted by NSMIA and ERISA and that they violate the First Amendment’s prohibition against compelled speech.

Order on Motion to Dismiss
SIFMA Complaint

Australia: Regulator Increases Anti-Greenwashing Efforts

On January 6, 2024, the Australian Securities and Investments Commission (“ASIC”) announced an increased focus on greenwashing, declaring an intent to eliminate unsubstantiated claims by funds that their investments are “net zero” or “carbon neutral.” In 2023, ASIC brought enforcement actions against three funds for greenwashing, including one that falsely claimed to exclude investments in companies operating in the fossil fuel, gambling and alcohol industries. In its announcement, ASIC highlighted the importance of regulatory enforcement against greenwashing activities given that investors often are not in a position to verify such claims independently.

In June 2022, ASIC published guidelines on greenwashing, outlining disclosure obligations and encouraging “truth in promotion” and “clarity in communication” in order to avoid misleading or deceptive practices. The guidelines provide explanatory notes and examples, seeking to guide companies in their efforts to avoid greenwashing.

ASIC Speech (2023)
ASIC Guidelines (2022)

Global: Climate Activist Group Files Complaint against Canadian Banks over Green-Finance Claims

On January 9, 2024, Investors for Paris Compliance, a climate activist group, filed a complaint against five large Canadian banks alleging that they had misled investors through their use of terms such as “sustainable finance.” The complaint asserts that climate-related claims made by the banks lacked proper disclosures around their carbon emissions and that their “sustainable finance” actually had the potential to increase greenhouse gas emissions.

A number of Canadian banks have issued sustainable finance pledges totaling up to $2 trillion by 2030, consisting of lending activities such as green bonds and sustainability-linked loans. The activist group has urged an investigation into the banks’ sustainability claims, arguing that certain financing deals labeled “sustainable” in fact involved financing non-green activities such as the fossil fuel industry.

Investors for Paris Compliance Press Release