More ESG Class Actions Are Coming. Economic Analysis Can Help

As pressure to make ESG disclosures rises, business leaders open themselves to significant legal risk. Here’s what they should know.

Are environmental, social, and governance (ESG) disclosures corporate America’s latest double-edged sword?

Even supportive business leaders face mounting pressure—from regulators, investors, shareholders, and consumers—to be proactive and transparent about ESG issues. Yet doing so can make them vulnerable to legal and reputational risks.

Proof positive, ESG-related class actions are now being filed regularly across virtually all business sectors. According to a recent survey of general counsel and in-house litigators, nearly one-third saw their ESG dispute exposure grow in 2022; another 24 percent expect it to deepen in the year ahead.

Most cases revolve around misleading claims or statements about a company’s ESG-related actions, from advertisements saying a product is “100 percent earth-friendly” to aspirational disclosures about diversity efforts, or—in the case of securities fraud—material misstatements about ESG efforts intended to create profit or value. The Securities and Exchange Commission’s 2021 launch of a Climate and ESG Task Force to proactively identify ESG-related misconduct likely will ratchet up the pressure further.

Comprehensive economic analyses will be key to proving (or disproving) class-action claims and tangible harms related to ESG disclosures. Here’s what executives and general counsel should know.