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Baker McKenzie Discusses the Evolving Securities Legal Framework of ESG Issues

In 2021 and 2022, as the market continued to focus increasingly on environmental, social, and governance (“ESG”) issues, government financial regulators across many independent agencies strongly indicated that increased enforcement relating to ESG is on the horizon, while private plaintiffs filed novel securities class actions based on ESG issues.

Given the rapid development of legal ESG issues in the financial services industry, market participants must remain cognizant of the potential legal risks relating to ESG, and take adequate precautions to protect themselves against both government investigations and private civil litigation. This article analyzes the emerging framework of ESG regulation and litigation in order to advise market participants of the upcoming legal risks relating to ESG issues.

The SEC’s Proposed Rule on Climate-Related Disclosures

Federal financial services regulators have made clear their intention to use their regulatory power to protect market participants from alleged abuses relating to ESG.  Leading this charge is the Securities and Exchange Commission (“SEC”).

On March 4, 2021, then-acting SEC Chair, Allison Herren Lee was the first to act among federal regulators when she announced the creation of a new Climate and ESG Task Force in the SEC Division of Enforcement, with the stated purpose of developing “initiatives to proactively identify ESG-related misconduct.”[1]  In a public release, the SEC stated that the “initial focus [of the Task Force would] be to identify any material gaps or misstatements in issuers’ disclosure of climate risks under existing rules.”[2]  For the rest of the 2021 calendar year, the SEC followed up the creation of the Task Force with numerous other actions signaling the importance of ESG enforcement.[3]

Then, on March 21, 2022, the SEC approved a landmark proposed rule to require, for the first time, that public companies disclose climate-related information in their SEC filings. SEC Chair Gary Gensler stated that the climate disclosure proposal would “provide investors with consistent, comparable, and decision-useful information for making their investment decisions, and it would provide consistent and clear reporting obligations for issuers.”[4]

The SEC’s climate rule proposal broadly requires disclosure related to the following categories of information:

If the SEC’s proposal is approved, it would create a massive new regulatory regime of mandated climate disclosures—and associated legal risks—that companies must carefully manage.

SEC Enforcement of ESG Issues Through Existing Mechanisms

Regardless of whether or not the climate proposal is approved, the SEC is expected to push on ESG issues through existing regulatory mechanisms, as demonstrated by the following recent actions taken by the agency:

Other Financial Regulatory Agencies

Beyond the SEC, other financial regulatory agencies have clearly signaled to the market that they intend to step up ESG regulation and enforcement:

Private Securities Litigation

Private financial and securities litigation regarding ESG issues has continued as well, as the plaintiffs’ bar has developed novel legal theories, and federal district courts have made dispositive rulings on major ESG-related lawsuits that have been pending.

The so-called “greenwashing” legal theory—whereby a company engages in advertising, promotional, or other disclosure campaigns that are designed to create the false impression that it or its products are more environmentally responsible or friendly than they really are—saw at least two new lawsuits based on violations of the securities laws:

This case is pending as In re Danimer Scientific, Inc. Secs. Litig., No. 1:21-cv-02708 (E.D.N.Y.)

The case is pending as Kai Jochims, et al v. Oatly Grp. AB, et al, No. 1:21-cv-06360 (S.D.N.Y.).

While the plaintiffs’ bar filed the new Danimer and Oatly matters, the federal courts issued major rulings on two ESG-related matters that had already been pending:


The securities legal framework with respect to ESG continues to evolve every day, and without close attention to these developments, market participants risk inadequate preparation for government investigations, enforcement actions, and private civil litigation. Given the increasing risk of investigations and lawsuits based on securities violations, market actors must carefully consider their public statements and SEC filings with respect to ESG claims, take affirmative steps to ensure the accuracy of such statements, and even potentially consider ESG-specific disclaimers. As the legal landscape continues to evolve, management should consult with counsel to gauge the strength of current compliance programs and determine whether additional policies and training are needed to ensure ESG compliance going forward.


[1] U.S. Securities and Exchange Commission, Press Release, “SEC Announces Enforcement Task Force Focused on Climate and ESG Issues” (Mar. 4, 2021),

[2] Id.

[3] The SEC made the following ESG-related announcements in 2021:

[4] U.S. Securities and Exchange Commission, Press Release, “SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors” (Mar. 21, 2022),

[5] Proposed new Item 1502(a) of Reg. S-K (proposed 17 CFR 229.1502(a)).

[6] Proposed new Item 1502(b) of Reg. S-K (proposed 17 CFR 229.1502(b)).

[7] Proposed new Item 1501 of Reg. S-K (proposed 17 CFR 229.1501).

[8] Proposed new Item 1503(a) of Reg. S-K (proposed 17 CFR 229.1503).

[9] See proposed 17 CFR 210.14-02.

[10] Proposed new Item 1504 of Reg. S-K (proposed 17 CFR 229.1504).

[11] Proposed new Item 1505 of Reg. S-K (proposed 17 CFR 229.1505).

[12] Proposed new Item 1506 of Reg. S-K. (proposed 17 CFR 229.1506).

[13] U.S. Securities and Exchange Commission, Press Release, “SEC Charges Brazilian Mining Company with Misleading Investors about Safety Prior to Deadly Dam Collapse” (April 28, 2022),

[14] U.S. Securities and Exchange Commission, Press Release, “SEC Charges BNY Mellon Investment Adviser for Misstatements and Omissions Concerning ESG Considerations” (May 23, 2022),

[15] Dave Michaels, Wall Street Journal, “SEC Is Investigating Goldman Sachs Over ESG Funds” (June 10, 2022),

[16] U.S. Commodity Futures Trading Commission, Press Release, “CFTC Acting Chairman Behnam Establishes New Climate Risk Unit” (Mar. 17, 2021),

[17] FinCEN Notice, “FinCEN Calls Attention to Environmental Crimes and Related Financial Activity,” November 18, 2021 (available at

[18] Id.

[19] Office of the Comptroller of the Currency, Risk Management: Principles for Climate-Related Financial Risk Management for Large Banks; Request for Feedback (Dec. 16, 2021),

[20] Senate Banking Committee, Testimony of Jerome Powell, January 11, 2022 (available at

[21] Federal Deposit Insurance Corporation, Press Release, “Acting Chairman Martin J. Gruenberg Announces FDIC Priorities for 2022” (Feb. 7, 2022),

[22] Id.

This post comes to us from Baker McKenzie. It is based on the firm’s memorandum, “The Evolving Securities Legal Framework of ESG Issues,” dated July 27, 2022, and available here. 

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