With the ESG landscape evolving at a rapid pace, MLT Aikins is pleased to offer a curated list of timely and relevant ESG articles to help you stay current. Learn more about our ESG services.
Greenwashing crackdown expands across multiple jurisdictions
National authorities throughout the world are revamping and refining their advertising standards to address greenwashing. The European Parliament and the U.K.'s Advertising Standards Authority have taken steps to enforce stricter regulations on carbon-neutral claims, requiring companies to provide proof of the effectiveness of their offsetting schemes. In North America, the U.S. Federal Trade Commission (FTC) is revamping its Green Guides after a decade to address misleading environmental advertising, while the Canadian government is reviewing its Competition Act to enhance enforcement against greenwashing. Read more from Corporate Knights.
ASA continues greenwashing crackdown; Shell, Petronas and Repsol the next targets
The U.K.'s advertising regulator, the Advertising Standards Authority (ASA), has taken more than 20 enforcement actions against companies for greenwashing. Airlines, banks and automakers have been targeted by the ASA, providing insights into deceptive practices used by companies regarding sustainability. When advertisements are found to be misleading, they must be modified or removed in the U.K. The ASA's efforts align with similar scrutiny of greenwashing by the European Union, which has identified common tactics used by companies to mislead consumers. Both the ASA and the European Commission highlight strategies such as unclear comparisons, vague buzzwords and the omission of necessary information.
Three companies, Shell, Petronas and Repsol, have become the ASA’s next targets. The ASA states that these companies’ ads would likely mislead consumers about the companies' overall environmental impact. The banned ads included posters, TV ads and online display ads that highlighted the companies' clean energy initiatives. The ASA ruled that the ads breached codes on misleading advertising and environmental claims, as they omitted material information. The rulings reflect the ASA's increased focus on environmental claims in advertisements and its commitment to address unqualified claims of carbon neutrality or net zero. Read more from ESG Today.
FIFA feeling heat over “carbon-neutral” Qatar World Cup claims
The Swiss Fairness Commission has determined that FIFA made false and misleading statements about the environmental impact of the 2022 World Cup in Qatar. The investigation was prompted by complaints from several countries alleging that FIFA marketed the tournament as carbon neutral without sufficient evidence. FIFA has been advised to refrain from making unsubstantiated claims in the future. However, the commission's recommendations are not legally enforceable, and FIFA may appeal the decision. The Climate Alliance, a group of organizations that filed the complaint, expressed satisfaction with the ruling, stating that FIFA's false claims undermine efforts for carbon neutrality. FIFA has stated that it is aware of the environmental impact of its events and is making efforts to address them. Read more about the decision here.
EU passes “groundbreaking” law for large companies
No longer will the EU allow large companies to operate without a climate transition plan. In a majority vote, the European Parliament has favored new rules which call for companies to address the impact of their activities on human rights and the environment, align themselves with the Paris Agreement goals, and link directors’ compensation to ESG factors. The rules are part of the EU Commission's proposed corporate sustainability due diligence directive and would apply to companies with more than 500 employees and revenues exceeding €150 million, later extending to smaller companies. Non-EU companies with significant revenues earned in the EU would also be subject to the rules.
Non-compliance could result in sanctions such as fines up to 5% of a company's global revenues or bans from public procurement in the EU. The rapporteur on corporate sustainability emphasized that the inclusion of the climate transition plan requirement is groundbreaking and highlights the role of companies in promoting sustainability and environmental responsibility.
Airlines’ sustainability claims grounded
Two airlines, Delta and KLM, have had their ads and claims become subject to greenwashing suits.
Delta Air Lines is new to the party of companies facing greenwashing lawsuits over environmental claims. After alleging that it was the “world’s first carbon-neutral airline,” Delta is now the target of a class-action lawsuit in California. The class of plaintiffs allege that Delta is not, in fact, carbon neutral because it is relying on carbon offsets, which are ineffective. Further, the class claims that Delta was able to charge a market premium because of its carbon-neutrality claims.
In response, Delta states the lawsuit is without legal merit and that it has transitioned its focus away from carbon offsets toward decarbonization efforts. The case comes amid a broader regulatory crackdown on green claims in the U.K. and Europe, with other companies facing similar lawsuits. Read more from the Guardian.
Similarly, a Dutch suit against KLM over misleading advertisements about its environmental credentials will proceed to the next phase. The environmental group Fossil Free Netherlands hailed the decision as a victory in the fight against greenwashing. KLM, which has discontinued the targeted campaign, stated that it is ambitious in its climate approach and looks forward to presenting its case. Read more from Reuters.
ClientEarth may still have some gas in the tank in U.K. lawsuit against Shell
ClientEarth, an environmental NGO, recently saw its case against Shell’s board of directors dismissed by the U.K. High Court. However, ClientEarth has been granted a hearing to ask the U.K. High Court to reconsider that decision.
The lawsuit, filed in February, accused the directors of breaching their legal duties by failing to adopt an energy transition strategy aligned with the Paris Agreement. Institutional investors representing £4.5 trillion in assets backed the case. However, the High Court judge ruled that the case would not proceed, stating that ClientEarth's application and evidence did not disclose a strong enough case. The judge agreed with Shell's argument that the proposed duties sought to impose specific obligations on the directors. While acknowledging the material and foreseeable risks posed by climate change, the judge stated that ClientEarth had not demonstrated a breach of duty by the directors.
ClientEarth has the right to appeal the decision and is reviewing the judgment to determine its next steps. The decision has drawn disappointment from ClientEarth and supporters, who believe Shell's emissions reduction plans are flawed. They are urging the pension industry to use its influence and investments in Shell to push for ambitious emissions reduction targets. Shell welcomed the court's decision, asserting that the claim was fundamentally flawed and that its directors had always acted in the company's best interests. Read more from ESG Clarity.
