Last Wednesday, with a Dutch court finding Royal Dutch Shell partially responsible for climate change and ordering it to reduce emissions and two environmental activists being voted to Exxon Mobil board at the annual meeting, made clear how dramatically the landscape is shifting for all businesses in the environmental, social, and governance (ESG) space, as they face increasing pressure not only from environmentalists, but also from elected officials, regulators and even their lenders.
While the idea of ESG began in 2004 with a United Nations initiative to influence capital in non Western markets, in 2021 the legal and political institutions in the United States and the EU are demanding those ideas be implementing with due haste.
However, most of the businesses we work with in ESG matters are calling for better disclosure standards. Okay, many just want a standard, any standard, where there are effectively none today.
We work regularly with public companies and others in response to the rapid rise in the adoption of ESG, assisting businesses to try to enhance performance, pursue sustainable objectives, or both. A key component of our work is to provide counsel and advice in avoiding claims of greenwashing, or misleading communications, real or perceived, by business in their ESG disclosures. To work toward long term solutions, we counsel clients to be active participants in efforts with regulators to help develop useful ESG disclosure guidance in their industry.
In 2021, EU based regulators began to fill the ESG disclosure void, but with the change in political climate in the U.S., there has been little action to date beyond pledges like the one I wrote about in an earlier blog post, Labor Department Will Not Enforce Anti ESG Rule, which anti ESG regulations remain the law of the land.
While this blog usually rails against more and new regulation, I would welcome more comprehensive and clearer ESG regulation.
In large measure, I support comprehensive ESG regulation because I am concerned about a lack of global alignment. If each country (.. not to mention each state) takes a unique and different approach to ESG regulation, ESG disclosure requirements will become misaligned and expensive if even possible to comply with.
Business has moved faster than government ESG disclosure requirements and companies are today struggled with what and how to disclose. Many of our clients strive to report annually on ESG matters that have material impacts on their business.
We encourage clients to use as a guide some published, with some using the EU proposed standards for ESG metrics and others following the FSB Task Force on Climate-Related Financial Disclosures.
And our clients, both public and not public companies, are gathering data (with most, but not all publicly reporting) on diversity of not only leadership but also the employee population as well as on greenhouse gas emissions, and more. While I have advised clients on matters of sustainability for more than a decade, we have been consulted by more clients in the last 10 months that in the preceding 10 years.
ESG disclosure is becoming necessary, including because many see it as financially material in a world grappling with the challenges of climate change and inequality. We remain committed to working with our clients to improve the quality and quantity of their ESG data while mitigating their risk.