O'Melveny Insights 2023

7 Voluntary ESG Disclosures Can Invite Regulatory Scrutiny and Litigation. Last year, the SEC charged mining giant Vale S.A. with making false and misleading statements about dam safety—not in required company filings but in voluntary sustainability reports and ESG-related presentations and webinars. The charges relate to a dam collapse that killed 270 people and led to a loss of US$4 billion in market capitalization. The case is a warning that regulators will look beyond mandatory regulatory filings for statements that might mislead investors. “Greenwashing” Lawsuits on the Rise. ESGadjacent statements are also increasingly the target of consumer class actions and regulatory action. As companies have recognized the value of green branding, they’ve been hit with a growing number of “greenwashing” claims under consumer-protection laws. In these cases, regulators and private plaintiffs seize on vague labeling statements—such as “sustainable,” “recyclable,” “responsibly sourced,” or “carbon neutral”— to allege that consumers are misled into buying products. Upcoming revisions to the FTC’s Green Guides are likely to result in a further bump in these lawsuits. The Greens Guides, which provide guidance on how consumers are likely to interpret certain sustainability claims and how these claims can be substantiated, are in the process of being updated, with the agency requesting public comments by February 21, 2023. Among other changes, new guidance on carbon offsets and “net zero” emissions representations are expected, with companies facing potential exposure to enforcement actions and consumer class actions for alleged failures to comply. Companies looking to minimize litigation risks should consider maintaining reliable data that support their sustainability-related statements, ensure compliance with federal guidance and state law, and offer aspirational rather than definitive statements on ESG attributes. As companies navigate this increasingly complex ESG landscape, they should consider these litigation trends and upcoming reporting changes to ensure that their responsibility initiatives attract the right kind of attention: O’Melveny’s ESG Task Force can assist clients in navigating the complex regulatory and litigation landscape as they look to frame ESG benchmarks and disclosure commitments.