Litigation & Regulatory Update

SEC Enforcement: In its yearly summary of enforcement activity, the SEC chose to highlight ESG-related issues as one of only a handful of subject matter areas that the SEC is focused on, indicating the significant priority assigned to this area. On a related note, a week later, the SEC announced a settled enforcement action against a major investment bank for policies and procedures failures concerning funds marketed as ESG investments. The SEC Division of Enforcement’s Climate and ESG Task Force has been bringing (and investigating) an increasing number of actions since its formation in March 2021, nearly two years ago.

Regulatory: In November, the Biden administration proposed that all federal contractors receiving more than $7.5 million annually in contracts would be required to, among other things, disclose their greenhouse gas (GHG) emissions. This proposal is quite similar to the climate disclosure rule proposed by the SEC, which is now expected to be promulgated in final form in early 2023. Additionally, the Department of Labor announced a final rule that enables ERISA fiduciaries to consider ESG factors when selecting investments (overturning certain regulations from the Trump administration).

Congress: Shortly before the midterm elections, certain prominent Republican Senators threatened to “increasingly use [Congress’s] oversight powers to scrutinize the institutionalized antitrust violations being committed in the name of ESG, and refer those violations to the FTC and the Department of Justice.” As the Republican Party failed to capture control of the Senate, any such antitrust investigations would be likely to proceed under the aegis of the relevant House committees and subcommittees. And it is unlikely that the Biden administration, given its own policy priorities, will direct the Department of Justice or other federal agencies to proceed with this line of inquiry.