In this special Enviro, Social, & Governance Week installment of Ask the Expert, we hear from Adele Abrams, who is an attorney, safety professional, and trainer. She is the president of the Law Office of Adele L. Abrams P.C., a multi-attorney firm focusing on safety, health and employment law nationwide. She is a certified mine safety professional, and she provides consultation, safety audits, and training services to MSHA and OSHA regulated companies. We reached out to ask her about the legal contexts and potential future of ESG in the workplace. Here’s what she had to say.
Q: For those new to the concept, what is the definition of ESG? How is it applicable in EHS?
The “ESG” initiative addresses an organization’s activities with an eye toward their Environmental, Social and Governance (ESG) impact. Looking at the environmental prong, there would be examination of the organization’s impact on the environment, but also the risks and opportunities associated with climate change, and how environmental conditions impact corporations value to investors as well as the carbon footprint—not only of the company or organization itself but flowing downstream to look at subcontractors, and vendors through its supply chain, to see if they also have positive EHS values, culture, and performance.
The societal prong of ESG examines how the organization interfaces with society, starting with its employees and whether they are treated fairly and provide a safe and healthful work environment, but extending into examining the diversity of corporate boards and C-suites. Finally, when examining an entity’s “Governance” track record, there would be scrutiny of how the company in run in terms of ethics, transparency, reporting and compliance with applicable codes and standards.
Q: What are the current legal requirements for ESG reporting?
Currently, there are minimal mandatory reporting requirements relative to “ESG” but that is about to change. The federal Securities & Exchange Commission (SEC) focuses on disclosure of information considered material to the investment decision, the items about the company’s ESG performance that are substantially likely to be considered by an investor when making a decision on whether to purchase a stock or invest in the company.
In addition to environmental information, it could include data on political spending, diversity efforts, impact on the community from an environmental justice perspective, and more. But these remain voluntary reports, and the SEC has responded to concerns from investors about transparency and truthfulness by issuing a proposed rule on April 11, 2022, that would require certain environmental information to be reported to the SEC, specifically climate-related information and data on the company’s carbon footprint. The comment deadline is May 20, 2022, and this is expected to be a contentious rulemaking. The SEC rule would only impact publicly traded companies, but larger entities would also have to report on their downstream partners.
Q: Do you predict more ESG legislation in the future, and what will that look like?
Congress has a full plate right now, and I think the SEC rulemaking will be the first step in ensuring some transparency and in allowing investors, community leaders, and even workers to discern if the company shares its values in the ESG arena. If the Democrats continue to hold both chambers of Congress after the 2022 elections, then ESG legislation might be a possibility but currently there is little change of any measures gaining traction.
Q: What are companies getting wrong about ESG?
Companies get it wrong when they see ESG as a burden or hardship, instead of a feature that will attract investors and quality employees. The ESG concept doesn’t require companies to change how they are doing things but it will allow the public to know what a company really values and emphasizes internally in its practices and externally as it interfaces with the rest of the community and world. ESG is a way of raising the bar for publicly traded entities and helping them lead smaller companies by example. It’s aspirational at this point, not a mandate, but if a company is ignoring existing obligations in the environmental, safety, and health, or employment area, it will not score very well in an ESG assessment.
Q: How important is leadership buy-in to an effective ESG program?
Leadership buy-in is the most critical feature, because that sets the entire EHS culture and—by extension—its ESG performance. That means committing the resources to go beyond minimal compliance in the EHS areas, but also leading by example and encouraging diversity at all levels within the corporation and in all the ways it impacts its community.
Q: Once you get your ESG initiative in place, what then?
ESG should be a living initiative, flexible to respond to changing regulatory requirements and external challenges that may warrant revision of programs, policies, and procedures over time. This is not a static document that goes into a binder on a shelf. Everyone involved must be committed to the program, and it should be hallmarked by a desire for continuous improvement. Beyond that, for publicly-traded companies, or those who do business with them and may also be impacted, make sure to be engaged in the SEC rulemaking and monitor federal, state, and local EHS agencies for changing requirements.