As the rhetoric on the pushback against ESG in the U.S. heats up, the question now is: does this challenge have a legal basis or is this just about politics? From a legal standpoint, it is becoming clear that the anti-ESG advocates may in fact have a powerful tool in the form of the Sherman Antitrust Act, which generally prohibits agreements between competitors that unreasonably restrain trade and other forms of unilateral business conduct that may have an anticompetitive effect. Of specific concern here is whether participation in ESG initiatives and coalitions that are shaping markets or excluding specific industries could be considered a “group boycott” (i.e., where firms collectively agree to refrain from doing business with targeted individuals or firms). A succinct summary of the potential antitrust issues for ESG can be found in the recent bulletin by Mintz, Is Antitrust ESG’s Achilles Heel? House Republicans Think So.
Anti-ESG advocates are now picking up on the antitrust argument and in December, Republican members of the House Judiciary Committee wrote to steering committee members of Climate Action 100+ asking for a broad range of information about Climate Action 100+ activities while asserting that that participating companies may have worked “together to punish disfavored views or industries, or to otherwise advance” ESG goals in a way that may violate the antitrust laws. The pressure from Republicans can only be expected to increase as they take control of the House. It is important to note also that private plaintiffs could bring their own actions under the same theories of antitrust liability, independent of government enforcers.
Later this month, HMI’s Investment Industry Leaders Forum will be looking at the antitrust issue in greater depth and we will report on our findings later this winter. In the meantime, as the Mintz bulletin notes for institutional investors operating in the U.S., “Industry participants either present in or venturing into the ESG space should be aware of the potential antitrust implications of participating in collective ESG initiatives and implement safeguards to avoid liability and mitigate antitrust risk.”