Criminal Defense Lawyers

Responding to Civil Investigative Demands Targeting Environmental, Social and Governance Claims

Responding to Civil Investigative Demands Targeting ESG Claims

Environmental, social, and governance (ESG) investing has become increasingly popular in recent years. However, ESG practices have also faced growing scrutiny, particularly from Republican state attorneys general.Over the past few months, multiple states have sent civil investigative demands (CIDs) or subpoenas to major asset managers regarding their involvement in ESG initiatives like the Net Zero Asset Managers Initiative and Climate Action 100+.These information requests focus on the asset managers’ communications related to ESG commitments and proxy voting records, especially regarding energy and utility companies. The states claim these asset managers may be putting climate initiatives ahead of fiduciary duties.If your company receives a CID related to ESG issues, here are some tips on responding appropriately:

Understand the Scope and Limits of the Demand

Carefully review the CID to determine precisely what information is being requested and the relevant time period. Consult with legal counsel to ensure you understand what must be provided. Mistakes could frustrate the investigation or lead to accusations of non-compliance 1.

Implement a Legal Hold

Suspend any routine document destruction and preserve all materials that may be responsive 2.

Assess Whether You Are a Target

Determine whether you or someone else is the actual focus of the investigation. This may impact legal strategy 3.

In some cases, companies get CIDs targeting completely unrelated parties.

Negotiate the Scope

Discuss limiting the time period covered or narrowing document requests. This can ease the response burden 4.

But be careful not to appear uncooperative.

Craft Your Narrative Carefully

Shape your response to convince investigators that no laws were broken. Provide context justifying business decisions 5.

Consider Legal Challenges – Carefully

You may be able to fight aspects of the CID in court, but judges usually side with broad investigative powers  6.

ESG Backlash Drives Investigations

In recent years, committing to environmental sustainability and social responsibility has become a priority for many major banks and asset managers.However, Republican attorneys general in over 15 states are now scrutinizing these ESG efforts through civil investigative demands, claiming they may violate fiduciary duties.

ESG Investing Draws Growing Interest

ESG refers to the environmental, social, and governance practices of a company 

Republican AGs Challenge ESG Commitments

However, ESG has faced backlash from Republican policymakers claiming these practices introduce politics into investing and threaten returns.In October 2022, 19 Republican attorneys general launched an investigation into six major banks over their joining of the United Nations Net Zero Banking Alliance, which sets 2050 emissions targets 

Investigations Reflect Broader Political Battle

These state inquiries reflect the broader partisan battle over ESG investing. Republican officials argue ESG practices introduce politics where they don’t belong. Democrats and ESG proponents claim addressing sustainability is smart long-term business.Most legal experts expect state attorneys general to continue targeting asset managers and banks over ESG issues amid this polarized debate. Companies should prepare for expansive information requests scrutinizing their ESG policies and activities.

Navigating the Civil Investigative Demand Process

Receiving a civil investigative demand related to your company’s ESG efforts can be an intimidating and stressful event. However, with the right approach, you can effectively manage the inquiry and protect your interests.

Understanding CIDs

CIDs are a form of administrative subpoena issued by government agencies seeking information for an investigation 10.

Planning Your Response

If served with a civil investigative demand, key early steps include  11:

• Assembling an internal response team with legal, IT, records, and relevant business leaders
• Implementing a legal hold suspending any document destruction
• Identifying data sources and custodians
• Carefully reviewing the requests to clarify what must be provided
• Discussing the scope with legal counsel and considering negotiations

Document preservation is critical, as destroying materials after receiving a CID can prompt obstruction charges.

Assessing Your Risks

How a CID investigation proceeds depends on the agency’s findings:

• The agency closes the investigation after reviewing the information provided
• The agency pursues an administrative action or federal lawsuit
• The case gets referred for civil or criminal prosecution

Outcomes range from closing the inquiry to facing litigation or financial penalties. Experienced legal counsel can help evaluate your risks and exposure based on the nature of the investigation.

Consulting Attorneys

Given the high stakes, working with lawyers experienced in responding to civil investigative demands is strongly recommended upon receiving one.Counsel can help assemble an appropriate response team, negotiate the scope if feasible, craft your narrative to investigators, and advise on potential legal challenges. They can also represent you if the inquiry escalates.

Conclusion

Scrutiny of ESG investing by Republican attorneys general is unlikely to dissipate given the partisan disagreements over whether addressing issues like climate change is an appropriate business practice. Companies can expect information requests probing their ESG policies and commitments.Responding to civil investigative demands is a complex process with serious ramifications for non-compliance. Working closely with experienced legal counsel from the start provides the best opportunity to resolve the inquiry favorably and avoid elevated enforcement action.With the right strategy tailored to your situation, your company can responsibly cooperate with investigators while protecting essential business interests.