Wilson Sonsini wrote an excellent article offering guidance on the intersection of ESG and antitrust laws. This comes in response to letters from 22 U.S. state attorneys general to investors and consultants, including Responsible Alpha, against supporting the shift to a low-carbon economy, as well as subpoenas from the U.S. House Judiciary Committee to As You Sow and the Glasgow Financial Alliance for Net Zero, alleging potential violations of U.S. antitrust laws in their net-zero efforts.
In summary, these allegations of antitrust violations are overstated, superfluous, and inaccurate.
Antitrust laws prohibit competitors from using agreements to limit competition.
Both horizontal agreements – e.g. across competitors – or vertical agreements – e.g., across supply chains – whether written or informal regarding pricing and limiting competition, violate antitrust laws.
In other words, there must be an agreement. But what happens when competitors voluntarily react similarly due to changing market demand, business innovation, or regulatory drivers? Does this constitute an antitrust violation?
For example, when companies globally launched e-business platforms online 20 years ago in lieu of in-person retail, did this violate antitrust laws because outdated commercial real estate shopping centers saw declines in foot traffic and retail spend? Of course not. This was a natural evolution in response to changing consumer preferences and technological advancements.
Similarly, responding to climate change unequivocally 100 percent caused by human industrial activity and identified as an "existential threat to the global financial system and economy" by the U.S. Department of Treasury, is not an antitrust violation. In fact, it's viewed as “a historic economic opportunity for companies, industries, and countries.”
Responding to climate change is material, states the U.S. Securities and Exchange Commission.
But in fact, in 2023 alone, the U.S. had $92.8 billion in damages from 28 different billion-dollar weather events that were impacted by climate change and killed 492 people.
But are ESG policies by investors group boycotts? The Supreme Court has conclusively ruled on this manner. As Wilson Sonsini wrote:
“In NAACP v. Claiborne Hardware Co., the Supreme Court upheld the NAACP’s right to boycott white-owned businesses resisting integration, because the purpose of the boycott “was not to destroy legitimate competition” but to “vindicate rights of equality and freedom that lie at the heart of the Fourteenth Amendment itself.”
As was conclusively ruled, we cannot be forced to invest in companies with forced and slave labor in their supply chains because of the misinterpretation of antitrust laws, we also cannot be forced to invest in companies polluting the planet with their excess greenhouse gas emissions, harming our families and our health.
While shareholders may compete when buying and selling shares to obtain the best price, voluntary ESG initiatives are completely different and orthogonal to shareholders working with management.
Fundamentally, shareholders are owners of the companies they invest in and as such, they can raise concerns and opportunities with the management of the company they own alongside other owners. The simple fact of communicating amongst competing firms, across supply chains, or even within voluntary standard setting organizations such as the Science Basted Targets initiative (SBTi), is not an antitrust violation.
Just like when, for example, Ford sets requirements for its suppliers or when the car industry chooses to use automatic emergency braking (AEB) tech, it's not breaking antitrust laws. This is no different to companies freely committing to climate goals within their operations and supply chains.
Wilson Sonsini have listed simple recommendations to mitigate concerns when voluntarily engaging with institutions on ESG risks, including climate change.
ESG integration, ESG engagement, and encouraging companies to transparently disclose non-financial information in almost all cases simply does not violate antitrust laws. Engaging with companies you own is common sense in the same way as a homeowner manages their home.
No one should be forced to invest in companies with forced and slave labor in their supply chains and no one should be forced to invest in companies causing the climate crisis (…which, news flash, costs the U.S. economy $150 billion annually).
As Ben Franklin famously stated “An Ounce of Prevention Is Worth a Pound of Cure.” Mitigating climate change today saves us money and lives tomorrow, benefiting investors, shareholders, and the communities we live in.