ESG Market Alert - September 2024

Shareholder activism continues

Exxon CEO Darren Woods has warned activist shareholders to follow regulators’ current guidance around the proxy system after Exxon sued activist investors earlier in the year after they filed a climate-related resolution which was proposed to be considered at Exxon’s annual general meeting in May, demanding Exxon take action to cut greenhouse gas emissions. The resolution was ultimately withdrawn before it could be taken to a vote and the lawsuits filed by Exxon were subsequently dismissed once the proposals had been withdrawn.

FCA's Green Labelling Rules – deadline for implementation delayed

Following the FCA’s publication of the Sustainability Disclosure and Labelling Regime as part of measures to improve the transparency of sustainable investment products, firms should be taking steps to comply with the FCA's naming and marketing rules for investment products due to come into force on 2 December 2024. This follows the introduction of the anti-greenwashing rules in May 2024.

However, on 9 September 2024 the FCA announced a limited option for firms in "exceptional circumstances" and if they met certain criteria, to apply for temporary flexibility until 1 October 2024; meaning they would not need to comply with the new rules until 2 April 2025.

Environmentalists step on the gas: Texas sued for blacklisting pro-ESG companies

The American Sustainable Business Council (ASBC) has filed a lawsuit challenging Texas' anti-ESG laws, which were enacted in September 2021 and called on state-funded investment entities to divest from interests deemed to be "boycotting" the fossil fuel industry. The ASBC argues that these laws violate investors’ free speech. This follows a recent ruling in Missouri which granted a permanent injunction against two anti-ESG laws after declaring them "unconstitutional".

Globally, ESG investors should track these lawsuits, particularly given the rising popularity of far-right and populist parties in Europe, many of which propagate similarly critical views of pro-ESG policies (see the EU election shockwaves: Green Deal goes grey section of the June 2024 alert here).

Potential for advertising on billboards to be banned: a shift towards honest environmental advertising

Global lawmakers have been reflecting on the impact of advertising carbon-intensive products/services. Over the past few months there have been significant rulings on environmental advertising, specifically holding companies to account in terms of the content and effect of their ads.

The Hague has decided to crack down on the advertising of fossil fuel products and carbon intensive services, such as cruises and air travel. This ban will apply from January 2025, and currently only applies to billboards and freestanding advertising screens. This follows calls from UN chief Antonio Guterres to introduce a global ban on advertising by fossil fuel companies. It is unclear whether this control on advertising will affect consumer demand immediately, but in the long run, companies may find it increasingly difficult to reach out to new consumers.

This marks a continuation of scrutiny on advertisements in the ESG space; for example the German Federal Court of Justice recently ruled that the advertising of "climate-friendly" products must include reliable evidence for their claims. The ad in question stated that confectionary manufacturer, Katjes, had been producing its products in a "climate-neutral manner". The production process was not carbon-neutral, but rather Katjes was compensating for the emissions produced by financially supporting climate protection projects.