Placing an Emphasis on the “S” in ESG

By Meredith Mandell

February 17, 2022

Placing an Emphasis on the “S” in ESG


By Meredith Mandell

It’s been on the backburner and it is now coming into full force. A number of social factors can affect a company’s performance, including short-term and long-term challenges. While much has been written about other aspects of ESG – for example, a corporation’s effects on the planet or its internal political functions – social factors are primarily those that impact people working within the company or people and institutions outside of it.

The Push for Corporate ESG

The corporate focus on environmental, social and governance (ESG) activities has been dubbed the “new paradigm for business,”[1] although this value-driven model has been around for decades. For example, the corporate social responsibility movement, a forerunner to ESG,[2] spurred the United States to enact the Comprehensive Anti-Apartheid Act, a 1986 federal law which imposed sanctions and prohibited U.S. nationals from making any new investments in South Africa during the apartheid regime. ESG is sometimes described as a subset of CSR or what others have called the socially responsible investment movement, but ESG is primarily focused on data-driven assessments of a company to predict performance.

For a long time the major focus of ESG activities has been on the environment and climate change. More recently, we see an emerging focus on the “S,” or the social component of ESG, including corporate efforts to enhance and advance various forms of social justice for corporate employees, customers and the broader community in which the company operates. There can be a disconnect between what companies say and what they actually do in the ESG arena, which poses challenges for corporate communications with regulators, employees, investors and the public, raises the risks of litigation and heightens the need for litigation defense strategies.

Where Is the Recent Momentum on the “S” Coming From?

In no small measure, ESG was given a huge boost by recent social movements. The 2018 #MeToo anti-sexual harassment movement heightened awareness and actions about how women are treated in corporate America. The 2020 Black Lives Matter movement further shined a spotlight about diversity, equity and inclusion in corporate America, as did the Stop Asian Hate movement. As companies spoke out supporting these social concerns, they also built up expectations for what actions companies would take to advance diversity among employees, board members and other corporate constituents. Similarly, in the realm of human rights and health and worker safety, the COVID-19 pandemic has increased renewed awareness and attention to worker health and safety.[3]

These widespread social concerns did not go unnoticed by corporate regulators. In June of 2021, SEC Chairman Gary Gensler discussed his agency’s interest in rule-making related to public company disclosures about “environmental risk” but also on what he dubbed “human capital disclosure.”[4] Gensler focused on the SEC’s interest in “human capital disclosure,” including “a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety.”[5] In this vein, the Nasdaq Stock Exchange received approval from the SEC to adopt a Board Diversity Rule in August of 2021, which is a disclosure standard designed to encourage a minimum board diversity objective for companies and provide stakeholders with consistent, comparable disclosures concerning a company’s current board composition.[6] The Nasdaq rule requires exchange companies to publicly disclose board-level diversity statistics using a standardized template and whether the company has at least two diverse directors and, if not, the reasons why.[7]

Some state governments have passed ESG regulation, with California notably in the lead.[8] New York, Illinois and Maryland have also passed legislation requiring its companies to publish board diversity data in its annual reports.[9]

In January of this year, New York State Comptroller Thomas P. DiNapoli and the state pension fund announced the filing of shareholder proposals seeking an independent audit of five companies’ practices related to racial equity.  The proposals call on the board of directors of each of the five companies – Inc., Chipotle Mexican Grill, Dollar General Corp., Dollar Tree, Inc. and Match Group – to commission a racial equity audit analyzing their impacts on civil rights, equity, diversity and inclusion, as well as the impacts of those issues on each company’s business. The proposals also request that the audits be publicly disclosed on each company’s website.[10]

Institutional investors have played an increasingly large role in pushing ESG forward. As one Forbes magazine commentator put it: “ESG investing is based on the assumption that ESG factors have financial relevance.”[11] Arjuna Capital, the second largest institutional investor in Microsoft, recently surprised much of the investing world when it successfully convinced Microsoft shareholders to agree with a proposal to push the software-maker to issue a public report on the effectiveness of its sexual harassment policies.[12] State Street Global Advisors, one of the world’s largest asset managers, said that, in 2022, it would vote against compensation committee chairs at S&P 500 companies that are not disclosing their federally mandated EEO-1 report data on workforce diversity.[13]

