April 01, 2021 Articles

The Rise of Shareholder Activism and Litigation Related to Environmental, Social, and Governance Investing

Activist shareholder ESG litigations, using creative and novel legal theories, are starting to gain traction in the courts.

By Pete Michaels and Alyssa Scruggs

Environmental, social, and governance (ESG) investing is capturing the attention (and dollars) of more and more institutional investors each year. Issues related to ESG have, however, also captured the attention of activist shareholders and potential litigants seeking to effect change within companies or affect a company’s reputation and business dealings. As the focus on ESG issues continues to intensify, it is likely that the securities world will continue to see an increasing number of these activist shareholder ESG litigations, which, using creative and novel legal theories, are starting to gain traction in the courts.

Background on ESG Investing

ESG investors evaluate an investment using criteria focused on environmental, social, or governance factors, or some combination thereof. Every investor is different and so too are each investor’s priorities for and methods of achieving the investor’s ESG goals, but generally such investors are willing to look beyond the purely quantifiable value of a company and assess other factors such as a company’s environmental impact, human rights record, or human capital management structures. There are broadly three types of ESG funds: (1) exclusionary funds, which select categories of companies to exclude; (2) single-theme funds, which select companies that fit or support a general theme; and (3) best-in-class funds, which include companies that are the best in their industries on particular ESG criteria.

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