
I am excited to be presenting a fast paced and fun one hour virtual program, “Environmental Social Governance (ESG) an Emergent and Fast Growing Area of the Law” for the Maryland State Bar Association, and Not just for lawyers, on December 14, 2021 at noon. Register today for the live virtual program.
The impact of ESG is not limited to public companies.
There are just over 4,000 public companies traded on an exchanges in the U.S., but according to the Census Bureau there are more than 7 million privately held businesses (with employees) across the country. And it is many of those millions of private businesses that will get richer from ESG.
At its simplest, many of those private companies are in the supply chain of larger companies that will demand their suppliers and other stakeholders comply with ESG mandates, such that the upstream business can demonstrate a positive ESG record (e.g., commercial landlords are launching ESG initiatives to compete for tenants that have ESG requirements).
A bit more uncomplicated, is that private companies are usually more nimble reacting more quickly, producing a more efficacious program and do so more economically, than businesses with layers of c suite executives that report to a board of directors; maximizing opportunities with market conditions created by emergent ESG standards.
Smaller businesses, without a deep bench of internal ESG expertise need to be particularly cautious of greenwashing in ESG claims. Many find engaging an attorney with sustainability expertise is a good way to mitigate ESG associated risk.
And with brand reputation as the number one reason businesses currently engage in ESG efforts, as 78% of respondents indicated in a recent survey, that overwhelming response applies equally to public and private businesses. This market driver is, of course, before any real ESG regulation in the U.S.”
And regulation is already here that impacts some small businesses. A Maryland law that became effective on May 30, 2021, requires specified businesses in the State demonstrate diversity in their board or executive leadership and additionally and most significantly, that new law requires each business entity, when it annually renews its charter, to submit diversity data. The Maryland government advises that approximately 430,000 businesses are in good standing within the state, including small, privately owned businesses that do not have corporate boards or leadership structures, so while an accurate determination is not possible, many of those entities will be subject to annual state reporting under this new ESG law.
Moreover, government mandates and incentives that have already driven business investment into renewable energy will go wider and deeper with ESG mandates that promise to do more than only Environmental, but also the social engineering that is the Social and Governance. Businesses small and large will take advantage of this artificial demand created by government.
That the Supreme Court just agreed to review the EPA’s authority to regulate greenhouse gas emissions may give the federal government the authority to regulate environmental protection through policies aimed at the electric power generating monopolies, impacting every business that needs electricity, small and large alike. The electric utility monopolies are an industry that doth protest too much, methinks, made wealthy by government regulation, whatever the pendulum swing of that regulation.
And there will be other opportunistic industries. Already the U.S. banking industry is signaling its willingness to consider ESG when underwriting lending. Private lenders banded together at the recent COP26 U.N. climate summit to pledge more than $139 Trillion in private capital (.. that is more than 125% of the planet’s gross domestic product in 2021) they will lend to main street businesses, at a profit, to fund business’ implementation of government climate change policy.
In 1961 President Eisenhower warned the nation about the military industrial complex. But in 2021, some are quietly cautioning about an emergent coterie of environmentalists, government and businesses that are emboldening an “ESG industrial complex.”
There will be winners and losers. Those businesses that do not respond face being a contemporary buggy whip maker. ESG will no doubt make many on Main Street richer. Fortune favors the bold and those businesses that innovate, now, in advance of the all but certain coming government intervention in ESG, will be those enterprises that thrive.
ESG has become such a large component of my law practice that I am now collaborating with a fabulous group of attorneys in ESG Legal Solutions, LLC, a new non-law consulting firm “powering sustainability for tomorrow’s business.” Nancy Hudes and I are now publishing a new blog at www.ESGLegalSolutions.com (.. yes, this blog will continue). This post originally appeared in that blog. If we can assist you or someone you work with in ESG strategy and solutions, from policy to project implementation, do not hesitate to reach out to me.