ESG Gains Momentum: What Lawyers Need To Know Now

Companies, their boards, and regulators are increasingly focused on ESG (environmental, social, and governance) risks and opportunities. If you haven’t been paying attention to developments related to ESG, now is the time to start.

“We began receiving requests from our members for ESG-focused programming a few years ago, as lawyers, compliance professionals, and others saw a need to build their knowledge,” says Seema Lal Meehan, Director, Special Projects and Senior Program Attorney at Practising Law Institute (PLI). The organizer of the upcoming PLI program ESG 2021: What It Means for Boards, Management, and Counsel, Meehan reports that interest in the topic is greater than ever this year, particularly as a growing number of Biglaw and other firms launch ESG-focused practices.

What’s contributing to this growth? For starters, follow the money: According to the Forum for Sustainable and Responsible Investment (US SIF), as of 2020 one-third, or $17 trillion, of all U.S. assets under management were invested following sustainable principles, with money managers paying closest attention to climate change/carbon emissions, sustainable natural resources/agriculture, and board governance issues. This figure represents a 42% leap over 2018. In his influential annual letter to CEOs published in early 2021, BlackRock head Larry Fink specifically referenced concerns about the impact of climate change and urged companies to provide better sustainability disclosures, both for their investors’ benefit and their own.

With so much at stake in the market, the U.S. Securities and Exchange Commission (SEC) is taking notice. In fact, ESG-related developments seem to be “on steroids” at the SEC this year, commented Bob Laux, Associate Director at the SEC Institute, in a recent PLI One-Hour Briefing on ESG and Climate Change Disclosures (available on-demand). So far in 2021, the SEC has announced the creation of a Climate and ESG Task Force in the Division of Enforcement; created a new role, Senior Policy Advisor for Climate and ESG; released an investor bulletin focused on funds and products that rely on ESG investing strategies; issued a request for public input from market participants on climate disclosures; and directed the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings, among other activities.

This isn’t to suggest that the SEC is of one mind when it comes to the path forward for ESG disclosures. In a recent episode of the inSecurities podcast, produced by PLI, hosts Chris Ekimoff and Kurt Wolfe interviewed SEC Commissioner Hester Peirce, who has written and spoken frequently on the topic. Peirce noted that the Commissioners approach ESG from different perspectives, particularly when it comes to questions of materiality.

Though the market seems to agree that ESG is here to stay, the metrics for measuring it are unsettled. “There are still many questions related to the ‘ABCs’ of ESG – for instance, how, exactly, do we measure social responsibility?” comments Kenneth Min, Director of Studio Briefings and Program Attorney at PLI, who organized the Studio Briefing discussions, ESG ‒ Overview of Issues for Financial Regulators and ESG Financial Regulation ‒ It’s Not Just About Public Disclosures, led by Tyler Gellasch of the Healthy Markets Association. Some issues, like the disclosure of diversity and inclusion data, may be politically sensitive, while others, like carbon footprints and climate action plans, are difficult to measure in a standardized fashion.

Still, it’s important for companies to start getting serious about ESG – and for anyone involved in corporate governance, from counsel to board members, to orient themselves in this landscape.

To learn more about PLI’s next ESG program, taking place June 24, visit us here!