Vinson & Elkins' Quarterly Securities & ESG Updates - Fall 2024

Key Insights found throughout this issue include:

1. Decline in ESG Shareholder Proposal Support:

Despite a record number of ESG shareholder proposals in the 2024 proxy season, we saw support for these proposals decline significantly. This trend is attributed to the anti-ESG movement, which has led large institutional investors to be less aggressive in supporting environmental and social issues. Additionally, many proposals during this past proxy season were seen as too prescriptive or of lower quality, and failed to garner significant shareholder backing.

2. Increased Attention on Artificial Intelligence:

Artificial Intelligence (AI) has become a prominent topic in shareholder proposals, with notable support for AI-related issues. Although none of the AI proposals passed in 2024, they received significant initial support, indicating a growing interest in how AI impacts business operations, data privacy, and systemic discrimination. Furthermore, the SEC has taken a strong stance against “AI washing,” where companies overstate their AI capabilities to attract investors. We cover a notable case involved the SEC charging the former CEO of Joonko Diversity Inc. with securities fraud for making false claims about the company’s AI technology.

3. Federal and State Climate-Related Disclosure Law Updates:

The SEC’s final rule on climate-related disclosures, released in March 2024, has faced significant legal challenges and is currently stayed pending litigation. The Eighth Circuit is hearing consolidated cases against the rule, and the outcome could have major implications for compliance timelines and the future of climate-related financial disclosures. Meanwhile, California has enacted stringent climate disclosure laws, requiring companies doing business in the state to disclose Scope 1, 2, and 3 greenhouse gas emissions. Despite legal challenges from business groups, the initial disclosure deadlines remain intact.

4. Companies Face Risks in “Greenwashing” Claims:

While V&E was successfully dismissing private claims of greenwashing, the SEC and the state of California have been ramping up their scrutiny of companies’ ESG-related claims. In particular, companies working in both the traditional energy and consumer packaged goods industries find themselves in the crosshairs of this scrutiny. We cover these recent state and federal actions, and provide an analysis of how companies can address these risks.

5. FTC Non-Compete Rule Set Aside:

The U.S. District Court for the Northern District of Texas halted the FTC rule banning worker non-competes, ruling that the FTC lacked statutory authority to issue such rules and that the rule was arbitrary and capricious. We discuss where the rule may be headed and what this could mean for both employers and employees.