Another way investors have tried to address institutional racism in corporate America is by putting pressure on corporations to select diverse directors.[14] John Streur, president and CEO of Calvert Research and Management, one of the oldest socially responsible investors, wrote in June 2020, amid the protests over the killing of George Floyd, that “[e]nding racism in America is a responsibility of corporations, and corporations must recognize that their current efforts to promote their core values, and diversity and inclusion programs, fall far short of what is needed today.”[15] Larry Fink, the chairman and CEO of BlackRock, which manages $10 trillion in investments and is one of the world’s largest asset managers,[16] has repeatedly called on investee companies to appoint at least two women to serve on their board of directors.[17] In the 2019 proxy season, BlackRock revealed that it had voted against board members at 52 companies in the Russell 1000 with boards that included fewer than two women or no other diverse directors.[18] In his 2022 annual letter to CEOs, Fink defended the push for greater transparency of corporate environmental, social and governance practices in policies in what he described as “[s]takeholder capitalism,” which he said was “not about politics. It is not a social or ideological agenda. It is not ‘woke.’ It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and the communities your company relies on to prosper.”[19]

Another aspect of the “S” in ESG concerns workers’ human rights, with supply-chain sourcing as an example of a hot topic. Just recently, President Biden enacted the Uyghur Forced Labor Prevention Act, a new law intended to combat forced labor in China’s Xinjiang region where the Uyghur, a Turkish ethnic group, and other Muslim minority populations reside.[20] The new law will take effect on June 21, 2022 and require companies to present strong documentation to the U.S. Customs and Border Protection that no part of their products contain components sourced or manufactured made with forced labor.[21]

High Stakes Litigation Risks

Given the increased scrutiny of corporate diversity and human rights, there are a number of areas where “S” litigation may likely increase. While environmental or “green-washing” shareholder suits have been more successful to date than “diversity” lawsuits, that may very well change as the sheer numbers of these suits begin to increase. There have also been some early plaintiffs’ successes in the realm of lawsuits attacking “human rights” records and “worker safety” suits that may also serve as models for ESG “social responsibility lawsuits.” Further, a number of recent high profile ESG-styled sexual harassment lawsuits against corporate boards have led to notable settlements. And even if some suits did not succeed, the approaches to filing these cases are still in their early iterations, and the current body of case law can illuminate where plaintiffs may strengthen their claims going forward – for example, more recently some plaintiffs have successfully brought false advertising claims alongside securities fraud claims.[22]

Lawsuits Driven by a Lack of Diversity

A lack of gender diversity, tied to allegations of sexual harassment, has spawned ESG-styled shareholder-derivative suits in the area of sexual harassment, with some successful settlements that included board commitments around diversity. In the Wynn Resorts Ltd. derivative action – litigation brought by the New York State Common Retirement Fund and the New York City Employees Retirement System – the settlement included an agreement for Wynn Resorts to split the CEO and chair position, make a stated commitment to 50% board diversity, and use a Rooney Rule to require interviews of diverse candidates. (The Rooney Rule is an NFL policy that requires any team with a head coaching vacancy to interview at least one diverse candidate.[23]) In the same vein, in the wake of shareholder actions led by the state of Oregon arising out of allegations of sexual misconduct at L Brands Inc., the newly spun-off Victoria’s Secret corporate board is now composed of nearly all-women directors (six out of seven directors) and half of Bath & Body Works Inc.’s independent directors (under the new name of L Brands) are women.[24]

On the other hand, a number of diversity-based actions have failed to proceed past the motion to dismiss stage. In Ocegueda v. Zuckerberg,[25] the plaintiff alleged that Facebook lacked diversity at all levels (on its board and executive team and in its workplace), that it engaged in discriminatory advertising practices and failed to curb hate speech in violation of the directors’ fiduciary duty and the Securities Exchange Act of 1934.[26] The case was dismissed on several grounds, including that statements regarding diversity in the company’s proxy statements were “non-actionable puffery” or “aspirational” and that the complaint lacked plausible facts about directors’ misconduct.[27]

