The "news" about ESG has recently been overwhelmingly that it is dead – killed by some regulators and fatigued consumers. Although, rumors of its demise are not borne out on the ground floor of corporate transactions, Hurricanes Helene and Milton may suddenly change consumer perception in dramatic fashion, injecting new vigor into advertising about carbon emissions reduction imperatives. As of this writing, Helene had brought tragic and historic damage to the Southeast and a severe and growing Hurricane Milton was bearing down upon the hurricane-weary Florida coast, spurring evacuation orders across the state. There seems little doubt that warmer Gulf Waters are spurring storm intensification. The consensus among scientists is that global warming is driven by carbon emissions.

Against this backdrop, the remaining "climate deniers" are likely to become increasingly isolated, as other citizens become more concerned and motivated. The immediate thing that consumers might do is to direct their purchasing behavior preferentially to companies they perceive to be reducing carbon emissions.

That said, anti-greenwashing litigation is at an all-time high and growing. Companies that have made initial, yet incomplete, progress frequently find themselves the targets of activists and plaintiffs' lawyers who reason that the steps are not strong enough to achieve benefit. The truth is, no single corporate action will change climate. Nobody will ever prove otherwise. It is the collective that matters. So, scrutiny of advertising must focus on whether corporations live up to their promises.

The latest target of climate vitriol? Offsets. The theory goes that any company relying on voluntary carbon market offsets to achieve carbon neutrality or net zero goals is getting a “free pass.” Not only are offsets often factually dubious, critics reason, using offsets gives the corporation an excuse to do nothing to reduce its own emissions.

This vitriol is misguided in my view. Provided the offsets are legitimate, which can be evaluated, there is no good reason to deny their use. If the offset market works properly, the offsets will reach a price that discourages overuse. Stated another way, in properly functioning markets, as offsets get more scarce and expensive, it will be cheaper to reduce carbon emissions instead. Legitimate offsets are indeed removing carbon from the atmosphere. As a practical matter, I am not aware of a substantial number of companies making no or minimal effort to reduce their own carbon emissions, but simply buying offsets in order to advertise a carbon reduction claim. Such a strategy would be expensive, hard to administer, and legally perilous.

Indeed, the Biden Administration has issued a broad endorsement of offset use, stating in part: “we believe [voluntary carbon markets] can and should play a meaningful role in facilitating global greenhouse gas emissions reductions and removals and helping to reach global net-zero emissions by 2050 and limit warming to 1.5 °C.” 

In the next two years, in the words of KPMG, we will shift from voluntary to mandatory climate disclosures. This means that Audit Committee oversight of these disclosures will become more critical. Unfortunately, according to a 2022 KPMG survey, fewer than 15% of respondents said their ESG reporting had attained maturity in compliance, data controls, risk analysis and oversight. This is no match for the growing array of mandatory reporting requirements, in the U.S. (at the state and federal levels) and overseas. What's more, these reports will serve as a treasure trove of insights for activists, competitors and class action lawyers – who will seek to compare mandatory reports with what the companies have said in marketing. Marketers may lie, exaggerate, or shade the truth. Corporations, however, generally try to tell the truth in reports that are sworn under penalty of perjury. If mandatory carbon disclosure laws come to pass, any advertising mistruths will come home to roost.

In related news, a lawsuit was recently filed against Maryland and its Public Service Commission, seeking a judgment that a new Maryland law restricting what renewable energy suppliers can say about their use of Renewable Energy Credits violates the First Amendment. The law purports to require that such suppliers procure at least 51% of their RECs within Maryland in order to claim that they sell 100% renewable power to state residents. Currently, suppliers may procure RECs anywhere in the country and make the claim, consistent with FTC Guidelines. The new law would change that, however, which has led to the newly-filed litigation. This seems like yet another example of the legislature weighing foreign reductions in carbon output as less beneficial than local reductions.