Regulatory Update

On April 22, 2024, the federal government issued a rule “amending the Federal Acquisition Regulation (FAR)” to “implement a requirement for agencies to procure sustainable products and services to the maximum extent practicable.” In other words, federal contractors now have enhanced obligations to provide sustainable products and services as part of their contractual duties owed to the government.

Additionally, there have been certain initiatives on Capitol Hill worth remarking on. Congressional Democrats have submitted a letter urging the SEC to finalize an anti-greenwashing rule (first proposed in May 2022), which would compel funds and investment advisers to substantiate ESG strategies and practices through disclosures. (Similar letters have sometimes spurred action by the SEC.) Also, House Democrats on the Judiciary Committee have initiated a probe of Florida’s ban on the investment of state funds with entities considering ESG factors when making investments.

Finally, on the state level, Florida has now adopted a law that expressly seeks to minimize efforts to combat climate change — e.g., “removing current legislative findings related to global climate change”— and also prohibits the construction of offshore wind turbines near Florida beaches.

Litigation Update

There have been a number of recent significant legal decisions pertaining to ESG issues:

• On May 10, 2024, the Fifth Circuit rejected an attempt by the States of Texas, Louisiana, West Virginia, and Utah to invalidate an SEC rule “requiring funds to disclose their votes on environmental, social, and governance (ESG) matters.” Critics of this rule had complained that this could ultimately discourage investment in industries disfavored by ESG-focused investors. The court held that the states had failed to establish standing due to a lack of injury, but the concurring opinion noted that the states may be able to “assemble stronger evidence of injury,” which could lead to a revisiting of this dismissal on procedural grounds.
• On May 2, 2024, the Second Circuit upheld a district court’s award of summary judgment in favor of the defendant concerning certain class action claims that the phrase “All Natural” constituted greenwashing (in violation of consumer protection and false advertising statutes, as well as fraud claims). Significantly, even though a court had allowed these greenwashing allegations to survive a motion to dismiss, the plaintiff ultimately failed to carry its burden to introduce sufficient evidence to withstand summary judgment.
• On May 2, 2024, the Ninth Circuit finally dismissed the Juliana litigation, a long-running constitutional climate case — which had alleged that the government had knowingly violated the plaintiffs’ due process rights by encouraging and permitting the combustion of fossil fuels — for lack of standing.
• On May 7, 2024, in Keenan v. Russ, a state court judge in Oklahoma issued a temporary restraining order that blocks (for now) the enforcement of an Oklahoma law that deprives companies deemed to boycott the fossil fuel industry of the ability to conduct business with public entities in Oklahoma. In other words, an effort by Oklahoma to penalize companies that were considered to have boycotted the fossil fuel industry has now been blocked by an Oklahoma judge — due to the negative impacts of removing ESG-focused investment managers from the state retirement fund.

Additionally, there are a couple of noteworthy developments based upon actual or contemplated litigation by state attorneys general. First, the New York attorney general recently filed a lawsuit against the American subsidiaries of a Brazilian-based beef producer, featuring claims of greenwashing brought under New York’s consumer protection statutes centering upon misleading sustainability claims related to the consumption of beef. Second, the attorney general of Michigan has announced that her office “will begin seeking proposals from attorneys and law firms . . . to pursue litigation related to the climate change impacts caused by the fossil fuel industry on behalf of the State of Michigan.” So, climate change tort litigation brought by the State of Michigan should be expected in the near future.

International Developments

The European Parliament has now approved the “Corporate Sustainability Due Diligence Directive,” which will apply to both EU companies and to non-EU companies doing business in the European Union. The requirements imposed by this law are significant (albeit subject to a phased implementation), including the adoption of a climate transition plan in accordance with the Paris Agreement (limiting global warming to 1.5 degrees Celsius), as well as achieving net zero emissions by 2050. Significantly, many non-EU companies that do not conduct business within the EU will nonetheless essentially be brought within the scope of this law because those companies enter into business arrangements with companies that are subject to its provisions. In contrast, the UK has now delayed a decision on whether to impose mandatory climate disclosures until the first quarter of 2025, following the next general election.

Additionally, from the enforcement perspective, the European Commission and EU consumer authorities have sent letters to 20 airlines concerning allegations of greenwashing, focused in particular on climate offsets and the use of sustainable fuels. This action reflects an increasing focus on combatting greenwashing by various regulators and may signal that particular sectors of the economy (e.g., transportation and energy) may receive greater scrutiny.