Likewise, in April 2021, a case against Gap, Inc., claiming the company failed to create meaningful diversity on the board of directors or with the company’s leadership roles and made false statements about its diversity and its efforts to create diversity, was dismissed on procedural grounds for failure to abide by a forum selection clause in the corporation’s bylaws.[28] Similar lawsuits against Oracle Corporation, Danaher Corporation and 10 of its 12 directors, and OPKO Health’s board, which alleged failure to appoint diverse board members or executives, were also dismissed for failure to plead with specificity or other procedural defects.[29] In spite of these wins on the part of the defendants, there is at least one high-profile suit still pending,[30] and the push by federal and state regulators, along with the intensity of feeling by activists and investors around boards that are viewed as exclusionary suggest that such lawsuits are not likely to fade away and will continue to be pursued.

Human Rights Issues and Health and Safety Lawsuits

There have been some early successes in the arena of human rights and worker safety. In a recent action against Starbucks Corp.,[31] the plaintiff alleged that, while Starbucks labels its hot chocolate as “made with ethically sourced cocoa,” and that the company administers an internal certification program known as “COCOA,”[32] “[n]evertheless, Starbucks is ‘fully aware that the farms it sources its cocoa from use child and slave labor.’”[33] The court ultimately denied Starbucks’s motion to dismiss and allowed the plaintiff’s claims to go forward under California’s California Consumers Legal Remedies Act and Unfair Competition Law.[34]

In yet another case, shareholders of Vale S.A., a Brazilian mining company, received a $25 million settlement over claims that Vale and its executives committed securities fraud under Sections 10(b) and 20(a) of the Securities Exchange Act.[35] The court found that the plaintiffs had successfully alleged that defendants materially misrepresented or omitted facts in public filings related to the stability and safety of Vale’s projects, and that its statements were not simply “puffery.”[36]

In January 2019, the National Consumer League announced a settlement of a lawsuit[37] alleging violation of the District of Columbia’s Consumer Protection Procedures Act[38] by defendant-retailers Wal-Mart, The Children’s Place and J.C. Penney, for failure to audit company suppliers, as the companies had promised, to ensure safe and healthy working conditions for their workers and not utilize child labor. Also in the area of health and safety, in November 2019, California Attorney General Rob Bonta announced a stipulated judgment requiring Amazon to end harmful labor practices that concealed COVID-19 case numbers from workers and to provide key information on workplace protections.[39] As part of the stipulated judgment, Amazon modified its COVID-19 notifications to workers and local health agencies, agreed to submit to monitoring regarding its COVID-19 notifications and paid a $500,000 fine

What Lies Ahead?

Various arms of federal and state governments, activist shareholders and institutional investors are increasingly jumping into the fray of greater ESG oversight and regulation.

In litigation, we see that many of the lawsuits filed have been shareholder derivative actions involving federal securities fraud claims, as well as other statutory and regulatory claims premised on such issues as false advertising and consumer protection. While expressions of corporate optimism and puffery may not be actionable fraudulent statements, there is a fine line between puffery and ESG-related disclosures that are materially misleading or false. Specific vulnerabilities have included disclosures or lack of disclosures related to corporate audits and statements made in press releases or on websites, statements made to employees.

While some commentators have suggested that workforce diversity and board diversity litigation is floundering given the spate of recent losses in a number of high-profile cases, we are not convinced that is the case given the push by the federal government and its agencies toward increased scrutiny and regulation. The more that data and disclosures become publicly available, the greater possibility that a plaintiff will be able to meet requisite pleading standards.

