A Tide Is Rising and It’s Called ESG
A major challenge for corporate executives today is the rising tide of Environment, Social, and Governance (ESG) investing. Unlike most tides, ESG does not appear to be receding. As discussed during a recent panel discussion here at Vinson & Elkins, ESG investors are concerned with ESG risks that could diminish the value of their investments.
Too often companies have not coordinated an approach to address ESG issues until something bad happens—a major accident or crisis, for example—or when they are faced with a shareholder activist campaign. This is a mistake. Companies should work with their counsel (in-house and external) and proactively conduct due diligence on potential ESG risks, develop strategies for dealing with those risks, and as appropriate, communicate those risks to its stakeholder.
Having an ESG plan and strategy is especially crucial if a company is in the market for capital because many large banks are now evaluating ESG-type issues and how companies address them when making financing decisions. For instance, in recognition of International Human Rights Day on December 10, Citibank issued an update on its statement concerning human rights which specifically states, “For project finance and project related corporate loans, any human rights mitigation requirements are included as a condition of financing.” Many investors now expect companies to consider ESG issues when developing their long-term strategies. This means that all disclosures, whether they are public company filings or statements on the company’s website, need to be treated seriously and vetted by appropriate experts.
ESG is a rapidly changing space. It will be important for companies to stay ahead of this rising tide by keeping informed on trends in investor interest, peer disclosures and evolving standards and ratings. Attached
here is a link to a full PowerPoint presentation on the topic. You will also see near the end of this presentation links to multiple articles related to ESG issues. Being armed with this type of information going forward is the only way companies will be able to hope to ride the ESG tide rather than being swept by it.