Key news in this edition:
- EU Council adopts new ESG ratings regulations.
- Republican States sue BlackRock, Vanguard, and State Street over antitrust violations.
- Plastic treaty negotiations collapse over disputes on production limits.
Editorial
November 2024 marked significant developments in ESG accountability, with new regulations and high-profile lawsuits continuing to shape the global sustainability landscape. The EU Council adopted the Regulation on the Transparency and Integrity of ESG Rating Activities, marking an important step in the standardisation of ESG ratings. This new legislation aims to make ESG ratings more consistent, requiring agencies operating in the EU to disclose methodologies and data sources. By increasing transparency, the regulation seeks to address criticisms of greenwashing and boost investor confidence in ESG financial products. Set to take effect in 2026, the EU’s framework could set a global benchmark for ESG governance.
At the same time, litigation is proving an increasingly popular tool on all sides of the ESG argument. Los Angeles County targeted Coca-Cola and PepsiCo for misrepresenting the recyclability of their plastics, joining a growing wave of legal actions addressing corporate environmental impacts. Meanwhile, in Australia, Santos Ltd faced a shareholder lawsuit over misleading net-zero claims, reflecting rising demands for tangible results over aspirational goals. Conversely, in the Netherlands, the Hague Court of Appeal overturned a landmark ruling requiring Shell to cut emissions by 45 percent by 2030, stating that “companies are free to choose their own approach to reducing their emissions”. On the other front, companies have also faced scrutiny for their efforts to cut carbon emissions, as illustrated by a lawsuit filed by some of the Republican-led states against asset managers BlackRock, Vanguard, and State Street, alleging anti-competitive practices in efforts to reduce coal production and emissions.
On another front, the failure of the UN Intergovernmental Negotiating Committee to secure a global treaty on plastic waste underscored the widening gaps in international consensus on climate and environmental issues, with petrostates opposing a cap on plastic production and developed nations criticised for inadequate commitments.
EU Council adopts new ESG ratings regulations
On 19 November 2024, the EU Council formally adopted the Regulation on the Transparency and Integrity of Environmental, Social and Governance (ESG) Rating Activities, a new set of rules for the ESG ratings market and agencies active therein. This Regulation, the first of its kind globally, is intended to standardise ESG rating activities, making them more consistent, transparent and comparable. The rules bring EU-incorporated ESG ratings agencies under the authority of the European Securities and Markets Authority, the EU capital markets regulator, and require both EU-incorporated agencies and international agencies wishing to operate in the EU, to comply with new transparency requirements regarding their data collection methodology and sources. The Regulation is expected to be published in the EU Official Journal in 2026 and will enter into force 20 days after publication. Companies with ESG ratings activities will then have 18 months after the Regulation enters into force before it is applied.
So what?
ESG ratings have long been criticised for their arbitrary nature, lack of comparability, and for contributing to greenwashing in the classification of ‘sustainable’ financial products. By improving transparency, the Regulation is intended to boost investor confidence in such products and thereby drive sustainable investment. The EU is set to serve as a test case for whether standardisation is truly possible given the broad nature of ESG concepts, and whether increased transparency can lead to improved investment impact.
[Contributor: Emma Shewell]
Landmark Dutch ruling on carbon emission reductions overturned
In November, the Hague Court of Appeal overturned a landmark climate judgment issued by a lower Dutch court in 2021, which had ordered Shell, the global energy multinational, to cut its global carbon emissions by 45 percent by 2030. The 2021 ruling was the first time a national court had extended the obligation to reduce emissions as required under the Paris Agreement from a government to a company.
In overturning the lower court judgment, the Court of Appeal acknowledged that protection from climate change is a human right which has an “indirect horizontal effect”, indicating that not only governments but also companies like Shell do have an obligation to limit emissions to reduce the adverse effects of climate change. However, the court concluded that imposing a target for emissions reduction by a specific percentage was not appropriate. As such, it ruled that Shell does not have an absolute reduction obligation of 45 percent or any other percentage and “companies are free to choose their own approach to reducing their emissions”, as long as it complies with the Paris Agreement’s climate targets.
