United States: New DOJ Policies Impact Environmental And ESG Enforcement

Deputy Attorney General Lisa Monaco recently said that the Department of Justice intends to "strengthen the way" that DOJ "respond[s] to corporate crime."¹  DAG Monaco's speech and memorandum has important implications for environmental enforcement, including for companies making Environmental, Social and Governance ("ESG") claims and disclosures.  Monaco specified "three actions" changing prior DOJ policies.² 

• "All Individuals Involved." Monaco first announced that corporations won't qualify for leniency programs unless they provide information on all employees or executives believed to have participated in crimes.³ This was policy during the Obama administration, under the "Yates Memo," authored by then-Deputy Attorney General Sally Yates.⁴  The Trump administration modified the Yates policy to instead require disclosure of people "substantially involved" in wrongdoing.⁵  DOJ is now returning to a broader disclosure requirement. 

• "All Prior Misconduct." DAG Monaco next announced that DOJ will now consider "all prior misconduct" by corporations when deciding how to resolve an investigation, instead of just cases whose facts were similar to the latest probe.⁶  A prosecutor will not just take a "department-wide view of misconduct," but can even consider whether the company has been "prosecuted by another country or state."⁷  

• "Monitors Whenever Appropriate." Third, DAG Monaco rescinded prior guidance suggesting "that monitorships are disfavored or are the exception."⁸  Instead, DOJ prosecutors can now require the imposition of independent monitors whenever they deem it is appropriate to do so.⁹  

DAG Monaco also announced the creation of the Corporate Advisory Group within the Department of Justice.  This Advisory Group will have a "broad mandate to consider various topics that are central to the goal of updating [DOJ's] approach to corporate criminal enforcement."¹⁰ 

Impact on Enforcement of Environmental Laws

Two of DAG Monaco's three actions are particularly important to environmental enforcement.  Regarding the "department-wide view of misconduct," Monaco gave the specific example of a "prosecutor in the FCPA unit."¹¹  The prosecutor should ask: "Has this company run afoul of the Tax Division, the Environment and Natural Resources Division," or other DOJ components?  For companies "facing investigations, as of today, the department will review their whole criminal, civil and regulatory record—not just a sliver of that record."¹²  "He or she also needs to weigh what has happened outside the department," and "a history of running afoul of regulators."¹³  This means that administrative enforcement by EPA could be relevant and considered in non-environmental investigations by DOJ. 

The change in policy regarding corporate monitors is also significant.  For example, in September 2020, Daimler entered into a $1.5 billion settlement with DOJ and EPA for cheating Clean Air Act emission standards.¹⁴  This included a record $945 million in monetary penalties for a Clean Air Act Title II enforcement case.  The consent decree did not, however, require a corporate monitor.  An earlier significant Clean Air Act emissions cheating case had featured a lower monetary penalty.  Yet DOJ required a corporate monitor for three years in that prior emissions cheating matter.  Under DAG Monaco's revised guidance, the appropriateness of a monitor for Daimler might have been viewed differently.  

Impact on Companies Making ESG Claims and Disclosures

DOJ's new policy announcement is particularly noteworthy for companies making climate, sustainability, and ESG statements, claims, and disclosures.  As detailed in prior alerts, both the United States and regulators in other countries are ramping up scrutiny of—and enforcement against—potentially false, misleading, or incomplete ESG statements to customers, investors, and other stakeholders.  

Including through its "green guides," the FTC has historically been active against alleged "greenwashing."¹⁵  After forming a Climate and ESG Task Force in March, the SEC has also been active.  It is policing climate-related and other ESG disclosures.¹⁶  For example, the SEC is now reviewing public company filings, reports, and statements on climate, sustainability and ESG and sending letters of inquiry.¹⁷ 

Government regulators around the world are similarly engaged in climate-related investigations and suits.  For example, in June, the Australian Securities and Investment Commission sent letters to numerous fossil-fuel energy firms, as well as leading international auditing firms that service them.¹⁸  In July, the United Kingdom Financial Conduct Authority wrote an open letter claiming managers are issuing "poorly drafted" pitches for investment funds meant to combat climate change, with claims that "do not bear scrutiny."¹⁹ 

Deputy Attorney General Monaco's speech raises the stakes for companies making climate, sustainability, and ESG claims and disclosures to get that compliance—including specifically compliance with underlying environmental statutes and regulations—right.  A civil or administrative sanction for an environmental violation may factor into the consideration of how DOJ resolves alleged fraud or misstatements around ESG.  Likewise, a company's statements and reports about its climate or sustainability practices could factor into whether and how DOJ resolves future environmental violations.  DOJ may seek to impose more severe sanctions when environmental violations are made by companies that made inconsistent climate, sustainability, or other ESG statements.  

Footnotes

1 Remarks by Deputy Attorney General Lisa O. Monaco, Keynote Address at ABA's 36th National Institute on White Collar Crime ("Monaco Speech"), Department of Justice News (Oct. 28, 2021), https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-gives-keynote-address-abas-36th-national-institute.

2 Id.  

3 Id.

4 Memo from Deputy Attorney General Sally Yates, Individual Accountability for Corporate Wrongdoing, (Sept. 5, 2015), https://www.justice.gov/archives/dag/file/769036/download.

5 Remarks by Deput Attorney General Rod J. Rosenstein, American Conference Institute's 35th International Conference on the Foreign Corrupt Practices Act, Department of Justice News (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0.

6 Monaco Speech.

7 Id.

8 Id.

9 Id.

10 Memo from Deputy Attorney General Lisa Monaco, Corporate Crime Advisory Group and Initial Revisions to Corporate Criminal Enforcement Policies (Oct. 28, 2021), https://www.justice.gov/dag/page/file/1445106/download.  

11 Id.

12 Monaco Speech (emphasis added).

13 Id.

14 Department of Justice, The U.S. Reaches $1.5 Billion Settlement with Daimler AG Over Emissions Cheating in Mercedes-Benz Diesel Vehicles, (Sept. 14, 2020), https://www.justice.gov/opa/pr/us-reaches-15-billion-settlement-daimler-ag-over-emissions-cheating-mercedes-benz-diesel.

15 Greenwashing is often defined as a gap between the symbolic and substantive action taken by a company in order to gain an environmentally-friendly image.

16 Jonathan Brightbill and Jennie Porter, Climate-Related Disclosure Obligations and Increasing Enforcement, Winston's Environmental Law Update (Jul. 13, 2021), https://www.winston.com/en/winston-and-the-legal-environment/climate-related-disclosure-obligations-and-increasing-enforcement.html.

17 Jonathan Brightbill and Jennie Porter, SEC Demanding Climate and ESG Disclosures, Winston's Environmental Law Update (Sept. 28,2021), https://www.winston.com/en/winston-and-the-legal-environment/sec-demanding-expanded-climate-and-esg-disclosures.html.

18 Michael Roddan, ASIC targets fossil fuel companies over climate change, Fin. Rev. (June 1, 2021, 4:45 PM), https://www.afr.com/companies/financial-services/asic-targets-fossil-fuel-companies-over-climate-change-20210531-p57wq4.

19 Silla Brush, U.K. Financial Regulator Slams 'Poorly Drafted' ESG Fund Filing, Bloomberg Green (July 19, 2021, 6:27 AM EDT), https://www.bloomberg.com/news/articles/2021-07-19/u-k-financial-regulator-slams-poorly-drafted-esg-fund-filings.

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