A new article in Forbes has inflamed ESG professionals, but is the message correct? The article (subscription required) was written by John McGowan, an attorney who is “particularly focused on governance, formations, and corporate policy.” McGowan argues that the current lack of ESG reporting standards – especially in the US – creates too much risk for companies:
“While there may be temptation to preemptively participate in reporting, companies should consider the full legal impact of moving too soon.”
I thought there were inconsistencies in his commentary which confused me a bit (you can make your own judgement about his perspective and arguments). At one point in the article, he wrote:
“… legal landmines are problematic for organizations wishing to participate in sustainable reporting at this time. A well-intentioned report drafted internally and reviewed by in-house counsel, instead of an attorney who specializes in this area, could cause tangible legal problems.”
That first sentence is generally true, but I take issue with his implication that no in-house attorneys are qualified to write and review ESG/sustainability reports. I know dozens – many are members of PracticalESG.com and TheCorporateCounsel.net. The issue shouldn’t be whether an attorney is in-house or outside counsel, but rather how familiar they are with ESG and the legal risks of voluntary reporting (including multi-jurisdictional matters). Any company communication comes with inherent risks; voluntary ESG reporting is no different. Many US companies have made voluntary corporate social responsibility, sustainability, ESG and climate reports for years (or in some cases decades), yet legal problems (whether regulatory or third-party) have been few and far between – certainly not an epidemic.
My concern is that the article will be seen by thousands – including those in C-suites and on Boards who may pump the brakes on ESG as a whole. If companies suddenly stop communicating about ESG altogether, they risk losing momentum and appearing uncommitted to their ESG practices. Paradoxically, it could also open up legal claims of withholding financially material information from investors. This isn’t to say that companies should publish large volumes of information without considering risks. Given the big picture, it would be more prudent to improve, simplify and focus voluntary ESG reports than it would be to abandon them.
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