So what?
Whilst the Court of Appeal found that neither the current EU climate regulation nor scientific evidence requires companies to reduce their carbon emissions by a specific percentage, it did acknowledge the role of companies in fighting climate change. Scientific and technological advancements, alongside rapidly developing legislative frameworks on corporate responsibilities in relation to climate change are expected to result in more sophisticated claims and a proactive shift among some judiciaries in the future.
[Contributor: Elif Korca]
Republican states sue BlackRock, Vanguard and State Street over antitrust violations
On 27 November, Republican Attorneys General from Texas and 10 other states (Alabama, Arkansas, Indiana, Iowa, Kansas, Missouri, Montana, Nebraska, West Virginia and Wyoming) filed a joint federal lawsuit against BlackRock, Vanguard and State Street over antitrust violations. The lawsuit alleges that the defendants pressured coal companies to reduce coal production through their shareholding power and membership of climate advocacy organisations. BlackRock, Vanguard, and State Street collectively hold significant stakes in major coal companies, which the Attorneys General argued violates the Clayton Act. This Act prohibits shareholders from using their influence to reduce competition or engage in anticompetitive practices. The defendants are also members of the Net Zero Asset Managers Initiative and Climate Action 100+, two climate advocacy organisations promoting significant reductions in carbon emissions. The lawsuit contends that by joining these groups, the firms “effectively formed a syndicate,” as the initiatives require asset managers to actively engage with portfolio companies to align them with climate targets. While the asset managers have since withdrawn or substantially scaled back their participation in these initiatives, the suit claims that this withdrawal “does not alter the fact that the defendants’ holdings pose a substantial threat to competition” nor “eliminate the ongoing and future risk of their coordinated anti-competitive behaviour.”
The lawsuit aims to prevent the defendants from utilising their investments to vote on shareholder resolutions and from taking additional actions that could hinder coal production and reduce market competition.
So what?
The lawsuit stands as one of the most significant legal cases against ESG, highlighting the political backing of the coal sector in opposition to investment funds that promote ESG principles. The announcement is the latest in a series of anti-ESG actions guided by some Republican politicians in the US. In 2022 Texas added BlackRock, Credit Suisse, and UBS to its divestment list, accusing them of “boycotting” fossil fuel companies, and in 2023 Governor Ron DeSantis launched an 18-state alliance aimed at banning ESG investing practices.
The lawsuit also coincides with the ongoing reduction in coal usage in the US, driven by increased competition from renewables and natural gas. In 2023, coal generated just 16.2 percent of U.S. electricity, down from 50 percent in 1990. We expect to see a growth in such actions against asset managers in the US over coming years, amid challenging political headwinds.
[Contributor: Federico Ingretolli]
Los Angeles County files lawsuit against Coca-Cola and PepsiCo over plastic pollution claims
On 30 October 2024, Los Angeles County in California filed a lawsuit against PepsiCo and the Coca-Cola Company, the two US-headquartered food and beverage conglomerates. The lawsuit alleges that both companies have misrepresented the environmental impact and potential for recyclability of the plastics used in their bottles. Lindsey P. Horvath, Los Angeles County Board Chair, stated “Coke and Pepsi need to stop the deception and take responsibility for the plastic pollution problems your products are causing.” According to environmental activism NGO Break Free From Plastic, both The Coca-Cola Company and PepsiCo are the largest plastic polluters annually. The lawsuit came just ahead of the Coca-Cola Company unveiling new voluntary environmental goals for the company to achieve by 2035, which saw a watering down of its commitments on sustainable packaging, responsible sourcing of agricultural ingredients and its GHG pollution targets.
So what?
