Companies and investors are seeing some pushback against the trend toward supporting ESG-based goals. But ESG continues to hold great sway among issuers and others as topics such as climate change and diversity remain top of mind for many of their stakeholders, from either a values or valuation-driven perspective.
This drive was evident at last week’s ESG Integration Forum – US, hosted by Corporate Secretary and IR Magazine in New York, where professionals gathered to share advice and insights with peers on the key ESG issues they face going into 2023.
One of the themes discussed at the event was the backlash against ESG from certain lawmakers and market participants. That has raised concern in some quarters about potential cooling of investment and corporate activity, but a number of speakers expressed the view that ESG as a concept has unstoppable momentum.
Benjamin Martin, vice president on the ESG team at Solebury Strategic Communications, noted that every movement experiences a backlash and, as such, the one facing ESG validates its progress.
Similarly, fellow panelist Chad Reed, vice president of strategic initiatives and ESG at Hannon Armstrong, said: ‘When someone starts to attack you it’s because you matter.’
But Martin cautioned that headwinds can cause hesitation and disrupt companies that are just beginning to work on ESG matters, adding that individuals at such companies need to assert the importance of those efforts to company strategy.
Part of the ESG backlash has arisen from concerns over greenwashing. Reed, emphasizing that transparency builds trust, said companies can try to avoid such criticism in part by not setting targets for greenhouse gas emissions they cannot yet measure and by being open about their political donations – including with politicians who are not supportive of action on climate change.
The event featured advice for companies that are just beginning to build ESG programs. Frank Kelley, director of ESG and compliance services at DFIN, commented that corporate legal teams should take the lead on ESG strategy and execution. For example, he said, although other departments such as investor relations are involved in creating the proxy statement, final sign-off – other than from the board – comes from legal.
Kelley also urged companies to be wary of activists in the ESG space. Many companies have dealt with low-hanging fruit attracting activists over governance issues such as dubious executive perks, but many are still not telling a proper ESG story, he said.
Owning the right narrative
The importance of telling an effective and transparent ESG story – of owning the narrative – was another theme commented on by several speakers at the forum. Wesley Gee, chief sustainability officer at Works Design, was among them. He said ESG reporting has in the past been viewed as producing a single, huge report. Now, he encourages companies to use a suite of different assets for different audiences while maintaining a consistent look and feel across their reporting.
For companies, having the right ESG story goes beyond keeping stakeholders informed about their initiatives, strategy and targets. It can also mean avoiding regulatory or litigation issues. The SEC in March 2021 announced the creation of a climate and ESG task force in the agency’s enforcement division. The task force was tasked initially with identifying material gaps or misstatements in companies’ disclosure of climate risks under existing rules, and with analyzing disclosure and compliance issues regarding investment advisers’ and funds’ ESG strategies. The group has already brought enforcement actions.
Jeffrey Taylor, vice president and chief SEC counsel and corporate secretary with American Water, described the task force as a good priority for the agency. ‘These types of regulatory activities will keep us on the right track’ in the sense of promoting good, honest corporate disclosures across companies, he said.
In terms of ESG disclosures generally, Raechelle Munna, assistant general counsel at Entergy, said companies that set goals need both to have a clear plan for meeting them and to disclose the risks of not doing so. The latter can help with potential liability over disclosures, she said, adding that it is important for disclosures to be concise and precise.
Taylor emphasized the importance of good collaboration between many different internal groups within companies, including those that generate technical information.