ANTITRUST ATTACK — The conservative backlash against corporate sustainability initiatives is expected to pick up steam ahead of next year’s elections, leaving Wall Street firms and others looking for government guidance to navigate the narrow path through a political minefield. Financial services companies, in particular, have been spooked by red-state officials’ threats to file antitrust lawsuits over collaborative net-zero commitments they have made through groups such as the Net-Zero Insurance Alliance and the Net-Zero Banking Alliance. But if they were looking for assurances that they’re on solid legal footing, it wasn’t clearly communicated by a Federal Trade Commission policy official who attempted to outline the federal government’s position at an event in Washington last week. “Just the plain reading of the antitrust laws can take into account social goals like sustainability like racial equity,” the FTC’s Synda Mark told the gathering of corporate and legal officials. “All of these other social values, I think, are embedded in not only the history, but the actual meaning of the antitrust statutes that we have.” At the same time, Mark said, any discussions between private economic actors on ESG issues must be heavily scrutinized. Lee Berger, a former senior DOJ official who is now an antitrust lawyer at Steptoe & Johnson, sees Mark’s comments as far from reassuring. “It was platitudes, there was not a lot that was communicated there,” Berger said. “If the FTC says it's going to consider equity and sustainability in its antitrust decisions, it has to explain how.” State attorneys general, meanwhile, appear to be preparing for action, hiring two outside law firms to lead the investigation and potential litigation that, according to a source familiar with internal discussions, could come in the next year. D.C-based Cooper & Kirk and Arizona-based Fusion Law have been retained by the states, according to a separate person with knowledge of the probes. Fusion Law was also involved in a recently dismissed state AG case challenging ESG rules from the Labor Department. The moves come as Republicans at both the state and federal level have opened investigations into financial firms, proxy advisers and other companies. Neither firm responded to requests for comment. Doug Peterson, the Republican former Nebraska attorney general who led a 38-page report on ESG issues before leaving office, said in an interview that while he doesn’t know where the coalition of GOP AGs currently stands on timing for a lawsuit, he was highly interested in taking legal action. “Had I stayed in office, I would have had this as one of my top priorities,” said Peterson, who now works as counsel at the Keating O’Gara law firm in Nebraska. “AGs are in the unique position to both investigate and prosecute this type of anti-competitive market behavior.” Such a case could rest on companies joining groups that mobilize their market power toward setting financing and investment goals that fuel fewer emissions, allegedly amounting to a “boycott” of fossil fuels. There would be challenges in successfully arguing such a case: All of the big financial firms still invest heavily in oil and gas, and the net-zero groups are voluntary and non-binding — amounting to a “weak” argument on antitrust grounds, according to a Columbia Center on Sustainable Investment report released this summer. “It'll be a difficult legal case to make given some of the requirements to prove an antitrust case,” said Chong Park, a former FTC senior trial attorney and now partner at the Ropes & Gray law firm, who compared these net-zero industry groups to trade associations that warrant antitrust scrutiny but often do not produce actual collusive conduct that harms competition. The anti-ESG side could soon find itself with a highly placed friend at the FTC itself. Utah Solicitor General Melissa Holyoak, one of two GOP nominees to the agency, played a key role in organizing a May letter from 23 state attorneys general asking members of the Net-Zero Insurance Alliance about their ESG policies, according to information obtained in a public records request. The other GOP nominee to the FTC is Virginia Solicitor General Andrew Ferguson, who helped the Labor Department case alongside Holyoak and the Texas Attorney General’s office. The chilling effect is real, Peggy Otum, a WilmerHale partner, said of her clients at last week’s Washington event. Case in point: After the May letter stating that collaboration on emissions reductions targets could violate state and federal antitrust laws, members concerned about legal risks fled the group. Berger pointed to Europe as a potential model. The European Commission in June issued guidance that “antitrust rules do not stand in the way of agreements between competitors that pursue a sustainability objective.”
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