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Regulation

Class Action Reform Bill Could Hurt Pension Funds, Institutional Investors, Law Firms

Bill may prohibit institutional investors from hiring the same law firm more than once.

A class action reform bill currently before Congress would be a serious setback for pension funds and institutional investors, and is possibly unconstitutional, according to legal scholars.

The “Fairness in Class Action Litigation Act of 2017,” (H.R. 985), which was introduced last week by Congressman Bob Goodlatte (R-Va.), seeks to maximize recoveries by victims, while eliminating unmeritorious claim.

“Class action lawsuits are rife with abuse,” said Lisa Rickard, president of the US Chamber of Commerce’s Institute for Legal Reform, which supports the bill. “The Fairness in Class Action Litigation Act will ensure that class members get paid first, and that lawyers only earn a percentage of what class members actually receive. It will also protect businesses from abusive lawsuits, and the economic damage that they cause. 

However, there are some provisions in the bill that have raised serious Constitutional concerns by legal experts. Particularly damaging to pension funds and institutional investors is a conflict of interest provision that states:

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“A Federal court shall not issue an order granting certification of any class action in which any proposed class representative or named plaintiff is a relative of, is a present or former employee of, is a present or former client of (other than with respect to the class action), or has any contractual relationship with (other than with respect to the class action) class counsel.”

In other words, “no institutional investor could hire the same law firm more than once in a class action,” John Coffee Jr., director of Columbia Law School’s Center on Corporate Governance, told CIO. “It’s like saying you can’t see the same doctor twice.”

Since all the major pension funds have already used the major plaintiff law firms at least once, they would be cut off from their existing counsel, Coffee added. “That to me is invalid and is a major concern,” he said. “The committee should be shown that the attempt to say you can only use a lawyer once is probably unconstitutional.” 

Elizabeth Chamblee Burch, a law professor at the University of Georgia who specializes in class actions and mass torts, also found problems with the conflict of interest provision in the bill.   

“People naturally turn to those that they trust the most to prosecute their claims. Whether those previous relationships create disabling conflicts of interest is something that the courts already monitor,” said Burch in comments submitted to Congress. “Judges already test the relationship between class members and the named representative … as such, restricting a client’s freely chosen counsel is unnecessary.”

Another provision that could cause problems pensions and institutional investors is one that triggers an automatic appeal of class certification. This allows a defendant to automatically appeal any class certification against it, something almost every defendant would likely choose to do. Coffee says this automatic appeal provision could add a year or more to any class action litigation.

While Coffee did say he found some aspects of the bill to be “sensible and even desirable,” he believes the bill was intentionally written to be as broad and sweeping as possible “to try to shut down the existing economic arrangement between plaintiffs and law firms.”

Myriam Gilles, vice dean of Yeshiva University’s Benjamin N. Cardozo Law School, said in comments submitted to Congress that “the bill would radically restrict access to justice for injured consumers, employees and small businesses by, among other things, imposing requirements upon class plaintiffs that are both unrealistic and unnecessary.”

By Michael Katz


Home > News > Newsmakers > London Stock Exchange Group Issues ESG Reporting Guidance
Newsmakers

London Stock Exchange Group Issues ESG Reporting Guidance

Investors desire a standard approach on how companies report their environmental, social and governance practices.

The London Stock Exchange Group has come out with guidance on how companies should report on their environmental, social and governance (ESG) investment practices. This comes about as investors are more interested in a standard approach to how companies report on such matters. The guidance will prompt companies on what sorts of information investors are looking for regarding their ESG investments.

Martin Skancke, board chair for the Principles for Responsible Investment said, “Institutional investors need investment-grade ESG data to accurately inform their decision making and asset allocation. Exchange operators have a major role to play in supporting enhanced data disclosure, so we commend the London Stock Exchange Group for their leadership towards improving dialogue and ESG data flows across the investment chain, and call on other exchange groups to follow suit.”

The LSEG guidance focuses on eight priorities for companies in their ESG reporting practices:

  • The relevance of ESG factors, such as climate change implications, to a company’s strategy and how it plans to benefit from or reduce the impacts of such factors
  • A clear explanation from companies on what the impact will be of ESG factors on their businesses, and how such factors could impact financial performance
  • ESG data that companies provide should be clear, consistent and based on global standards
  • There are a variety of standards for ESG reporting and the ones that investors are more interested in include standards put forth by the Global Reporting Initiative and the UN Global Compact, among others
  • The outlet for ESG reporting could include a company’s annual report or a stand-alone report, but the disclosures should be relevant for investors
  • How to deal with global regulations as companies prepare their ESG reports
  • How to communicate on a company’s exposure to green products and services
  • The ESG disclosure standards for a company looking to raise debt financing

LSEG hopes this ESG reporting guidance initiative will make companies more attuned to providing good quality ESG input to investors, besides inducing interest in innovative sustainability investments, leading to standardization on global reporting and providing investors with adequate input to make informed decisions.

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LSEG has based its guidance on previously issued standards reports from the Financial Stability Board’s taskforce on “climate-related financial disclosures” and the United Nations’ sustainable development goals.

To put together the guidance, the LSEG obtained input from various listed companies of different sizes. The company also received feedback from investors and asset managers about the challenges they face in reporting on their ESG practices. According to the Global Sustainable Investment Alliance, more than one-third of institutionally managed investments globally, accounting for north of $20 trillion of assets managed, incorporate an ESG approach to management. 

Although ESG investing is on the rise, PWC’s 2016 ESG pulse report finds that while investors are looking for ESG information they can understand, “there is work to be done to bridge the gap between what investors want and what companies are providing.”

For instance, although 81 percent of S&P 500 companies made ESG disclosures in 2015, PWC finds, most of these companies aren’t making disclosures in a format that would facilitate comparisons of companies by investors. Moreover, only 29 percent of investors reported being confident about the quality of the ESG input companies give them.

By Poonkulali Thangavelu

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