The Undergraduate Law Review at UC San Diego

A growing concern in the growing ESG investment landscape is greenwashing, which is the misrepresentation of sustainability credentials in financial products. Due to gaps in fiduciary law, fund managers and corporate directors in Delaware, the leading jurisdiction for corporate and fund governance in the US, have been able to include ESG criteria like labor policies, board diversity metrics, or greenhouse gas emissions targets in investment strategies without a strong financial justification or efficient oversight procedures. Fiduciaries may rely on ESG factors that have no proven connection to risk-adjusted returns if there is no statutory financial materiality standard, which increases the possibility of misleading investors. Although opinions are still dispersed and primarily reactive, cases like Spence v. American Airlines, SEC v. BNY Mellon, and Gatz Properties v. Auriga Capital show a growing judicial awareness of these risks. Specifically amending Delaware Titles 8, 12, and 6 to create a default financial materiality threshold and directing fiduciaries across corporations, trusts, and other entities would be a more successful strategy. With the implied covenant of good faith and fair dealing, this default rule would preserve contractual flexibility while restricting ESG integration to financial considerations unless specifically permitted. By doing this, Delaware can strengthen fiduciary discipline, reduce greenwashing, and make ESG-related investment practices more transparent.