"Stock-Drop Lawsuits Could Be Coming for Fashion Brands Over Vague ESG Messages", 28 Apr 2021

To keep up with consumer and investor pressures, companies are rushing to tout their dedication to Environmental, Social, and Corporate Governance (“ESG”) ventures, often making generalized statements about circular business models and “sustainability,” pushes for diversity and inclusion, and quests to cut down on their carbon emissions. Given the lack of concrete legal definitions for terms, such as “sustainability,” “green,” “eco-friendly,” “ethical,” etc., and in many cases, a dearth of industry-wide metrics for gauging emissions or standards for uniformly reporting diversity initiatives, it is commonplace for companies to publicize largely vague efforts in the ESG vein in their marketing campaigns and even in filings with the Securities and Exchange Commission (“SEC”).

The absence of such standards, paired with the aspirational and often non-committal nature of many companies’ proclamations have enabled them to tout – and in many instances, over-state – the merits of their ESG initiatives without legal ramifications. That may soon be subject to change, and “when stock prices drop as a result of specific ESG issues, these seemingly unobjectionable statements may become actionable,” according to Bracewell LLP’s Keith Blackman, Joshua Klein, Rachel Goldman and Russell Gallaro. This is the message that is being sent by way of a handful of new ESG-centric lawsuits, including one that recently landed before the Supreme Court, and new efforts being carried out by the Biden Administration, which “may be a harbinger of a wave of litigation in coming years.”

... [M]arket players need to be sure “not to undercut their public statements with contradictory actions,” per Blackman, Klein, Goldman and Gallaro, who note that “a few companies have already been the target of lawsuits claiming that [they] failed to live up to their aspirational statements.” Such stock-drop cases follow a similar pattern, the Bracewell attorneys assert: “When a negative event causes a drop in a company’s share price, shareholders bring a class action lawsuit, arguing that the negative event renders a prior statement issued by the company false or misleading.”...

In short, “Companies that issue generalized disclosures concerning ESG issues could be vulnerable to the risk of expensive shareholder-driven litigation.”