Keepers of the Green Gate: Duties of ESG Professionals

By: Sarah E. Fortt, VINSON & ELKINS LLP

The market for Environmental, Social, and Governance (ESG) professionals is hot. As companies, consulting firms, financial institutions, law firms and government agencies race to build out their sustainability and ESG teams, qualified ESG professionals are in high demand.

THIS DEMAND IS ALSO CREATING A PUSH FOR INDIVIDUALS with more traditional professional backgrounds, who may not have any substantive experience in ESG, to quickly find their ESG expertise. I recently Googled “becoming an ESG professional” out of curiosity. “How to move into an ESG focused role with little to no ESG experience” was the fifth link.

This movement bothers me less than some may think. It is both normal and efficient for individuals to shift towards professions that they perceive to be in high demand, and arguably, spaces dedicated to sustainability should encourage those shifts to take place across many sectors of the global economy. However, the vastness of ESG can make the space particularly vulnerable to “competence greenwashing,”¹ where individuals may have some awareness but lack the expertise needed to meaningfully participate in the implementation of complex ESG strategies. This can be exacerbated by the fact that ESG is simultaneously incredibly broad and incredibly deep, but the markets, particularly in the United States, have thus far been more focused on the breadth than the depth, so individuals can know a little about a lot and know more than most. But a shift is here and is moving quickly, and in order for ESG professionals—whether we have been in the space for years or are newcomers—to be helpful and not harmful, we must hold ourselves accountable to standards informed by the central tenets of ESG. As a governance attorney, I think about duties a lot—the duties companies owe their stakeholders, the duties boards and members of management owe their companies, the duties I owe my clients—and here I outline what I believe should be the duties of ESG professionals for the benefit of the organizations for which they work and the communities in which those organizations do business.

The duty to self-educate. The first duty of the ESG professional has to be the duty to educate oneself. The various spaces of ESG are all moving quickly; not a day goes by that does not bring significant events and developments. Even those who have been in ESG spaces for years may find it challenging to keep up to date on a day-to-day basis; however, our profession requires that we do the work of staying informed. Our profession also requires that we be unequivocally clear about the scope of our own competencies. No one person can be, nor should any one person try to be, all things to ESG. As calls for greater levels of sophistication in ESG standard setting and reporting continue to proliferate in the United States while ESG-related regulations expand and come into full effect in non-U.S. jurisdictions, ESG professionals need to weigh the benefits of focusing on breadth versus depth in their respective areas. While some ESG professionals should retain a focus on breadth in order to support collaborative efforts in the profession, as discussed below, many others should focus on depth, honing their expertise in specific subcategories of ESG. All should describe their areas of expertise accurately.

The duty to collaborate. ESG is impossibly broad. No single individual, and no single organization, should be expected to address the full scope of every topic that falls under its global umbrella. However, it is dangerous to think that just because ESG seems to be about everything, it is substantively about nothing. This is one reason why I have emphasized in my other articles and talks that ESG should not be viewed as a single strategy, but instead as a series of lenses used to challenge our ideas about value, values, and the relationships between the two. Given this, collaboration among ESG professionals with different competencies and areas of focus is vital. True progress requires that those with expertise in sustainable finance, public policy, the environmental sciences, corporate governance and public disclosure, human rights, poverty and inequity, and community engagement—to name just a few—speak the same language and use that language to integrate more sustainable practices throughout the global economy. This requires intentional collaboration.

The duty to evade and report on greenwashing. If 2020 was the year ESG grew up, 2021 may be the year it finally starts to be truly defined.² Although many of the efforts to define ESG are in the “E,” efforts to identify and measure the determinants of social outcomes are also underway. These efforts to define and measure ESG initiatives, strategies, and outcomes are integral to shrinking the space in which organizations may freely engage in greenwashing; however, taken alone, they cannot eliminate greenwashing, nor can they help organizations prioritize among the good. For greenwashing in all its forms to be eliminated, and for organizations to be able to prioritize among ESG goals in the most effective and meaningful manner, ESG professionals must hold their organizations accountable.

As ESG professionals, we must remember that greenwashing is dangerous not only because it may mislead key stakeholders and create inefficiencies in the market, but also because it creates very real risks for the organization and can be used to discredit the central tenets of ESG. Greenwashing is often defined as providing misleading or incomplete information in an effort to create the perception that a company or its products, operations, or policies are environmentally sustainable or otherwise ESG-friendly. I would define it more broadly. I would add to the definition any ESG efforts that do not directly relate to an organization’s risks, operations, or strategies or that do not otherwise result in a material improvement of the environmental sustainability or social welfare of the communities in which the organization does business. Why this broader definition? In my experience, any expression of corporate values that is not backed up by a commitment of corporate value amounts to little more than virtue signaling and should be included in the definition of greenwashing for the purposes of ESG professionals’ duties to their organizations and the communities in which they do business. As ESG professionals we must be brave enough to actively avoid engaging in greenwashing and call it out if we do see it occurring in our organizations. This requires that we do more than demand that ESG efforts and disclosures be more meaningful than colorful marketing campaigns; we also must see that ESG efforts are integrated into our organizations and reflected in the organization’s operational and strategic plans and audit and internal control processes. 