Beverage companies face mounting litigation risks over their plastic output, and there still remains another similar case ongoing against PepsiCo and others by the City of Baltimore, Maryland. The lawsuit also comes at a time when the use of plastics is under growing scrutiny. Negotiations over the first legally binding US Treaty on plastic pollution collapsed in November after oil-producing nations blocked efforts to place limits on new production. In the absence of multilateral agreement, it is down to unilateral government or corporate action, or pressure from activist groups, to force action on rising plastics consumption. We have seen Coca Cola be heavily criticised for the watering down of its own targets on sustainable packaging, but with fast approaching targets in 2025 and 2030 for many companies, we expect to see the downgrading of some other corporate sustainability commitments.
[Contributor: Nickolas Bruetsch]
Australian oil company sued by its shareholder over climate disclosures
In October 2024, a landmark case began in Australia, in which Santos Ltd, an Australian oil and gas company, was sued by one of its own shareholders, the Australasian Centre for Corporate Responsibility (‘ACCR’), a shareholder advocacy and research organisation. ACCR challenged the claims in Santos’ net zero plan and alleged misleading statements in the company’s disclosures from 2020 and 2021 in which Santos claimed to have a “clear and credible pathway” to reduce greenhouse gas emissions and, subsequently, to achieve net zero emissions. ACCR further claimed that the company’s 2020 annual report included statements that natural gas is a clean fuel and that Santos failed to disclose the emissions associated with hydrogen production.
In response, Santos described the case as an example of a “biased retelling” of the company’s net zero roadmap and climate reports, which were described as intentions rather than guarantees.
So what?
This lawsuit shows that companies are being held to a new standard regarding sustainability initiatives. It indicates that corporate watchdog authorities will not be quelled by net-zero or climate-neutral promises but now require companies to provide evidence for their claims.
[Contributor: Haddie Hamal]
Plastic treaty negotiations collapse over disputes on production limits
On 1 December, the fifth and supposedly last meeting of the UN Intergovernmental Negotiating Committee (INC-5), failed to produce a legally binding global treaty on plastic waste. The main clash focused around a potential mandatory cap on plastic production: more than 100 countries, including the EU and the United Kingdom, supported imposing a global plastic production reduction target, while oil-producers were only prepared to set targets for plastic waste. This comes just days after COP29 ended with a USD 300 billion annual pledge of climate funding from developed countries. The deal, already deemed a reluctant compromise from developed countries, was still denounced as insufficient by developing country delegates, who staged a walkout. It also failed to agree on a greenhouse gas emissions target.
The two conferences reflect a diminishing willingness to compromise among countries with divergent global climate policy goals, particularly in light of the electoral victory of Donald Trump, who has vowed to withdraw US from the Paris Agreement. The US initially agreed to back the plastic reduction target at the INC this summer, yet the position is expected to be reversed under a Trump presidency. The prospect of a fossil fuel-friendly US administration has reportedly “emboldened” oil-producers to exercise their de-facto veto power over global climate policymaking, as UN rules require that any agreement forged by climate summits to be unanimous. Notably, INC member states agreed to exclude voting during negotiations earlier this year, a decision criticized by a delegate from Senegal as a grave mistake.
In the meantime, oil-producers headed by Saudi Arabia refused to take the blame for INC-5’s failure, claiming that “the problem is the pollution, not the plastics themselves”, and that a plastic production cap “penalizes industries without addressing the actual issue of plastic pollution”. China, the world's largest plastic producer, was also only willing to discuss targets for the most polluting plastic products, rather than overall production levels for all plastics. The INC plastic treaty talks are expected to reconvene in 2025, but no date has yet been set.
So what?
The room for a global climate and sustainability governance regime based on universal consensus is expected to shrink significantly under the second Trump administration. Petrostates like Saudi Arabia have explicitly refused to target fossil fuels and plastic productions in recent climate negotiations. Coupled with the North-South division on shouldering climate responsibilities, as well as the deglobalisation of supply chains, this may lead to more fragmented climate talks, as well as a shift from concerted global efforts to more localised and regionalised climate regimes.
[Contributor: Lizhong Yang]
