While the world is making strides to be more conscious of the environment and those around them through environmental, social and governance (ESG), some are working against this wave. Today, we discuss how trustees can shield themselves against ESG backlash.
Anti-ESG litigation is broadly defined as legal action focused on preventing the ESG agenda. That type of litigation is increasing, with a recent report showing that last year 50 such cases were filed with a majority being being filed in the United States. The backlash on ESG mainly focuses on investing and whether integrating climate risks in financial decisions presents a possible breach of fiduciary duty.
To protect themselves against anti-ESG litigation, trustees can:
- Make sure the rationale for investing in ESG would be in the best financial interests of the members collectively.
- Document rational and decision-making to show why duties carried out by trustees were being met.
- Make sure that fitting investment advice is taken from experienced and qualified investment advisers and that the advisers’ work is monitored closely.
Notable cases in this space include Wong v. New York City. Here, it is alleged that fund managers didn’t observe their fiduciary duties when they adopted climate considerations into damages for losses and investment decisions. The plaintiffs claim that the defendants divested pension plans worth about $4 billion of holdings in companies involved in fossil-fuel extraction. While the ruling on this case is expected next year at the earliest, it is expected that claims such as this one could increase as more are being considered and tried.
The report, conducted by the Grantham Research Institute, also found that the U.S. had recorded cases of investment managers who had been fined and directed to halt some ESG investment policies. This goes against the position outside America where this type of legal action hasn’t been seen. There is a risk, however, that the United Kingdom may soon catch up with this trend.
Concerns over energy security and the current geopolitical landscape highlight the risk that members may grow more concerned that investing criteria for ESG doesn’t ensure their best interests, both practically and financially. Litigation in the U.S. often sets precedents for strategies adopted across the globe, both in the United Kingdom and Europe.
It is also important to note that priorities held by asset managers seemed to have shifted, with a survey conducted this year showing that factors such as emphasizing accuracy and quality while focusing on improving investor experiences ranked higher. This is in comparison to a 2022 survey by Northern Trust, which showed that the primary priority for global asset managers was ESG.
Away from asset management companies, individual companies, such as Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF), are increasingly warming up to the tenets of ESG, and these principles are seeing increasing uptake in those companies.
NOTE TO INVESTORS: The latest news and updates relating to Reflex Advanced Materials Corp. (CSE: RFLX) (OTCQB: RFLXF) are available in the company’s newsroom at https://ibn.fm/RFLXF
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