Reed Smith In-depth

Over the past year, the Biden administration has issued several executive orders directing federal agencies to implement environmental, social and governance (ESG)-related practices and to rescind Trump-era policies viewed as unfavorable to the climate. In an Executive Order issued on January 27, 2021 entitled “Tackling the Climate Crisis at Home and Abroad,” the administration required agencies to consider the effects of greenhouse gas emissions and climate change and to incorporate programs and policies addressing environmental issues (for more information, visit Since the issuance of this Executive Order, several federal agencies, such as the U.S. Securities and Exchange Commission (SEC), the U.S. Department of Justice (DOJ), the U.S. Department of Labor (DOL) and the Environmental Protection Agency (EPA), have either implemented new ESG regulations addressing climate issues or have signaled that new regulations are forthcoming. There have also been a number of recent shareholder lawsuits challenging board of directors' oversight and alleging breach of duty of care resulting from alleged failures by companies to meet ESG obligations. This article provides an overview of the regulatory landscape and the focus of private litigants in the ESG space.


On May 4, 2021, the SEC established a Climate and ESG Task Force in the SEC’s Division of Enforcement. The aim of the ESG Task Force is to look into misleading ESG claims made by investment advisers and public companies, and to proactively identify ESG-related misconduct. Kelly Gibson, who is also the Director of the SEC’s Philadelphia Regional Office, is heading the ESG Task Force, which is comprised of 22 members drawn from the SEC’s headquarters, regional offices, and specialized enforcement units.

On November 3, 2021, Gibson was featured as a panelist in the Environmental Law Institute’s “People Places Planet Podcast,” and indicated in her remarks that the ESG Task Force will concentrate on detecting and bringing enforcement actions for “greenwashing,” which she defined as “exaggerating” a “commitment to, or achievement of climate . . . related goals.” Gibson explained that because there has been a “dramatic surge in popularity for ESG focused investment funds” without an associated evolution in U.S. law and ESG criteria, there is a high risk that investors may be misled by greenwashing. Gibson indicated that the SEC is focused on making sure that issuers and investment advisers are appropriately disclosing climate and ESG concerns to investors. Gibson noted that the SEC is “looking closely at what issuers say in their filings and elsewhere, and what investment advisers say and do in terms of their stated investment strategies . . . we’re looking at any market participant that is exaggerating its commitment to or achievement of climate-related goals . . . and that’s what we call greenwashing.” Gibson went on to emphasize that this problem of questionable ESG-labeling can have a significant negative impact on investors. She also noted that sustainable investments in the U.S. rose to 17 trillion in 2020, up 12 trillion from just two years prior, and that this sharp rise could be due in part to greenwashing.

Of note is a recent parallel investigation into a global bank’s asset management arm, commenced by the SEC and the U.S. Attorney’s Office for the Eastern District of New York (EDNY). The EDNY/SEC investigation was commenced after the bank’s former head of sustainability disclosed to the Wall Street Journal that the bank overstated how much it used sustainable investing criteria to manage its assets. Specifically, in its 2020 annual report, released in March 2021, the bank’s asset management arm stated that more than half of its $900 billion in assets at the time were invested using a system that evaluated companies based on ESG criteria. An internal assessment done a month earlier, however, indicated that only a fraction of the investment platform applied the evaluative process.