‘Greenhushing’ Emerges as Anti-ESG Pressures Mount for Companies

The Trump administration’s attacks on companies pursuing environmental, social, and governance goals are contributing to a rise in “greenhushing”—where businesses are accused of downplaying their ESG initiatives.

A spate of “greenwashing” cases, targeting companies for overstating their sustainability or corporate governance efforts, have now opened the door to new litigation that instead highlights misleading disclosures for failing to clearly convey how ESG impacts the bottom line or contributes to corporate strategy writ large.

“Companies are caught in an ESG paradox—sued for saying too much, sued for saying too little, and sometimes both at once,” said Kushal Bhimjiani, group general counsel at climate consulting firm South Pole.

Shifting expectations from regulators and investors are a major reason many companies stay quiet on their climate goals, according to South Pole’s 2024 Net Zero report.

In the latest rollback, the Securities and Exchange Commission on Feb. 11 began officially unraveling its legal defense of Biden-era climate reporting rules for public companies, with the SEC under acting Chairman Mark Uyeda asking the US Court of Appeals for the Eighth Circuit case not schedule arguments in the consolidated case.

Preempting Litigation

The Trump administration’s early focus on dismantling diversity, equity, and inclusion initiatives and withdrawing the US from the landmark Paris climate agreement set an immediate anti-ESG tone for the executive branch.

The SEC’s climate disclosure mandate, which the agency put on hold last April amid multiple court challenges, is a “deeply flawed” rule that could inflict significant harm on capital markets and the economy, Uyeda said in his statement this week.

“Obviously the wind is now blowing a different direction, and some companies are saying that they are balancing the favorable attention of bright and sunny disclosures about ESG with the dangers of being sued or reviled by politicians,” said Rich Glaze, partner at Barnes & Thornburg LLP and a former enforcement counsel at the Environmental Protection Agency.

“The practice of hiding or limiting disclosures is a defensive mechanism generated by all the greenwashing litigation,” Glaze said.

Some 81% of companies South Pole surveyed worldwide said they knew communications around the Paris Agreement goal to achieve net-zero emissions by 2050 were good for their bottom line, but 58% of companies admitted to greenhushing. Heightened scrutiny from customers, clients, and investors is among the top factors companies cited as a reason for greenhushing, according to the survey results.

“This means companies’ nervousness of being accused of greenwashing is leading them to greenhush, thereby creating a mutually reinforcing downward spiral towards low levels of transparency and low ambition around climate goals,” Bhimjiani said.

State Fights

Red states have taken up their own anti-ESG campaigns in recent years, putting forth laws that aim to limit how public funds are allocated, and drawing legal opposition from several investor and industry groups. Companies cite the state-level political environment as another obstacle when seeking to advance ESG initiatives.

In Texas, a pending challenge frames a 2021 state law as an unconstitutional attempt to “coerce and punish” climate-aware businesses. Texas Attorney General Ken Paxton (R) last month dropped his threat to cut off some US banks from municipal-bond deals only after Wall Street giants including JPMorgan Chase & Co., Bank of America Corp., and Goldman Sachs Group Inc. quit the Net-Zero Banking Alliance.

Meanwhile, Florida Gov. Ron DeSantis (R) in 2023 signed a measure banning public and state-controlled funds from considering ESG factors in making investments, following similar actions by Republican lawmakers in Indiana and Kansas.

In some cases, challenges at the state level are gaining traction, including an order in May 2024 blocking enforcement of Oklahoma’s 2022 Energy Discrimination Act. That law aimed to bar certain financial firms accused of boycotting the energy sector from receiving state contracts or pension system investments.

Some companies are still pursuing ESG goals amid the uncertain legal and regulatory landscape.

“While many US companies are responding to the anti-ESG movement by being less vocal about their climate goals, investment towards sustainability is continuing,” Bhimjiani said.

Overseas Requirements

Regulatory regimes in the European Union and the United Kingdom have considerable influence on US and other multinational companies that also do business in those jurisdictions. Activist shareholder litigation in Europe around greenhushing and other ESG issues offers a preview for how similar cases could fare stateside.

A Dutch court’s landmark 2021 ruling ordered Shell Plc to reduce emissions faster than it had planned on the basis it had violated human rights by contributing to climate change, but it was overturned on appeal in November 2024. The climate group plaintiffs this week brought the challenge to the Dutch Supreme Court, arguing that the appeals court used too narrow a standard to determine whether the energy giant should face a legal emissions reduction target of 45% by 2030.

The Biden-era SEC stopped short of policies adopted by the EU imposing explicit requirements for revealing Scope 3 emissions, a category that includes the indirect greenhouse gas impact that supply chains and customers contribute to a given company’s carbon footprint. Instead, the agency limited disclosure to corporate reporting of direct emissions, watered-down rules which are being dismantled by the new administration.

“Greenhushing and greenwashing are really two sides of the same coin,” said Kimberly Logue Ortega, associate vice president at J.S. Held, who specializes in environmental risk and compliance. “Litigants are going to be looking for creative and alternative avenues to bring the Scope 3 discussions that are happening in Europe right now into courtrooms in the United States.”