Earlier this month, three Stanford University professors published results of a survey on General Counsel (GC) views on ESG. The survey was conducted in spring and summer of 2021 and represents current information. Respondents were from technology, healthcare, financial services, manufacturing, retailers, energy, transportation and other sectors. Seventy-five percent represented companies with revenue of $1B or more. Sixty eight percent of the companies are publicly traded, with the remaining 32% being privately held. The total number of respondents was 69. That may seem like a small sample, but the insights are quite interesting.

Overall, the authors found that corporate GCs support ESG initiatives, but they remain concerned about reporting information publicly. Indeed, half of the GCs surveyed expressed concern that expanding environmental disclosures would increase legal or regulatory exposure. A recent uptick in climate lawsuits shows this concern has some merit. It also seems that companies don’t report all the data they gather.

Companies disclose only a portion of the information they track relating to ESG initiatives. Companies that track environmental-related factors release only a third of that information to the public. Those that track diversity- related metrics disclose approximately 60 percent of that data. Companies that track societal impact data disclose half. 

While risk of disclosure plays a role, there are likely other dynamics involved in the difference between data and reporting – notably the myriad voluntary ESG disclosure frameworks are a source of uncertainty and confusion on the part of corporate reporters. It is also unclear if these numbers refer only to the percent of data voluntarily collected, or if it includes data that is submitted to regulators under other reporting mandates.

I was surprised to see that the largest source of pressure for companies to respond to ESG matters are their own employee base (48%). Major investors are second at 44%. From there, the list includes

  • customers (41%), 
  • advocacy groups (33%), and
  • ESG ratings firms (24%).

From the GC viewpoint, those parties wanting increased disclosure are most interested in

  • financial commitments to diversity, equity, and inclusion (80%)
  • environmental or sustainability matters (67%)
  • improving the social impact of the company (47%), and
  • increasing wages to lower-level employees (35%). 

One major summary point I find especially fascinating is that 52% of GCs believe their companies should focus on the business and avoid

…engaging in causes not directly related to the company’s strategic and financial mission… despite the general trend toward ESG, stakeholder capitalism, and corporate activism, General Counsel are wary of the uncertain long-term impact.  It is notable that over half of the people who are responsible for balancing the risk and reward of corporate actions advocate dialing back some of these efforts and recommitting to the central strategic and profit-making purpose. 

What You Can Do

If you are working with in-house counsel on your company’s ESG reporting, there are a few things you can do to help make the legal eagles more comfortable with disclosure. These include:

  • Select a credible, widely used ESG disclosure framework. There are (too) many frameworks out there – some are niche, some industry-specific and some that are not well known. Using one that is established and generally recognized may improve reliability and credibility of the report, therefore reducing risk.
  • Ensure reported data is subject to internal controls and validated prior to publishing. I’ve written about this previously.
  • Make certain there are no discrepancies between voluntary ESG report data/content and what is submitted to regulators. Our guest post last week discussed this.
  • Find clear linkages between the core business mission/needs and ESG initiatives. I’ll have specific ideas on some of these soon. Avoid garbage economics and weak causal relationship claims.

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