Particularly in the “S” area of ESG, we are seeing an increased concern and use of litigation about “human rights” causes, which has largely covered worker health, safety and anti-exploitation measures. Given the operational and reputational risks at stake, there is a need to take steps to manage pre-litigation risks. Companies should review what they say against what they actually do, scrutinizing both involuntary and voluntary disclosures at all levels – whether in advertising or period reports filed with government agencies or statements to employee – to make sure corporate actions and words are aligned. As one example, a company should consider adding language into their supply chain vendor contracts that expressly states ESG goals, expectations and metrics for compliance. These contracts should also expressly warn vendors that they may be terminated should they fail to adhere to these expectations. Enforcement, of course, must be monitored. Seeking third-party certification of ESG compliance is not without its own litigation risk: activists have sued both those who use certifications and the certifiers.

Overall, we believe that ESG litigation will slowly grow in force and impact, making these risk management activities all the more critical.

Meredith Mandell is an associate in Quinn Emanuel’s New York office. She joined the firm in 2019 and her practice focuses on complex commercial litigation. Prior to joining the firm, Mandell worked as a judicial law clerk in the Southern District of New York. Before practicing law, Meredith was a legal affairs producer at a national television news network and was also a prize-winning journalist.

[1] See Camilla Christino, ESG: The New Paradigm for Business, Timeline Soft Expert Blog, Nov. 29, 2021,

[2] Generally speaking, commentators have described ESG and CSR as related concepts in that they are “both concerned with a company’s impact on society and the environment,” but different in that CSR is a “business model used by individual companies,” whereas “ESG is a criteria that investors use to assess a company and determine if they are worth investing in.” James Cook, What Is the Difference Between ESG and CSR, Business Leader, Sept. 2, 2021,; see also, George Kell, The Remarkable Rise of ESG, Forbes, July 11, 2018, (describing data-driven nature of ESG when compared to SRI).

[3] For example, Inc. had to apologize in 2021 for falsely denying that their employees were at times  forced to urinate in plastic bottles because they did not have adequate time to use the restroom. See Audrey Conklin, Amazon aware that workers allegedly pee in water bottles, documents show; company pushes back,, Jan. 28, 2021, Amazon’s full-time warehouse employee injury rate was more than 60% higher than non-Amazon warehouse employee injury rate and twice as high as Walmart warehouse employee injury rate. Niall McCarthy, Amazon Warehouse Injuries Significantly Higher Than Competitors,, June 8, 2021,

[4] See SEC Chairman Gary Gensler, Prepared Remarks at London City Week, SEC, June 23, 2021,

[5] Id. See also SEC Staff Legal Bulletin No. 14L SEC (November 3, 2021), In the bulletin, the SEC rescinded previous guidance on shareholder proposals and revised the standards for the ordinary business exception in Rule 14a-8(i)(7) and the economic relevance section of Rule 14a-8(i)(5) to limit the ability of corporations to exclude ESG proposals by shareholders from the proxy-voting process, paving the way for an increased number of “S” shareholder proposals in the coming year.

[6] NASDAQ’s Board Diversity Rule: What NASDAQ-Listed Companies Should Know (October 21, 2021),

[7] Id.

[8] California has requirements about women on public company boards and directors from underrepresented communities. See Cal. Corp. Code §§ 301.3, 2115.5); Cal. Corp. Code § 301.3(A)-(B); Cal. Corp. Code § 301.3(E)(1).

[9] See 805 Ill. Comp. Stat. Ann. 5/8.12 (requires companies to publish data regarding female, minority and LGBTQ directors); N.Y. Bus. Corp. Law § 408 (requiring corporation’s biennial statement to disclose the total number of directors and the total number of female directors and requiring that the state prepare a study from this data looking at the change in board gender composition from prior years and the aggregate percentage of women directors on all boards); Md. Code Ann., Tax-Prop. § 11-101(c) (requiring that domestic stock corporations with total sales exceeding $5,000,000 and tax-exempt domestic nonstock corporations with operating budgets exceeding $5,000,000 must comply with a gender diversity reporting requirement to state’s Department of Assessments and Taxation).

[10] See DiNapoli Calls on Major Corporations To Conduct Racial Equity Audits, Office of the New York State Comptroller Press Release (Jan. 19, 2022),

[11] Kell, supra note 2.

