Four Keys for Lawyers When Managing Corporate ESG Disclosures

The sustained focus of investors and consumers on the environmental, social and governance (ESG) conduct of American companies has raised the stakes for how corporate executives report their ESG performance. One survey found that 89% of corporate compliance managers and executives now include ESG reporting as part of their organization’s compliance program.

Most in-house counsel know that a good deal of this increased attention on ESG programs and disclosure of progress falls upon their offices. Indeed, three out of four global corporate legal departments report they are extremely involved in drafting their companies’ ESG strategy, according to a June 2022 report in Compliance Week.

Of course, there are different motivating factors that drive the emergence of ESG as a key priority. Three-quarters of corporate executives responding to a survey by Intelligize®, a LexisNexis® company, said their companies “possessed a legitimate desire to achieve positive outcomes” on ESG matters, while one in four cited factors such as pressure from activist investors and a desire to avoid bad publicity. Meanwhile, the Center for Corporate Governance at Stanford University found that the greatest source of pressure behind ESG initiatives comes from company employees.

What is clear is that attention to ESG issues is not going away, especially now that the U.S. government has begun moving quickly to align itself with the effort to require companies to report a wide range of ESG-related disclosures—such as the impact of business operations on climate change and company metrics related to diversity and equity in their workforce.

Practical Guidance published an excellent practice note on this subject by Sara K. Orr and Sofia Martos, partners in the ESG & Impact Practice at Kirkland & Ellis LLP. The authors note that corporations should expect further regulatory activity around ESG in the months ahead, so in-house counsel need to be prepared to manage the exposure and risk associated with the increased disclosure of ESG issues.The Orr-Martos article, Corporate ESG Disclosure: Recent Trends and Developments, walks legal professionals through an overview of corporate ESG, describes the disclosure frameworks adopted by companies in connection with ESG reporting and addresses recent trends and developments in the U.S. related to ESG disclosure. Here are four keys for lawyers to keep in mind when managing ESG-related disclosure, excerpted from their practice note:

Address the issue directly

If an attorney is aware of potential legal or reputational risks related to an ESG issue, he or she can recommend that its sustainability report or social media postings appropriately address (or refrain from making statements about) the issue.

Review drafts of ESG reports and filings

Consider taking a central role in ensuring the accuracy and consistency of reports and filings with the company's environmental and social performance data. One way to accomplish this is through comparison of environmental regulatory data or diversity data in a sustainability or ESG report with that which is reported to federal and state agencies, often made available to the public via websites or through Freedom of Information Act requests.

Help direct the company's shareholder engagement related to ESG issues

Attorneys can also guide companies as they navigate growing shareholder and NGO activist pressures to increase the volume of ESG disclosure. See the Practical Guidance Shareholder Engagement Strategies for Environmental, Social, and Political Issues Board Memorandum for more information.

Keep current with the fast-developing ESG space

Attorneys can assist with assessment of new regulatory requirements and advise companies on how best to address them, whether through public comment letters, industry initiatives and/or planning for potential mandated disclosure frameworks.

ESG compliance must now be a key focus for legal advisors to their executive teams because it is officially on the radar for investors, consumers and government regulators alike. In addition to staying on top of the latest news regarding ESG requirements, it is important for in-house legal professionals to stay ahead of the curve on ESG issues by having immediate access to information regarding legal trends that are likely to emerge in the future.

LexisNexis has created an Environmental, Social and Governance (ESG) Resource Kit comprising practice notes, articles, checklists and templates to provide guidance to in-house counsel on key ESG issues. This resource kit is available to all subscribers of Lexis+® Corporate Compliance Suite and Lexis+® General Counsel Suite. Lexis+ Corporate Counsel Suite and Lexis+ General Counsel Suite provide risk and compliance teams and in-house counsel, respectively, with a vast collection of resources, breaking business and legal news, and practical guidance content — all from one information resource.