Shell Greenwashing Challenge Highlights Risk of ESG Claims

Lawyers warn that pressure is mounting on companies to “walk the walk” on sustainability commitments and investing, in order to stay on top of a growing trend of greenwashing accusations from environmental groups and investors.

Greenwashing challenges in courts and at the SEC continue to pour in from advocates and investors targeting what they claim are false representations of corporate commitments to environmentalism and climate-friendly practices. Environmental, social, and governance, or ESG, issues are becoming an integral part of the legal trend.

Shell Plc was accused this month of misrepresenting its renewable energy investment claims in a filing with the Securities and Exchange Commission’s Climate and ESG Task Force. The company says it’s “confident” that its “financial disclosures are fully compliant with all SEC and other reporting requirements,” according to a spokesperson.

But Shell joins a growing list of companies such as Coca-Cola, Exxon Mobil Corp., and Nestle being targeted for alleged deceptions in the climate aspects of their business practices.

“If you’re going to make certain statements and commitments in the ESG space, you need to be taking measurable action toward achieving those,” Allison Wood, McGuireWoods partner and chair of the firm’s ESG taskforce, told Bloomberg Law. “You can’t just say niceties for the sake of niceties, that won’t work.”

Many of the boundaries of the ESG landscape are still being measured, from how companies’ commitments are rated to federal regulation, creating a lot of uncertainty and pressure.

“All of it is still pretty nebulous,” Wood said. “I can think of a lot of different ways the pressure is coming—it’s coming from shareholders, it’s coming from boards of directors, it’s coming from employees.”

‘Intensified’ Battles

Between new rules for mandated disclosures and increased shareholder examination, ESG litigation risk is “intensified,” according to a 2022 report from ESG insights and data company Sustainable Fitch.

Securities lawsuits focused on ESG are part of a broader climate change legal landscape of more than 2,000 lawsuits worldwide, as tracked by the Grantham Research Institute on Climate Change and the Environment.

The US is one of the most litigious countries in the world when it comes to climate and environmental cases generally, but securities laws make the US a particularly fertile ground for investor-led suits, the Sustainable Fitch report said.

“The primary risks to issuers facing ESG litigation may not be financial, but reputational and operational,” Sustainable Fitch analyst Nneka Chike-Obi wrote. “A judgement in the plaintiff’s favour could mean costly changes to business-as-usual for a company.”

Corporate entities will continue to come under fire over big commitments like emissions reductions if advocates don’t see them moving the dial on their stated goals. Companies can face greenwashing scrutiny—through ESG and beyond—on a number of different levels, including administrative complaints, investor-led litigation, product liability lawsuits, and consumer protection cases.

Any kind of sustainable commitment is open to scrutiny. Advertisements, emissions reduction commitments, and product packaging have all made their way to judges and government officials.

The Global Witness complaint against Shell at the SEC alleges that the company “has materially misstated its financial commitment to renewable sources of energy by inflating the content of its new ‘Renewables and Energy Solutions’ (‘RES’) reporting segment with fossil fuel activities.”

FIFA is facing multiple complaints at a Belgian advertising ethics panel over claims that painting the 2022 World Cup in Qatar as “carbon neutral” was deceptive.

A district court in Maryland is hearing a securities class action against a wood pellet production company over the “textbook greenwashing” of its procurement practices.

“These lawsuits are another example of how investors and other stakeholders are holding the most notorious polluters responsible for their role in creating climate change,” Leslie Samuelrich, president of Green Century Funds, said in a statement. They’ve “abdicated their promises and responsibility to transition to a cleaner economy.”

‘Best Mechanism’

ESG ratings based on public information—like news stories and self-reporting to regulatory bodies— aren’t always a good judge of what is actually happening within a company, according to Florian Berg, a researcher at the Massachusetts Institute of Technology who focuses on ESG.

“That’s why it’s hard to tell how much greenwashing there is, generally,” Berg noted. “Being sued, actually, seems to be probably the best mechanism to make sure that they really report honestly.”

Self-reporting won’t be enough to save companies from greenwashing scrutiny, according to Soudip Roy Chowdhury, founder and CEO of sustainable manufacturing technology company Eugenie. Detailing how reduction plans will be accomplished is part of the growing responsibility, he said.

Companies need to make plans publicly available to investors and use transparent accounting software to measure goals and successes, Chowdhury said.

“This is difficult, this is not in practice today, and because of this transparency, companies are figuring out how do they delay this process from happening,” Chowdhury said.