[12] Jordan Novet, Microsoft Hires Law Firm To Review Sexual Harassment Policies, With Report Due in Spring,, Jan. 13, 2022,

[13] Guidance on Enhancing Racial & Ethnic Diversity Disclosures, State Street Global Advisors (January 2021),

[14] This is an example of how the “S” or social aspect of ESG blends and overlaps with the corporate governance side or the “G” in ESG. Notably, while this article is focused on “S” there is some inevitable overlap between “S” and “G.”

[15] John Streur, Corporations and Investors Must Do More to Combat Racism, Calvert Impact Blog (June 2, 2020).

[16] Andrew Ross Sorkin and Michael J. de la Merced, It’s Not ‘Woke’ for Businesses to Think Beyond Profit, BlackRock Chief Says, N.Y. Times, Jan. 17, 2022,

[17] See, e.g., Vanessa Fuhrmans, How To Get More Women in the Boardroom? Some Try Blunt Force, Wall Street J., April 25, 2018,

[18] BlackRock Investment Stewardship 2019 Annual Report, BlackRock (Aug. 2019),

[19] Larry Fink’s 2022 Letter to CEOs: The Power of Capitalism, BlackRock,

[20] Lydia Beyoud, U.S. Crackdown on Forced China Labor Risks Supply Chains Snarls, Bloomberg, Jan. 27, 2022,

[21] Id.

[22] See, e.g., infra Myers n.30.

[23] See, e.g., Press Release regarding Wynn Resorts, Ltd. Derivative Litigation (August 2, 2021) (announcing $90 million settlement of derivative suit rising out of allegations that Steve Wynn engaged in a longstanding pattern of sexually harassing and assaulting Wynn employees on company property),

[24] See Kevin LaCroix, The D &O Diary (August 2, 2021), (noting that L Brands agreed to a settlement of litigation arising from sexual misconduct allegations which will require it to adopt management and governance measures, to which it will commit $90 million of funding over the course of five years).

[25] 526 F. Supp. 3d 637(N.D. Cal. 2021).

[26] Id. at 641. Specifically plaintiffs file claims under § 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), and SEC Rule 14a-9, 17 C.F.R. § 240.14a-9.

[27] Id. at 651-652.

[28] Lee v. Fisher, 2021 WL 1659842 at *6 (N.D. Cal. Apr. 27, 2021).

[29] See Klein v. Ellison, 2021 WL2075591 (N.D. Cal. May 24, 2021); In re Danaher Corp. S’holder Derivative Litig., 2021 WL 2652367 (D.D.C. June 28, 2021; Lee v. Frost, WL 3912651 (S.D. Fla. Sept. 1, 2021).

[30] See Foote v. Micron Tech., Inc., No. 1:21-cv-00169 (D. Del. Feb. 9, 2021) (motion to dismiss still pending involving shareholder derivative complaint filed against Micron Technology asserting claims for breach of fiduciary duties – good faith, loyalty, reasonable inquiry, oversight, and supervision – unjust enrichment, waste of corporate assets, abuse of control, gross management, and violation of §14(a) of the Securities Exchange Act and SEC Rule 14a-9, arising from allegations regarding Micron’s lack of diversity, equality and inclusion and false statements on diversity).

[31] Myers v. Starbucks Corp., 536 F. Supp. 3d 657 (C.D. Cal. 2021).

[32] Id. at 662.

[33] Id.

[34] Id. at 667.

[35] In re Vale S.A. Sec. Litig., 2020 WL 2610979 (E.D.N.Y. May 20, 2020).

[36] Id. at *1.

[37] See Statement on Resolution of Lawsuit Against Walmart, JC Penney, and The Children’s Place, National Consumers League,; see also Nat’l Consumers League v. Walmart Stores, Inc., No. 2016 CA 007731 B, 2016 WL 4080541 (D.C. Super. Ct. July 22, 2016). The settlement was struck after a court partially denied the defendant-retailers motion to dismiss.

[38] Id. at *10-11.

[39] See In Nationwide First, Attorney General Bonta Secures Judgment Requiring Amazon to Comply with “Right-to-Know” Law to Help Protect Workers Against Covid-19, California Attorney General’s Office Press Release (November 15, 2019),

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