Blake, Cassels & Graydon LLP · Episode 17 - Spotlight on ESG Investments Increases Litigation Risk
Public issuers and investment funds are facing growing pressure
from regulators, investors and other stakeholders to integrate ESG
into their business and investment decisions. In this episode of
the Continuity podcast, Partners Andrea Laing and Ryan Morris discuss litigation risks related
to ESG disclosure and the role of regulators.
Table of Contents
- A brief description of ESG (00:40)
- Why ESG is a litigation risk (01:30)
- The regulatory perspective (03:25)
- U.S. case law and what we might see in Canada (05:05)
- ESG-securities litigation work in practice (06:20)
- Shareholders and ethical investing (07:45)
- How damages from missed targets are measured (08:15)
Yula: |
Hi, I'm Yula Economopoulos. |
Jordan: |
And I'm Jordan Virtue, and this is the Continuity podcast. |
Yula: |
With focus on climate change heightening, regulators, investors and other stakeholders are looking more closely at organizations to ensure they're meeting environmental, social and governance requirements. |
Jordan: |
And if companies miss ESG targets, they could face legal repercussions. |
Yula: |
Today, we are joined by Andrea Laing and Ryan Morris, Partners in our Litigation & Dispute Resolution group, who will be talking to us about ESG from a securities litigation perspective. |
[music] |
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Jordan: |
Ryan, I'm sure most businesses know what ESG is and are likely taking steps to meet disclosure requirements, but can you give us a brief synopsis? |
Ryan: |
ESG refers to environmental, social and governance criteria, and
investors are increasingly considering these criteria in
determining whether they want to invest in an issuer or a financial
product such as an investment fund. |
Jordan: |
Thanks, Ryan. Can you tell us why ESG is a litigation risk? |
Ryan: |
From a securities litigation risk perspective, we're seeing
ESG's impact primarily on two types of entities. The first is
investment funds, and often these funds purport to prioritize ESG
criteria and to attract investors with those criteria. And the
second category is public issuers, and the concern, of course, is
their disclosure of their ESG practices and their compliance with
that disclosure, and directors and officers of those issuers are
likely to be included in those issuers if litigation does
ensue. |
Jordan: |
Andrea, what can you tell us from a regulatory perspective? Are regulators, like the Ontario Securities Commission, paying attention? |
Andrea: |
Yes, the Ontario Securities Commission and other Canadian
securities regulators have taken note of the increased demand for
ESG-related investment products in recent years. OSC staff are
quite concerned about the risk to investors posed by
greenwashing. |
Yula: |
Ryan, I understand there's case law in the U.S. that deals with ESG-related securities litigation. How do you see things playing out in Canada based on outcomes south of the border? |
Ryan: |
Perhaps the highest profile cases in the U.S. were launched by
the state attorneys general in New York and Massachusetts. Those
cases were based on state securities law. Some similar cases have
been filed in the U.S. by private litigants. Relatively few of
those have progressed. |
Yula: |
So, what are some of examples of the type of work you've come across in your practice? |
Ryan: |
To date, we haven't seen specific ESG-related securities
litigation or securities regulatory enforcement proceedings in
Canada, but there are some important bellwethers that we are
monitoring. |
Yula: |
Andrea, do shareholders really care about ethical investing, and can they pursue companies for overstating their commitments or ability to reach certain ESG targets? |
Andrea: |
The short answer is yes. Many investors clearly do want to
invest their money in companies that adhere to ESG-related values
such as sustainability. The enormous growth in the ethical funds
industry is surely reflective of intense demand amongst retail
investors. |
Yula: |
So, how are damages measured when ESG commitments or targets aren't met? |
Andrea: |
That's an excellent question. Some aspects of the ESG
investment landscape are truly new and unique, and conventional
legal rules for determining damages may not necessarily provide
remedy. This is because a company that adheres to strong ESG values
could be less profitable initially than a company that does not
invest in sustainability or ensure suppliers adhere to ethical
practices. This can create incentives for companies to greenwash,
and a company with poor ESG performance could provide superior
returns for investors. |
Yula: |
Andrea and Ryan, thank you for bringing more awareness to the litigation risks associated with ESG performance. |
Jordan: |
Listeners for more information on our Securities Litigation group, please visit blakes.com. |
Yula: |
Until next time stay well and stay safe! |
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