In our March newsletter, we considered the risks posed to directors and officers by activist investors (link here). In this article we consider ESG-washing; another emerging trend in claims against D&Os.

There are many forms of ESG-washing (green / blue / pink / impact / diversity). Each has, at its core, a misleading or amplified statement by a company / its directors which gives an artificial impression of the company’s ESG credentials.

It is no secret that ESG sells and, understandably, companies are keen to extol their own ESG virtues as a means to attract and retain stakeholders. With regulators becoming more interested in the veracity of these statements, and investors ready to pounce in the event of a stock-drop following a misstatement, directors need to be ready for a wave of ESG-washing claims. This is particularly so given that ESG is such a hot topic, with claims fuelled by social inflation.

ESG-washing and activist litigators are natural bedfellows. Earlier this year, ClientEarth (perhaps the most infamous activist litigator) supported Greenpeace France, Friends of the Earth France and Notre Affaire à Tous in bringing a claim against French energy company TotalEnergies. The claimants accused TotalEnergies of greenwashing, alleging that its “advertising acts as a smokescreen for the harm it is causing to the planet and the people”.

So far, TotalEnergies’ directors have not been named in the proceedings. However, history suggests that they are not out of the woods yet. Following the Dutch court’s order in May 2021 that Shell had to reduce its world-wide emissions by 45%, in March 2022, ClientEarth took action against Shell’s directors. Having acquired a shareholding in Shell, ClientEarth brought a derivative action against the board in which it alleged a failure by those individuals to “properly prepare for the energy transition”.

Energy companies are perhaps the first that spring to mind when considering the potential for ESG-washing claims. However, banks and financial institutions get their fair share of attention, with ESG-washing of investments quickly becoming the new mis-selling.

In May 2022, the US Securities Exchange Commission (SEC) fined BNY Mellon $1.5 million for allegedly misstating and omitting information about ESG investment considerations for mutual funds that it managed. In June 2022, the chief executive of German asset management firm DWS Group (part of Deutsche Bank) stepped down after DWS’s offices were raided by police investigating claims of green-washing of investment products. With ESG specific investments becoming the ‘go-to’ for ethical and social conscious investors, we may see regulators scrutinising ESG funds increasingly closely; as ESG specific investments are set to hit $53 trillion by 2025, this is no small undertaking.

Companies and their directors also need to tread carefully with respect to representations made about their own ESG credentials. In 2020, Wells Fargo developed a Diverse Search Requirement (DSR) policy as a means to diversify their work force. The DSR mandated that at least 50% of interview candidates, and one interviewer, must be from a historically underrepresented group.

In May 2022, the New York Times published an in-depth investigation into Wells Fargo’s DSR policy, reporting that Wells Fargo had conducted false interviews in order to ‘satisfy’ the DSR. Subsequently, the New York Times reported that federal prosecutors had begun an investigation. This caused Wells Fargo to release a statement confirming that the company had temporarily paused its use of the DSR, apparently causing a stop drop of approximately 8%.

A shareholder securities class action against Wells Fargo’s directors and officers followed, alleging that they had misrepresented Wells Fargo’s commitment to diversity which, in conjunction with the false interviews, was “likely to negatively” impact Wells Fargo’s reputation and stock price.

Starbucks has also faced claims of diversity-washing by investors following its announcement in October 2020 that the company would be enacting policies to further its commitment to Diversity, Equity and Inclusion (DEI). The complaint against Starbucks was that its DEI policies were, in fact, discriminatory on the grounds of race. In this instance the shareholders sought a judicial declaration that the company’s DEI policies violate federal and state civil rights and anti-discrimination laws.


Undeniably ESG presents vast opportunities to companies and their directors - strong ESG credentials attract stakeholders, from investors to talent, and can play an integral part in the success of a company. On the other hand, with ESG becoming subject to increasing scrutiny, any false step could leave directors vulnerable to claims.

Directors making statements about ESG credentials should take care to ensure the accuracy of that information; drawing a clear distinction drawn between aspiration and attainment.

With regulation around ESG reporting on the rise, it is possible that official guidance will emerge as to the form and content of ESG disclosures. Until such time, modesty is likely to be the best policy.