On Nov. 3, five Republican U.S. senators sent letters to 51 of the nation’s largest law firms — 33 of them have offices in Texas – warning them of a “duty to inform clients of the risks they incur by participating in climate cartels and other ill-advised ESG schemes.”
The letter, only three paragraphs on a single page, is styled as an unspecific warning regarding a vaguely articulated threat. It doesn’t define or describe what a “scheme” involving environmental, social and governance principles might look like. Nor does it say what, precisely, is objectionable about efforts to defend the environment or democratize corporate capitalism.
The letter is clearly sensitive. None of the firms contacted expressed a willingness to discuss it. But the five signees expect the recipients — as well as their clients and Americans in general — to get the message: ESG is bad.
“The ESG movement attempts to weaponize corporations to reshape society in ways that Americans would never endorse at the ballot box,” the letter says. “Of particular concern is the collusive effort to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad.”
Whether or not that is true, what concerned several legal experts was the litigious tone of the letter, which seemed to be addressed in each case not to the managing partners of the firms but to specific lawyers with expertise in ESG issues. On their face the letters ignore the ethical obligations of the lawyers they address, as well as the practical implication to the firms — and to their clients — of antitrust litigation based on their legal advice.
To some experts, the letter concludes with a thinly veiled threat: “To the extent that your firm continues to advise clients regarding participation in ESG initiatives, both you and those clients should take care to preserve relevant documents in anticipation of those investigations.”
“It’s a stupid letter; a totally stupid letter,” said Randy Johnston, of Johnston Tobey Baruch in Dallas, a frequently cited expert on legal ethics. “It’s kind of offensive in concept.”
“Some of the authors (of the letter) are also lawyers and are flirting with an ethical violation by this attempt to intimidate other lawyers in connection with those lawyers’ representation of advice to clients,” Johnston said.
Kent Zimmermann, a partner at the Zeughauser Group, which advises law firms on practice issues, regarded the letter as political in purpose.
“The ESG movement attempts to weaponize corporations to reshape society in ways that Americans would never endorse at the ballot box.”
— Letter from five GOP senators
“It doesn’t cite any evidence of collusion,” said Zimmermann. “I don’t think it’s right.”
“It puts law firms in an unfair position in what amounts to a play to the (GOP) base,” Zimmerman said.
Dru Stevenson, a professor at the South Texas College of Law Houston, says the date of the letter, dated five days before the midterm elections, marks the correspondence as “mostly political theater.” But he cautions that it needs to be taken seriously.
Stevenson, who studies the legal issues associated with the ESG movement, says antitrust litigation may prove to be the only real weapon to curb increasingly popular trends toward climate change mitigation and, more specifically, energy transition and decreased use of carbon-based fuels like oil, natural gas and coal.
“This (the threat of antitrust litigation) is their best shot at challenging the legality of what’s going on, even though it’s fraught with First Amendment problems,” said Stevenson.
“The senators can’t sue, only threaten legislation. For now, they are stuck (with the Biden administration), but the issue is worth keeping in mind. The political pendulum goes back and forth,” Stevenson said.
The signees include U.S. Senators Tom Cotton (R-Arkansas), Michael Lee (R-Utah), Charles Grassley (R-Iowa), Marco Rubio (R-Florida) and Marsha Blackburn (R-Tennessee). All but Rubio are Republican members of Senate Judiciary Committee.
Notable is the fact that not all the Republican committee members signed the letter; missing are both Texas senators, John Cornyn and Ted Cruz, as well as Lindsey Graham (R-South Carolina), Ben Sasse (R-Nebraska), Josh Hawley (R-Missouri), John Kennedy (R-Louisiana) and Thom Tillis (R-North Carolina).
The offices of both Texas senators were contacted by email for comment. Neither responded specifically to questions. Likewise, the office of Sen. Cotton did not respond to a telephone request for comment.
The ESG letter is one of a number of politically inflected initiatives that are affecting Texas lawyers and their clients. In July, following the reversal of Roe v. Wade, a group of 11 Republicans sent letters threatening corporate law firms operating in Texas with criminal prosecution, civil sanctions and even disbarment if they were to play any role in their Texas employees going out of state to get abortions. The Texas legislature has also passed bills intended to shield oil & gas producers, as well as firearms manufacturers and sellers, from secondary boycotts and company policies that are perceived to exclude, restrict or otherwise punish those industries under ESG-supported guidelines.
The most recent letter purports to elaborate on testimony before the committee in late September by Lina Khan, chairman of the Federal Trade Commission, and Assistant Attorney General Jonathan Kanter of the antitrust division of the Department of Justice, citing concerns that corporate agreement on the terms and standards of ESG initiatives could be collusive and subject to antitrust actions.
The letter cites Khan’s testimony that collusive agreements are subject to antitrust sanctions “in as much as they can affect competition.”
It then quotes Kanter: “I also agree with the underlying sentiment that when firms have substantial power and they use that power to achieve anticompetitive ends, that should be actionable under the antitrust laws.”
The actual substance of the Sept. 20 testimony before the subcommittee on Competition Policy, Antitrust and Consumer Rights, however, seems directed at inquiries by some corporations requesting antitrust exemptions based on their adherence to ESG standards.
Khan’s response was to specific questions by Sen. Cotton on whether BlackRock, the giant investment firm, was in violation of antitrust laws in its insistence on investing in companies and projects that show commitment to ESG principles. Of particular concern to Cotton was whether collective “net-zero” commitments by companies to reduce greenhouse gases — essentially carbon-based offsets — amount to collusive efforts to reduce the supplies of fossil fuels.
Khan replied that, “Firms come to us and try to claim an ESG exemption (to antitrust laws), and we have to explain to them clearly that there is no such thing.”
Asked what his advice might be to a firm receiving such a letter, Zimmermann said it should be handled with some sensitivity. He said firms would likely hand it to their general counsel and ignore it until it can’t be.
“You have to be careful about giving oxygen to what amounts to a hit job,” Zimmermann said.