ESG Newsletter | Volume 07
In this edition of August’s ESG newsletter, we discuss (i) the increasingly important role that corporate legal teams have in shaping their companies’ sustainability agendas, (ii) BlackRock CEO Larry Fink’s recent rejection of the term “ESG,” and (iii) the International Sustainability Standards Board’s (ISSB) newly-issued standards for sustainability-related disclosures.
We believe it is critical that companies’ legal and communications teams work together to develop scenario plans for tackling ESG issues that could arise from new legislation, regulation, and/or trending cultural movements. Such plans will better prepare companies to move quickly and confidently to address hot-button issues and avoid the moral waffling that has damaged the reputations of many businesses. With the approach of the 2024 election, companies could find themselves under intense scrutiny, making the need for a clear and forceful rapid response capability all the more urgent.
As always, we hope you find these overviews and takeaways helpful and welcome your feedback at Inquiries@AugustCo.com.
Legal Teams Navigate Rapidly Evolving ESG Environment
The Financial Times reported that amid increasingly complex ESG rules, in-house corporate legal teams are becoming more and more involved in guiding businesses on sustainability.
In addition to navigating the complexity of evolving rules across jurisdictions, these legal teams are faced with mitigating ESG reputational risks, such as accusations of “greenwashing.”
Some companies are looking to their in-house lawyers to play a more strategic role in shaping their sustainability agendas – e.g., helping determine whether they are making the right investments to meet their ESG goals.
However, many in-house teams continue to view sustainability solely through the narrow lens of compliance, as opposed to whether their initiatives appropriately reflect and promote their companies’ values.
What Should Executives Do? Stakeholders continue to expect companies to take positions on politicized topics. Executives should refine the core values of the companies they lead and use those values as a lens through which to view and take positions and action on ESG-related topics. As a result, companies with a track record of aligning their values with their business and articulating that connection in a way that resonates with core audiences will be able to navigate varying stakeholder interests most effectively.
No More “ESG” for Fink?
Speaking at the Aspen Ideas Festival in late June, BlackRock CEO and long-standing ESG advocate Larry Fink said that he no longer uses the term “ESG” because he believes it has been “entirely weaponized” and “misused by the far left and the far right,” according to Axios.
However, in the same discussion, Fink clarified that BlackRock continues to talk to companies it invests in about decarbonization, corporate governance, and social issues. “In other words,” as TIME noted, “Fink isn’t changing the firm’s practices, he’s just changing the way he talks about them.”
TIME highlighted that Fink’s stance is indicative of a broader trend of business leaders scaling back explicit references to the acronym, while at the same time continuing to include ESG considerations in their operational plans and corporate strategies.
What’s Next: With “ESG” becoming an increasingly politicized and polarizing term, it will be interesting to see whether companies and their executives follow Fink’s lead and publicly renounce the use of the phrase altogether – and if so, what key stakeholders’ reactions will be. Such a shift could drive unwanted scrutiny and raise questions about whether companies are making the shift just to avoid alienating anti-ESG advocates. If the trend picks up enough support, it is possible that the “ESG” nomenclature could fall away entirely and be replaced with companies talking about their ESG efforts solely on an issue-by-issue basis, rather than lumping them all together under a unified platform – but it’s not clear whether this would effectively de-politicize the underlying issues.
Global Sustainability Standards Provide Preview for Upcoming SEC Requirements
In late June, ISSB announced the issuance of its first set of global sustainability disclosure standards – IFRS S1 and IFRS S2 – for corporations and financial institutions.
ISSB says that the standards will help to improve investor trust and confidence in company disclosures about sustainability, adding that they “create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.”
While the new ISSB standards will not be adopted in the U.S., Forbes reported that the SEC’s forthcoming disclosure requirements (expected to be issued as soon as October) will be based on the recommendations from the Financial Stability Board’s Task Force on Climate Related Financial Disclosures – the same recommendations on which the ISSB standards are based.
Forbes noted that the ISSB standards provide the best preview of the SEC’s pending disclosure requirements, stating that the parallels between the ISSB standards and the SEC’s requirements “should be strong.”
So What? The new ISSB standards may provide U.S. companies with a helpful framework for what to expect from SEC’s forthcoming disclosure requirements. Companies should begin to review ISSB’s standards, not only to prepare for a new reporting paradigm, but also to plan for how they will communicate around any discrepancies that may appear between their sustainability record, their stated values, and the values of their stakeholders.