The duty to report on ESG risks and violations. Back in 2014 and 2015, statements made by the then-Chair of the SEC, Mary Jo White, and the then-Deputy Attorney General, Sally Quillian Yates, memorialized the U.S. federal law concept of holding key individuals accountable for corporate wrongdoings.³ The concept of gatekeeper liability has its root in the public policy behind the Sarbanes-Oxley Act; however, the legal concept has grown, evolved, and shifted since then to become a cornerstone of how legal, audit, and compliance professionals and certain members of management frame their duties in the context of corporate conduct. I would argue that ESG professionals should be guided by a similar concept, that we are in fact also gatekeepers. In establishing ourselves as those that guide our organizations with respect to ESG matters, we should also assume the duty to spot and prevent potential ESG misconduct. This includes identifying material ESG risks,⁴ as well as identifying the ways in which our organizations are falling short of their ESG commitments. Given that ESG is, as I admit, impossibly broad, this responsibility should be tied to our areas of competency—yet another reason for us to clearly articulate the scope of our expertise.

The duty to self-examine. Finally, ESG has to begin and end with the individual. Given the vastness of the questions ESG asks—questions about our values, purpose, and future, and the value we assign to them—ESG professionals as individuals absolutely must practice what we preach. In our quest to promote sustainability, are we willing to embrace the sacrifices we as individuals will be required to make? For every 100 articles and thought pieces championing methods for creating a more sustainable world, there are a very few that state this harder truth: We need to sacrifice to create a more sustainable world. And yet, are we brave enough to consider the ways in which our quest for a more sustainable world is informed by our own privileges and be willing to continue to reassess our own views accordingly? Ultimately, the challenge of ESG lies not in the “E” or the “S” or the “G” but in all of them together, and to be effective ESG professionals, we must consider both the sustainability and the equity of our own actions and efforts. 

Sarah E. Fortt has spent a decade working with organizations in navigating their relationships and communications with key stakeholders, including their investors, regulators, employees, and communities. She regularly works with boards on managing their approaches to corporate governance, crisis management, succession planning, and board education. She is the mind behind the creation of Vincent & Elkins’ ESG Taskforce, a novel cross-functional team that works to provide companies with end-to-end solutions for navigating non-financial risks and opportunities, including those relating to climate change, human rights, and corporate culture. Sarah is the consistent corporate governance voice across V&E’s corporate governance approach, which includes working with companies across multiple industries. She regularly works with clients on crisis preparedness and response, including in the context of shareholder activism and cyber and data security breaches. She regularly helps clients create consistent, effective, and meaningful stakeholder communications. Sarah is also an experienced securities lawyer with a background in executive compensation.

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1. https://www.responsible-investor.com/articles/competence-greenwashing-could-be-the-next-risk-for-the-esg-industry 2. Efforts to measure ESG include the EU Sustainable Finance Disclosure Regulation and the EU Taxonomy Regulation, which are designed to help businesses identify to what degree activities can be considered environmentally sustainable, and are becoming effective this year and early next year. Other efforts include the measures released by the World Economic Forum, and the efforts of the International Federation of Accountants and IFRS Foundation to create an international Sustainability Standards Board and promulgate a single global set of standards on climate-change risk by mid-2022. In September 2020, the Carbon Disclosure Project, the Climate Disclosure Standard Board, the Global Reporting Initiative, the International Integrated Reporting Council and the Sustainability Accounting Board announced that they would collaborate on working together to harmonize sustainability standards. In June 2021, nearly 500 investors managing over $41 trillion in assets released a statement urging world governments to establish mandatory climate-related financial reporting; the statement was released ahead of the G7 Summit and COP26 to encourage further participation and collaboration. In the United States, the SEC has been signaling all year that companies can expect the Commission to use current rules to review companies’ ESG disclosures and practices and to promulgate new ESG rules in the not too distant future. In April 2021, the Commission’s Division of Examinations released a risk alert and review of ESG investing indicating that the staff had “observed some instances of potentially misleading statements regarding ESG investing processes and representations regarding the adherence to global ESG frameworks.” While the staff did not use term greenwashing, the implication was clear. 3. See “A Few Things Directors Should Know About the SEC” and Individual Accountability for Corporate Wrongdoing. 4. In other articles, I discuss the concept of sacred cows in the context of corporate cultures. Sacred cows are people, products, practices, or principles that an organization will go to any lengths to protect. ESG professionals, if we are going to be gatekeepers of effective ESG practices, must also commit to calling out the material risks created by sacred cows.