Nancy Marie Rich
In light of the widespread and rapid changes in our environment, corporate stakeholders are increasingly concerned with companies’ sustainability practices. Many such stakeholders look to environmental, sustainability, and governance (“ESG”) disclosures to discern which firms have positively responded to ESG factors. However, in the United States, under voluntary ESG disclosure frameworks, reporting firms need only disclose “material” ESG-related information. Thus, ESG disclosures are limited according to each disclosure framework’s sense of “materiality.” Imported into some voluntary ESG disclosure regimes, the restrictive TSC Industries, Inc. v. Northway, Inc.definition of “materiality” reinforces the Wall Street Climate Consensus by enabling “greenwashing.”
I. The Wall Street Climate Consensus
The Wall Street Climate Consensus (“WSCC”) is a specific mode of the Wall Street Consensus (“WSC”). Broadly, the WSC is “an elaborate effort to reorganize developmental interventions around partnerships with global finance.” The WSC promotes long-term public-private partnerships (“PPPs”). Through these PPPs, the private sector finances and manages public services, so long as the state shares the risk, thereby guaranteeing payment flows to PPP investors.In other words, under the WSC, the state de-risks development asset classes. This is “supposed to protect the financial sector from the risks of investing in developing markets.” As applied to sustainability efforts, the Wall Street Climate Consensus (“WSCC”) promises that financial capitalism can guide the low-carbon transition. Like the WSC, broadly, the WSCC is concerned upmost with maintaining “status-quo financial capitalism.” Under this schema, the private sector finances “green” projects and firms, while the WSCC state subsidizes and protects finance from climate-related risks. There must, therefore, exist “green” assets towards which finance can direct capital. In this way, “greenwashing,” whereby a company exaggerates its ESG efforts, serves the WSCC by ensuring there are such “green” assets. Greenwashing has become of increasing concern for those who rely on voluntary ESG disclosures.
II. The TSC Standard of Materiality in ESG Frameworks
In the United States, climate-related disclosure remains largely voluntary and unstandardized. In the absence of a mandatory climate-related disclosure regime, several non-governmental standard setters have developed voluntary disclosure frameworks. Among these, the Climate Disclosure Standards Board (“CDSB”), the Global Reporting Initiative (“GRI”), the Sustainability Accounting Standards Board (“SASB”), and the Task Force on Climate-Related Financial Disclosures (“TCFD”) have each developed a voluntary ESG disclosure framework. Each of these disclosure frameworks filter climate-related information according to a specific materiality standard.
One such definition of materiality has its origin in TSC Industries, Inc. v. Northway, Inc. In TSC, the Court provides the following definition of materiality:
An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote . . . Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information available.
The Court defines “materiality” vis-à-vis the shareholder or “reasonable investor.” This objective and investor-centered sense of materiality has been adopted by some voluntary ESG disclosure regimes.
For example, SASB has adopted a materiality standard that closely resembles the TSC standard. For SASB, “information is financially material if omitting, misstating, or obscuring it could reasonably be expected to influence investment or lending decisions that users make on the basis of their assessments of short, medium, and long-term financial performance and enterprise value.” Indeed, the SASB “remains . . . focused on facilitating decision-useful and cost effective disclosure of financially material sustainability information to investors and other providers of financial capital.” Like the TSC standard, materiality under SASB is defined vis-à-vis the investor, at the time of investment. Because “immaterial” information need not be disclosed, a firm need not report information which would not impact the reasonable investor’s investment decision. The TSC and SASB standards thus function as restrictive filters, limiting company disclosures to only that information which is relevant to investors.
Because it limits the type and amount of climate-related information that firms report, the use of the TSC materiality standard by some ESG disclosure frameworks enables “greenwashing.” Existing discourse surrounding the WSC and the WSCC has identified voluntary ESG disclosure frameworks as fertile ground for greenwashing. Where there are a number of disclosure frameworks, the firm or borrower has ample means to “shop” for the framework or ratings most favorable to themselves. The different materiality standards, including the TSC standard, may thus contribute to greenwashing by generating inconsistency. In addition to generating inconsistency, the TSC standard may enable greenwashing by restricting disclosures. Because the TSC standard restricts disclosure to only that information which is relevant to the reasonable investor, this standard necessarily excludes a considerable amount of climate-related information. This enables greenwashing because it may allow the reporting firm to masquerade as “green,” while neglecting to disclose that information which, however relevant to other stakeholders, is not relevant to the investor. Put another way, disclosure regimes employing the TSC standard may bestow on firms the “green” designation according only to that narrow swath of information which is relevant to the “reasonable investor.” So, the use of the TSC standard by some frameworks may enable greenwashing; and by better ensuring that there are “green” assets to which finance can direct capital, it may serve the WSCC.
