/>iAs the election grows nearer, the implications of the outcome on environmental regulation come into focus.
Business engagement on ESG issues have been increasingly politically controversial. US Congress has weighed in on these issues, with the House Judiciary Committee claiming that ESG-related coalitions are anticompetitively colluding to impose ESG goals on American companies. As the landscape continues to evolve, regulated entities should be mindful that the current legal merits of antitrust challenges to ESG coalitions are only one variable to consider when evaluating options, given that legislators and regulators are increasingly seeking to apply pressure on these initiatives.
What Happened?
Going into the 2022 election, we discussed how ESG issues were becoming increasingly contentious and how the dialogue about ESG potentially implicated antitrust concerns. Unsurprisingly, the political debate has continued, and the perceived need for effective collective action to quell climate change has led more private entities to consider partaking in ESG-related coalitions.
In June, the House Judiciary Committee released an interim staff report detailing what it claimed was direct evidence of a “climate cartel” consisting of “left-wing activists and major financial institutions” that “collude to impose radical environmental, social, and governance goals on American companies” and have “declared war on the American way of life.” This paradigm lies at the center of the antitrust challenges we have detailed, but it is unclear whether these arguments would be enough to sustain an antitrust claim against an initiative like Climate Action 100+, the Glasgow Financial Alliance for Net Zero, or any of the other ESG-focused industry trade groups that have faced increased pressure in recent years.
One such coalition, Climate Action 100+, has been the focus of a recent investigation from the Republican-controlled House Judiciary Committee, which accused member companies of “colluding with climate activists… to adopt left-wing [ESG]-related goals, potentially in violation of US antitrust law” in letters sent to several of these companies on July 30.
Antitrust and Cartels
As noted in the interim staff report, antitrust law prohibits certain types of anticompetitive collusion, even if it provides broader social benefits such as achieving environmental goals. In the context of trade associations, the Federal Trade Commission and the US Department of Justice have offered guidelines to distinguish between legal practices and behavior that violates antitrust law. These guidelines highlight the use of intent in evaluating the impact of ambiguous agreements. Anticompetitive intent alone does not establish an antitrust violation, and procompetitive intent does not preclude a violation. But extrinsic evidence of intent can help courts and regulators evaluate market power, the likelihood of anticompetitive harm, and the validity of any claimed procompetitive justifications for a group’s actions.
In a response to the June report, Climate Action 100+ released a statement that sought to address concerns over potential anticompetitive intent, characterizing climate risk as a “material financial risk” that, if left unchecked, would “threaten investors’ long-term ability to sustain value and generate ongoing returns for their beneficiaries.” The argument inherent to this rhetoric seems clear: collective action by investors reacting to similar information with a similar goal — to safeguard long-term value generation — does not and should not implicate antitrust law, especially when the Climate Action 100+ investors continue to “act as independent fiduciaries, responsible for their individual investment and voting decisions.” Whether these arguments will be enough to defeat an increasingly fervent charge against this ESG initiative and others like it is yet to be seen.
As companies around the world face increased pressure from stakeholders to address a fundamentally communal issue — CO2 emissions and anthropogenic climate change — collective action through ESG industry groups is bound to attract increased antitrust scrutiny. Allegations of collusive efforts are not the only potential accusations of antitrust behavior businesses may face: interactions between direct competitors resulting in product licensing agreements or renewable energy technology sharing can bring about an increased level of antitrust scrutiny if these relationships could pose a barrier to entry to other potential competitors.
As of yet, no antitrust lawsuit has been brought against any climate coalition of companies. Nor is significant anti-ESG legislation likely to pass at the moment, given the current Democratic control of the White House and the Senate. But while the chair of the Judiciary Committee, through a spokesperson, has stated that “The goal of any investigation is to inform legislative reforms,” the July letters seemingly boast about a different effect of the Committee’s investigation: that “several of the world’s largest asset managers” had publicly withdrawn from Climate Action 100+ since the investigation began.
What to Watch
As businesses continue to partake in ESG-related coalitions, both regulators and legislators will continue to scrutinize standards and commitments made jointly by these businesses for any evidence of anticompetitive intent or impact.
In the wake of the latest series of letters from the House Judiciary Committee demanding information from over 130 US companies regarding their involvement with Climate Action 100+, it will be interesting to see what impact, if any, the continued pressure campaign will have on companies’ willingness to remain involved. As the letters state, “about a dozen” investor signatories pulled out of Climate Action 100+ over the prior six months.
Though none has come forth as yet, it will remain important keep an eye out for antitrust litigation that pops up in the ESG sphere. In a space without an abundance of useful precedent, any case could shape the landscape of ESG-related antitrust litigation into the future.