Investors are looking to avoid climate litigation
A study by LSE's Grantham Research Institute has found that climate litigation poses a financial risk to fossil fuel companies by lowering their share prices. The study analyzed 108 climate crisis lawsuits filed between 2005 and 2021 against 98 U.S. and European companies and found that the filing of a new case or an unfavorable court decision reduced a company's expected value by an average of 0.41%. The stock market responded most strongly to cases against major carbon emitters, reducing their relative value by 0.57% after a case was filed and 1.5% after an unfavorable judgment. The researchers hope their findings will encourage financial regulators, lenders and governments to consider the impact of climate litigation on investment decisions and drive greener corporate behaviour. Read more from the Guardian.
ESG-bonuses becoming more popular among public companies
An increasing percentage of the largest public companies in the U.S. have begun linking ESG metrics to executive compensation packages. The inclusion of ESG goals in these packages reflects a growing recognition among boards that assessing executive performance should go beyond looking only at financial indicators. Some companies are keeping their ESG-related bonuses strictly to their executive officer teams, but there has also been a growing trend of companies linking ESG goals to pay at lower levels of the organization.
Chipotle and Papa Johns are two examples of companies that have implemented this scheme, resulting in a potential increase or decrease of executives’ overall bonus of up to 15%. However, their plans have attracted some scrutiny. Read more about the trend from CNBC.
No ESG plan becoming a no-go for future investors
PwC released a report indicating that more than three quarters of limited partner investors plan to cease investments in non-ESG products over the next two years. PwC canvassed 300 general and 300 limited partners in their report and identified that, while ESG-focused Assets Under Management are expected to reach as high as $4.5 trillion dollars, this scenario faces key challenges which include compliance requirements, data management and operational costs, prompting GPs to invest in technology and workforce capabilities to enhance ESG integration and reporting. Read more from ESG Today.
Clean and just transition? Shareholders placing more emphasis on social ESG factors
While much of ESG-related discussion focuses on the E in ESG (that is, the environmental considerations), some shareholders are equally concerned about the S: social factors. A new report from Sustainable Fitch indicates that shareholders are pressuring companies to incorporate Indigenous considerations into their sustainability strategies, as the potential impacts on Indigenous communities are becoming increasingly relevant for issuers and investors. The report examines the difficulties encountered by economies heavily reliant on extractive industries and with substantial Indigenous populations, using Canada as a case study.
Can pension funds support decarbonization while investing in fossil fuel companies?
Investors who put their pensions into funds claiming to be prioritizing decarbonization may actually be supporting major oil and gas companies, cautions the Carbon Tracker Initiative. Despite publicly pledging to limit global temperature rises, asset managers have invested $376 billion in oil and gas companies. The think tank found that more than 160 green-labeled funds held $4.6 billion in 15 companies, including ExxonMobil, Chevron and TotalEnergies. Even members of the Net Zero Asset Managers initiative, aimed at achieving net-zero emissions, have invested in these companies, with some increasing their holdings. The U.K.'s Financial Conduct Authority is set to release anti-greenwashing rules to address misleading investment fund labelling.
Approximately 50% of U.K. employees have the option to choose how their pensions are invested, and many emphasize sustainability or climate-focused. This makes it imperative that employees have the appropriate information available to them to invest their pension as they see fit. Read more from the Guardian.
Anti-ESG funds: Do some investors want to push back?
This new report, published by Morningstar, investigates the track record of so called “anti-ESG funds.” What are these funds? How have they performed? According to Morningstar, there is no simple answer to these questions with many different, un-unified funds falling within the category, each with their own philosophies and voting behaviours.
Morningstar suggests that the value of these funds peaked in Q3 2022 but has since tapered off. Read the full report here.
Golden state or smoldering state? Insurance company to cease home insurance in California
State Farm, the largest car and home insurer in the U.S., has announced that it will no longer offer new home insurance policies in California due to concerns over wildfire risk and rising construction costs. The company cited factors such as rapidly growing catastrophe exposure, increased construction costs outpacing inflation and a challenging reinsurance market as reasons for the decision. While State Farm will continue to accept auto insurance applicants, it will no longer accept applications for property and casualty insurance for both personal and business lines. Existing customers will not be affected by the change. This move by State Farm follows similar actions by other insurance companies that have chosen not to renew policies for California homeowners in the face of wildfire risks. Read more from the Guardian.
France preparing for life beyond 1.5°C
France is preparing for the potential impact of 4°C of global warming by the end of the century as countries are failing to meet the targets of the Paris Agreement. The French government has consulted the public in order to create a roadmap for adapting to climate change. Previous plans focused on scenarios with limited warming, but with current climate pledges, the world is projected to warm between 2.4°C and 2.6°C by 2100. The government now considers a "more pessimistic scenario" closer to 4°C of warming as a realistic possibility. This level of warming would lead to longer heatwaves, increased rainfall in some regions, extended droughts, water shortages and the disappearance of French glaciers. Read more about the plan at Euronews.
Parliament recognizes Canadians’ right to a healthy environment
Members of Parliament have passed amendments to the Canadian Environmental Protection Act (CEPA) – its first major update in almost 25 years. The bill introduces updates to control toxic substances, prioritizes the prohibition of hazardous substances and improves the management of toxins. Notably, the “right to a healthy environment” has been recognized in legislation for the first time, holding the federal government accountable for upholding the principles of environmental justice. Even so, a number of commenters believe CEPA requires further updates. Read more about the CEPA amendments at Ecojustice.