ESG Litigation, Enforcement Risks Rising Among SEC Registrants

The future of ESG regulation is up in the air. New regulations—including the SEC climate rule and the California climate statute—are currently facing numerous legal challenges, and several state legislators have introduced bills that, if successful, would create new jurisdiction-specific climate disclosure regimes.

While the courts and relevant legislators have yet to determine whether these regulations will ever become effective, companies are already disclosing that they’re facing ESG-related litigation and enforcement risks.

Item 105 of Regulation S-K requires companies to disclose the “material factors that make an investment in the registrant or offering speculative or risky” in their Form 10-K, Item 1A: Risk Factors. “Material” information is generally any information that a reasonable investor would consider important when deciding whether to buy or sell a security.

An analysis of Bloomberg Law’s EDGAR Advanced Search revealed that in every year since 2019, the number of companies that (i) have determined that ESG litigation and enforcement meet that definition of materiality and that (ii) have included a discussion of those risks in their Form 10-K Risk Factors disclosures has gone up.

From 2019 to 2023, the number of companies mentioning ESG-related litigation and enforcement actions in their Form 10-K Risk Factors increased from zero to 195. Year to date, 272 companies have already mentioned ESG litigation and enforcement in their Risk Factors. With more than three months left in the year, the number will continue climbing.

If the US ESG-related regulations survive legal challenges, the number of companies including ESG litigation and enforcement information in their Risk Factors disclosures is likely to increase even more, as regulators gain access to new information.

GENERATE THE DATA

To replicate the research that was used for this article:

1. Visit Bloomberg Law’s ESG Reporting Toolkit (Bloomberg Terminal subscribers: Run BLAW OUT <GO> and search for “ESG Reporting Toolkit”.)

The ESG Reporting Toolkit provides guidance on mandatory and voluntary ESG-related disclosures, including links to example company disclosures filed with the SEC.

2. Locate the Disclosure Risks tile and select “Example Search – ESG Litigation Form 10-K Risk Factors.”

This search of the SEC’s EDGAR filing system automatically applies the following filters: Form Type (Form 10-K), Item (Item 1A: Risk Factors), and a keyword search. The results are sorted by date.

3. Select the download icon and select a format.

The resulting data can be used to quickly and efficiently identify SEC registrants that are disclosing their ESG litigation and enforcement risks in their Form 10-K Risk Factors.

Because Bloomberg Law’s research tools are regularly updated, users’ results when following these instructions may differ from the results generated for this article.

Bloomberg Law subscribers can find related content on our ESG Reporting Toolkit, our In Focus: SEC Rulemaking page, as well as our ESG Practice page.

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