It’s no secret that ESG has become divisive in national and state politics, particularly in the financial services sector. A recent memo from Reed Smith delves into the trends of ESG investing and outlines current legislative developments from both pro- and anti-ESG lawmakers. The memo discusses national policy proposals brought in the House of Representatives which could alter the proxy voting process and change the statutory authority of the SEC if they are signed into law. Additionally, various red states have been proliferating their own anti-ESG laws limiting how firms can handle public funds.
These federal bills are more political statements than serious possibilities, but the memo gives some tips on how General Counsels can navigate ESG in these tumultuous times. Here are some of the memo’s strongest recommendations:
- “Legal should consider both sides of the ESG debate and stay informed of all nuances.
- More robust ESG data, not less, could lead to companies making more informed decisions and to better governance.
- Be mindful of communicating any emission reduction goals, as this could lead to mandatory disclosures of Scope 3 emissions in the future.
- Consider adopting a system to track emissions.
- Know the communities your company conducts business in and understand their values.
- Consider creating an ESG committee.
- Understand your company’s climate-related risks in both the long and short term.”
ESG is a political lightning rod and risks are emerging from both factions. Companies are most likely better off staying above the fray as much as possible, focusing on how ESG impacts their business. At the same time, it is undoubtedly a good idea to be aware of political sentiment, track legislative/policy developments and ensure compliance with any new laws emerging nationally or at a state level when they become real.
