How ESG and Social Movements Affect Corporate Governance – Corporate Law/Commercial Law

This article provides guidance on recent trends in environmental, social and governance (ESG), the #MeToo movement (#MeToo) and Black Lives Matter (BLM) impacting corporate governance and the workplace. Following the recent police killings of George Floyd, Breonna Taylor and Jacob Blake, along with many others, there has been growing pressure on businesses to take concrete action to address racial injustice. in America.

MANY COMPANIES AND ORGANIZATIONS HAVEresponded to these pressures by publicly speaking out against racism and discrimination, supporting Black-owned businesses, and donating to causes dedicated to ending racial injustice. For example, in June 2020, Bank of America pledged $1 billion to help communities address economic and racial inequality. Similarly, Goldman Sachs has launched a $10 million Racial Equity Fund to support the vital work of leading organizations addressing racial injustice, structural inequality and economic disparity. As the novel coronavirus (COVID-19) pandemic and events surrounding the BLM movement intensified discussions about the importance of addressing social injustice, corporate America was already at an inflection point regarding their role in society, in the face of pressure from investors, consumers, and regulators to take into account a wider range of stakeholders.

What is ESG?

ESG refers to a wide range of considerations that can impact a company’s performance and its ability to execute its business strategy and create long-term value. Socially responsible stakeholders use ESG to measure the sustainability and societal impact of a company and its business activities. While ESG factors can directly affect a company’s bottom line, they can also affect a company’s reputation, and investors and business leaders are increasingly applying these non-financial factors in their analysis to identify significant risks and growth opportunities of a business.

ESG efforts of companies

Industry leaders have worked hard to push ESG initiatives forward. For example, in his Letter to CEOs 2019, BlackRock, Inc. Chairman and CEO Larry Fink encouraged companies to develop “a clear integration of your business purpose into your business model and business strategy.” According to Fink, “purpose is not the sole pursuit of profits but the driving force to achieve them” and “profits and purpose are inextricably linked”. So companies that fulfill their mission and responsibilities to stakeholders, including prioritizing board diversity, compensation that promotes stability, and environmental sustainability, reap long-term rewards.

Similarly, in August 2019, the business roundtable issued a statement on the purpose of the company (Declaration) signed by 181 CEOs, expressing “a fundamental commitment to all our stakeholders”, including employees, suppliers and customers, not just shareholders. Specifically, the statement expresses a commitment to delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, and supporting communities by adopting sustainable practices across all businesses.

In accordance with these objectives, following an overwhelming majority vote of 99% of voting shareholders, on February 1, 2021, Veeva Systems, a computer software company, became the first and largest publicly traded company to convert to a public benefit corporation (i.e., a for-profit corporation that must accommodate the interests of diverse stakeholders, including employees, partners, customers and shareholders). The company is also revising its certificate of incorporation to include a public interest objective.

In response to growing pressure from different stakeholder groups – including investors, consumers and governments – for more transparency on their environmental, economic and social impacts, more and more companies are also publishing information in their annual report or in a stand-alone sustainability report (also referred to as an ESG or corporate social responsibility report).

Nasdaq ESG Standards for Companies

Additionally, various institutions are creating standards and metrics to help integrate ESG into the investment process. For example, in May 2019, The Nasdaq has launched its new ESG reporting guide for public and private companies. Although the Nasdaq does not require its listed companies to publish ESG reports, it may track the participation of listed companies to better support their efforts. The Nasdaq ESG Reporting Guide includes 10 indicators for each of the environmental, social and corporate governance aspects:

Biden administration’s ESG efforts

The demand for ESG consideration is not limited to the private sector. As part of his campaign, then-presidential candidate Joseph R. Biden outlined “The Biden Agenda for Women,” which promised to pursue “an aggressive and comprehensive plan to strengthen the economic and physical security of women.” women and guarantee that women can fully exercise their civil rights”. rights.”

Originally published by Lexis Nexis The Practical Guidance Journal

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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

Helen D. Jessen