TheCorporateCounsel.net

One of the hottest topics in boardrooms these days is “what do we do about ESG?” Facing an ESG backlash movement that appears to be in full swing, boards are facing increasing pressure to reevaluate ESG programs and the overall approach to managing ESG risks.

As Zach Barlow notes in the PracticalESG.com blog, companies are still facing a variety of ESG risks, notwithstanding the accelerating ESG backlash. The blog notes:

Recently we’ve seen the appetite for ESG waning as investors back off of ESG proposals and some companies abandon or scale back ESG programs. However, choosing not to engage with ESG doesn’t make ESG risks disappear, it just reduces their visibility. A recent survey from Supplier .io looked at 214 publicly traded companies from across various industries. The findings indicate that most companies face ESG risks in various areas. The survey states that:

– “An overwhelming majority of companies, 73%, are exposed to material risks from greenhouse gas (GHG) emissions. This statistic underscores the pervasive and escalating threat climate change poses to businesses.

– Our analysis unveiled a range of social risks, with diversity, equity, and inclusion (DEI) standing out as the most critical. 71% of companies face material risks related to DEI issues; the risk extends beyond corporate boundaries, impacting supply chains and local communities.

– When examining governance risks, supply chain management emerged as a significant concern, with 45% of companies facing material exposure. Our members can find more information on climate commitments here.”

These results shine an interesting light on recent ESG walkbacks. Companies aren’t scaling back on ESG because the problems have been solved and there is no more need to manage them. ESG risks are just as present as they’ve always been, perhaps even more so. Companies slashing ESG may be blinding themselves to threats posed by ESG issues and are hampering their ability to identify and manage those issues. ESG risks aren’t likely to let up anytime soon. Taking climate change as an example, there is no end to extreme weather events in sight leading to persistent and increasing physical risk. Additionally, new emissions reporting regulations are creating substantial compliance risks globally. ESG practitioners are a company’s first line of defense against a rapidly changing world, those who bury their heads in the sand do so at their own risk.

This area of focus will no doubt continue to evolve, particularly as we go into the 2025 proxy season.

– Dave Lynn