Environmental, Social, and Corporate Governance- The Basics

{"version":"0.3.0","atoms":[],"cards":[],"markups":[["a",["href","https:\/\/www.bcorporation.net\/en-us\/"]],["strong"],["a",["href","https:\/\/corpgov.law.harvard.edu\/2020\/08\/01\/introduction-to-esg\/","target","_blank"]],["a",["href","https:\/\/www.energystar.gov\/buildings?testEnv=false"]],["a",["href","https:\/\/www.gsam.com\/content\/gsam\/global\/en\/market-insights\/gsam-insights\/gsam-perspectives\/2015\/esg\/qis-article.html","target","_blank"]],["a",["href","https:\/\/www.sec.gov\/sec-response-climate-and-esg-risks-and-opportunities"]],["a",["href","https:\/\/www.sec.gov\/comments\/climate-disclosure\/cll12.htm","target","_blank"]],["a",["href","http:\/\/www.jlhlawoffice.com\/"]],["i"]],"sections":[[1,"p",[[0,[],0,"April 28, 2022"]]],[1,"p",[[0,[],0,"Traditionally speaking, the\nprimary duty of a corporation is to maximize profits on behalf of its\nshareholders. A public shift away from that mindset is spreading, represented\nby the growing popularity of ESG, which stands for Environmental, Social, and\nCorporate Governance. It is, in a nutshell, the implementation of a governance\nstructure and reporting system that evaluates a company\u0027s performance related\nto environmental and social factors that go beyond the company\u2019s duty to\nmaximize profits. "]]],[1,"p",[[0,[],0,"Recent societal shifts have\ncalled on companies to demonstrate their contributions and eliminate the environmental\nand social harms they may cause in the communities where they operate (and\ngenerally). In the absence of regulation (for now), a company\u0027s reputation is\nmost at stake in these early days of ESG. More and more, companies ignore the\nrole of ESG at their peril, risking being left behind the movement, or worse,\nperceived as working against it."]]],[1,"p",[[0,[],0,"As for reputation, the court\nof public opinion convenes daily (and non-stop) on social media, where\ndecisions in board rooms can become fodder for negative public debate. Missteps\nbecome stories that go viral without warning, and investors are more likely to\nvote with their feet and divest from companies that contribute to adverse\nenvironmental or social outcomes. Companies that demonstrate\nabove-and-beyond level performance (such as those that have distinguished\nthemselves as "],[0,[0],1,"\u201cB\u201d Corporations"],[0,[],0,") stand to benefit from their position as early adopters\n(as we all benefit from their willingness to do good in the world)."]]],[1,"p",[[0,[1],1,"Environmental."]]],[1,"p",[[0,[],0,"There are many \u0022E\u0022\nfactors to consider in both investing and internal practices. How well a\ncompany performs related to conserving energy, water, and other natural\nresources, protecting ecosystems and biodiversity, reducing carbon emissions,\nmitigating climate change, and promoting resilience, among other factors -- is\nup for evaluation in ESG. Companies are more often choosing to report on their\nactions, physical assets, and financial portfolios related to these\nfactors. "]]],[1,"p",[[0,[1],1,"Social."]]],[1,"p",[[0,[],0,"Newer to corporate life and\nperhaps more susceptible to public scrutiny and opinion are the concepts of\nsocial and environmental justice. Whether a company is union-friendly, provides\nfair pay and leave, prioritizes worker health and safety, and proactively seeks\na diverse workforce, among others, are some of the ways it may be measured on\nsocial issues. Suppose a company disrupts a vulnerable population\u0027s access to\nclean air, water, or cultural resources. Now more than ever, they may face\nsevere reputational consequences. In this way, environmental and social justice\nissues dovetail. Increasingly, companies hire diversity, equity, and inclusion\nmanagers and consultants to examine their internal practices and improve their\nsocial impacts to net positive."]]],[1,"p",[[0,[1],1,"Governance. "]]],[1,"p",[[0,[],0,"No matter the corporation\u0027s\nsize, the \u0022G\u0022 in ESG determines how the company manages both the\nenvironmental and social aspects of its policies, programs, and reporting.\nAvoiding material misrepresentations and fraud is the concern of any corporation.\nStill, the scrutiny on those that hold out corporate sustainability plans is\nperhaps under a brighter light. Anti-corruption and whistleblower policies, as\nwell as general transparency, are standard expectations for corporate\ngovernance. In an ESG-driven market, as the younger generations come of age as\nconsumers and become more influential culturally, the requirement for social\nand environmental impact reporting will only grow. In "],[0,[2],1,"this August 2020 post"],[0,[],0,", Harvard Law School Forum on Corporate Governance\nadvises managers to monitor internal ESG disclosures and commitments, treat ESG\nstatements like any other public statements, educate employees on the risks of\nESG disclosures, and establish well-defined procedures for measuring\nperformance. "]]],[1,"p",[[0,[1],1,"What\u0027s the Yardstick\nfor ESG?"]]],[1,"p",[[0,[],0,"So how are those measurements\nto be made? In the case of buildings, voluntary programs and their tools such\nas "],[0,[3],1,"EPA\u0027s\nEnergyStar"],[0,[],0," Portfolio Manager, numerous life\ncycle assessment (LCA) tools, and voluntary rating systems have provided the\nmeans to baseline and measure performance. "],[0,[4],1,"But what about investments"],[0,[],0," and general business practices? Today numerous\nprivate data providers will evaluate and score a company for evaluation by investors\nand for companies in their ESG disclosures."]]],[1,"p",[[0,[],0,"These data providers vary\nwidely in what factors and components they evaluate, their level of\ntransparency, and their reputation amid an explosion of interest. Despite these\nearly wild-west days of ESG data collection, once the SEC steps in with new\nrules, the ultimate regulations will come with a need for evaluation standards.\nIn terms of ESG disclosures, the SEC carries a much bigger stick to compel\npublic companies than the largely market-transformation-focused early green\nbuilding movement. Fortunately, there is time to weigh in on the future of\nmandatory ESG. Anyone interested in weighing in on the new SEC rules should\nplan to submit their comments to "],[0,[5],1,"the\nSEC "],[0,[6,1],2,"by May 20"],[0,[],0,". "]]],[1,"p",[[0,[],0,"For further reading and a\nbreakdown of some of the corporate legal issues surrounding ESG, consider reading "],[0,[2],1,"this August 2020 post"],[0,[],0," by Harvard Law School Forum on Corporate\nGovernance. "]]],[1,"p",[[0,[],0,"Jessyca Henderson is an attorney and architect based in Maryland,\nproviding legal services and consulting to design professionals, corporations\nand government related to sustainable design, building science, and environment\nin Maryland, California, and the District of Columbia. "],[0,[7],1,"www.jlhlawoffice.com"]]],[1,"p",[[0,[8],1,"AIA Contract Documents has provided this article for general\ninformational purposes only. The information provided is not legal opinion or\nlegal advice and does not create an attorney-client relationship of any kind.\nThis article is also not intended to provide guidance as to how project parties\nshould interpret their specific contracts or resolve contract disputes, as\nthose decisions will need to be made in consultation with legal counsel,\ninsurance counsel, and other professionals, and based upon a multitude of\nfactors. "]]]]}