TheCorporateCounsel.net

As Dave noted last week, one thing that many of us are grateful for this holiday season is that we can take a big – and possibly permanent – pause from working to comply with the SEC’s climate disclosure rule that was adopted last spring. However, as Dave also pointed out, CSRD compliance will still require effort from many companies. On that front, Ropes & Gray recently updated its “transposition tracker” – which shows which EU member states have implemented CSRD requirements in their national laws.

A recent Teneo memo predicts that CSRD may even affect companies that aren’t subject to that disclosure regime, if institutional investors push for comparable disclosure across their portfolios. This consequence is included in the memo as one of the 10 most likely scenarios that could impact corporate environmental & social initiatives as the balance of power shifts in Washington. Here are 4 more possibilities that Teneo shares for 2025 & beyond:

– Greater scrutiny of company DEI programs. While the 2023 Supreme Court’s Students for Fair Admissions rulings focused on higher education, conservative campaigns to end corporate DEI programs have landed on company doorsteps this year. As a result, many companies have conducted legal reviews of their DEI programs and communications. New challenges to DEI initiatives are expected under the next administration, including the reinstatement of an executive order against “divisive topics” in DEI training for contractors and possible action from the Department of Labor to change federal policies. In addition to the risk of another shift in the legal landscape, the Trump administration is expected to appoint vocal critics of DEI, such as Elon Musk, Vivek Ramaswamy and Stephen Miller, to federal positions. Companies should prepare for the campaign against DEI to become more public and challenging as advocates, including employee groups, nonprofits and investors, press companies to stand firm with prior commitments.

– Revisited attacks on proxy advisory firms and ESG shareholder proposals. The SEC may resume its prior initiatives to rein in the perceived power of proxy advisory firms like ISS and Glass Lewis. Rules requiring proxy advisors to eliminate corporate advisory services and/or allow companies to review their reports ahead of official publication may also be revisited. ESG raters could also be affected by these initiatives. Other regulation that could limit the number of ESG shareholder proposals will likely be considered, such as higher minimum share ownership requirements for proponents and expanded grounds for companies to exclude ESG proposals. If shareholder powers become more limited, companies should expect proponents to adjust tactics, such as launching more “vote-no” campaigns against directors and/or Say on Pay votes, as well as single-issue proxy contests.

– Increasing importance of shareholder engagement. Investors will be eager to understand how these fundamental shifts will impact ESG and DEI programs within their portfolio companies. U.S. investors may have a very different perspective than European investors. With off-season shareholder engagement underway, companies should not deviate from the values expressed in their sustainability reports, as these statements are on-record, signed by the CEO and leadership of the company. As the new administration’s policies play out, companies can respond to changes by communicating them in proxies, ESG reports, websites, earnings calls and social channels.

– Fewer ESG mentions on earnings calls. Over the past year, companies have increasingly reevaluated their ESG communications strategies, especially during earnings calls. Under a Trump administration, there is expected to be less emphasis on sustainability and DEI-related policies. As regulatory pressures around ESG issues arise, companies may prioritize other financial and operational topics. The polarization of ESG may lead many companies to avoid further public discussion on contentious topics to steer clear of potential backlash. Going forward, earnings calls are expected to feature less ESG-related content, as they primarily focus on short-term performance and have limited time to address issues beyond financial metrics.

This memo is part of a series that Teneo has been running, which you may want to check out if you’re involved with your corporate sustainability disclosures:

– State of Sustainability: 10 takeaways & key stats from 2024 sustainability reports

– DEI Will Survive: how corporate DEI-related programs & disclosures have evolved in the wake of recent backlash

– What Chief Sustainability Officers Are Thinking: moving towards pragmatic goals & balancing interests

Remember to visit PracticalESG.com for a deeper dive into how to implement initiatives and disclose ESG performance. We’re also continuing to post relevant resources in our “Sustainability” Practice Area on this site.

– Liz Dunshee