On Jan. 26, 2023, twenty-four states sued the Department of Labor to block a new rule allowing retirement plans to consider environmental, social, and governance concepts (known as ESG) when administering plan assets.[1] The lawsuit, while notable for its potential impact on Employee Retirement Income Security Act regulations and the administration of retirement plans, may serve as a warning shot in the debate over ESG’s intersection with antitrust law.
ESG refers to a framework in which companies can consider environmental, social and governance issues as a potential measure of value. In practice, this might appear as actions to combat climate change, commitments to improving the community where the company is based or implementing corporate governance reforms. Many companies are now including ESG issues in their corporate disclosures, and investment firms are offering funds that invest based on ESG strategies.
One common practice among actors looking to implement ESG policies is to work alongside others in their industry. Of course, when companies cooperate in the marketplace, it raises antitrust concerns, even if the end is to advance ESG goals. There is currently no exemption from antitrust laws for ESG initiatives.[2] The lack of exemption creates an opportunity for those opposed to ESG initiatives to use antitrust laws to potentially block ESG goals.
Those concerned about ESG are already setting the stage for this fight. For instance, on Nov. 3, 2022, Sens. Tom Cottom, Chuck Grassley, Marco Rubio, Michael Lee and Marsha Blackburn sent a letter to 50 law firms, warning their corporate clients about participating in “climate cartels” or organizations advancing ESG efforts.[3] The senators threatened to use their oversight powers to investigate any alleged antitrust violations in the name of ESG.[4] This letter was followed shortly thereafter by Rep. Jim Jordan (now the chair of the House Judiciary Committee) announcing an investigation into whether the ESG initiatives of the members of the Climate Action 100+ violated antitrust laws.[5] States attorneys general are also calling for an investigation into the Climate Action 100+ while also pursuing investigations of other groups such as the United Nations Net-Zero Banking Alliance.[6]
There are, of course, actions a company can take in the name of ESG that do not risk potential antitrust violations. For instance, it is well settled that companies can work together to lobby the government to enact ESG-friendly legislation.[7] Companies can also discuss potential best practices or create nonbinding codes of conduct or certification standards as long as they do not share confidential information while doing so. Companies can also act unilaterally as long as they do not have monopoly power over their respective market. These unilateral actions could include refusing to deal with vendors that do not adopt ESG standards or providing incentives to certain vendors that do adopt them.
While there are actions a company can take to advance ESG initiatives without risking liability under antitrust laws, there are also actions that could expose a company to antitrust liability. What the Department of Labor lawsuit shows is that some in government are serious about using their powers under various bodies of law to oppose ESG efforts. Those looking to advance ESG initiatives through cooperation should be extremely wary of antitrust enforcement, and the Department of Labor suit may provide a helpful guide as to how opponents of ESG initiatives might utilize the legal system to oppose these initiatives.
By Julian D. Perlman and Michael E. Neminski
[1] Janet Miranda, “Red States Sue to Block Labor Department’s ‘Woke’ ESG Rule,”Bloomberg Law (Jan. 26, 2023), https://www.bloomberglaw.com/bloomberglawnews/litigation/X9D1URCS000000?bwid=00000185-f016-d50e-ade5-f13f18330001&cti=LFVL&emc=blinw_cn%3A2&et=CHANNEL_NOTIFICATION&isAlert=false&item=read-text&qid=7412850®ion=featured-story&source=breaking-news&uc=1320016015&udvType=Alert&usertype=External.
[2] Oversight of Federal Enforcement of the Antitrust Laws, Subcommittee on Competition Policy, Antitrust, and Consumer Rights, Senate Judiciary Committee (Sept. 20, 2022) at 2:03:37-2:04:26.
[3] Letter from Sen. Tom Cotton et al. to 50 law firms (Nov 3, 2022), https://www.grassley.senate.gov/imo/media/doc/cotton_grassley_et_altolawfirmsesgcollusion.pdf.
[4] Id.
[5] Letter from Jim Jordan et al. to Mindy S. Lubber et al. (Dec. 6, 2022) https://judiciary.house.gov/sites/evo-subsites/republicans-judiciary.house.gov/files/legacy_files/wp-content/uploads/2022/12/2022-12-06-HJC-GOP-to-Lubber-Nzima-re-ESG.pdf.
[6] Attorney General Mark Brnovich, “ESG May Be an Antitrust Violation,” Wall Street Journal, (March 7, 2022), https://www.wsj.com/articles/esg-may-be-an-antitrust-violation-
climate-activism-energy-prices-401k-retirement-investment-political-agenda-coordinated-influence-11646594807?page=1; “Nineteen State AGs Launch Investigation Into Six Major Banks,” Bloomberg Law (Oct. 19, 2022), https://www.bloomberglaw.com/bloomberglawnews/banking-law/X455UFJO000000?bna_news_filter=banking-law#jcite.
[7] California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508 (1972).