In debating the Wall Street Climate Consensus, or even the proper role of finance in sustainability initiatives, it is important to take inventory of those standards and concepts which shape its progression. Only one example, the use of the TSC standard of materiality by some voluntary ESG disclosure frameworks may serve the WSCC by enabling greenwashing.
More broadly, in addressing the unprecedented risks presented by climate change, it is important to take inventory of “old” tools, gauging whether they are up to the task: the TSC standard and the Consensus it serves may be sorely underqualified.
 Intergovernmental Panel on Climate Change, Climate Change in 2021: The Physical Science Basis 4 (2021) https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM_final.pdf.
 Mark S. Bergman et al., Introduction to ESG, Harvard L. School Forum on Corp. Governance (Aug. 1, 2020), https://corpgov.law.harvard.edu/2020/08/01/introduction-to-esg/.
 What is ESG Materiality and Why is it Important for Reporting?, Source Intelligence (Jul. 12, 2021), https://blog.sourceintelligence.com/esg-materiality-reporting
 TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976).
 Betsy Atkins, ESG: Environmental, Social, and Greenwashing, Forbes (Jan. 17, 2022), https://www.forbes.com/sites/betsyatkins/2022/01/17/esg-environmental-social-greenwashing/?sh=7c98ddde4e31 (“Greenwashing is the practice of using marketing and PR tactics to overamplify your ESG efforts for the purpose of gaining greater favor from consumers, investors, employees, etc.”).
 Daniela Gabor, The Wall Street Consensus, 52 Dev. and Change 429, 431 (2021).
 Id. at 433.
 Daniela Gabor, The Wall Street Climate Consensus, Tax Justice Network (May, 28 2020), https://taxjustice.net/2020/05/28/the-wall-street-climate-consensus/.
 Daniela Gabor, The Wall Street Consensus at COP26, Phenomenal World (Nov. 18, 2021), https://www.phenomenalworld.org/analysis/cop26/ (“The macrofinancial politics of COP26 should be understood as status-quo financial capitalism not entering its green age.”).
 What is Greenwashing in Investing?, US Bank (last visited Jan. 30, 2022), https://www.usbank.com/investing/financial-perspectives/investing-insights/what-is-greenwashing.html.
 Daniela Gabor, supra note 11.
 Lori Shapiro, To Mitigate Greenwashing Concerns, Transparency and Consistency Are Key, S&P Global (Aug. 23m 2021), https://www.spglobal.com/ratings/en/research/articles/210823-the-fear-of-greenwashing-may-be-greater-than-the-reality-across-the-global-financial-markets-12074863.
 Climate Risk Disclosures lab, Climate Risk disclosures & practices 26 (2021).
 World Economic Forum & Deloitte, Statement of Intent to Work Together Towards Comprehensive Corporate Reporting 4 (Sept. 11, 2020), https://29kjwb3armds2g3gi4lq2sx1-wpengine.netdna-ssl.com/wp-content/uploads/Statement-of-Intent-to-Work-Together-Towards-Comprehensive-Corporate-Reporting.pdf.
 World Economic Forum & Deloitte, supra note 20, at 4; see also Climate Disclosure Standards Board, Position Paper on Materiality and Climate-related Financial Disclosures (2018), https://www.cdsb.net/sites/default/files/materiality_and_tcfd_paper.pdf (“[T]he divergent range of approaches to climate reporting reflects the lack of consensus around what constitutes a material climate risk.”).
 TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976).
 Id. at 449.
 Sustainability Accounting Standards Board, Proposed Changes to the SASB Conceptual Framework & Rules of Procedure (Aug 28, 2020) https://www.sasb.org/wp-content/uploads/2021/07/PCP-package_vF.pdf.
 Janine Guillot & Jeffrey Hales, Materiality: The Word that Launched a Thousand Debates, Sustainability Accounting Standards Board(May 13, 2021), https://www.sasb.org/blog/materiality-the-word-that-launched-a-thousand-debates/.
 Daniela Gabor, supra note 8.
 Id; see also Addisu A. Lashitew, Corporate Uptake of the Sustainable Development Goals: Mere Greenwashing or an Advent of Institutional Change, 4 J. of. Int’l Bus. Pol. 184, 193 (2021) (“However, [voluntary sustainability reporting] also creates gaps in comparability, comprehensiveness and reliability, which limit the value of voluntarily reported data for informing decisions. For example . . . managers are free to choose between the large number of guidelines for measuring carbon emissions, leading to measurement biases and inconsistencies across organizations.”).