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Scorecards Could Potentially Complicate How Corporations and Investors Address Environmental Justice

Scorecards Could Potentially Complicate How Corporations and Investors Address Environmental Justice Background Image

Estimating, reporting, and mitigating risk concerning environmental justice (“EJ”) has increasingly become a complex undertaking. The EPA defines environmental justice as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” As companies grapple with how to address environmental justice concerns in the context of their corporate reporting, policies, branding, investor relations, and planning, the stakes have increased over the past few years.

Since its inception, the Biden Administration has consistently elevated and prioritized EJ concerns, among other executive actions: applying a whole-of-government approach to “addressing current and historical environmental injustices, including strengthening environmental justice monitoring and enforcement”; crafting new mapping tools to increase transparency concerning environmental justice; and strengthening efforts to address legacy waste affecting overburdened communities. Meanwhile, states like New Jersey, which just released its landmark EJ law, have passed a number of laws concerning environmental justice that address permitting and community engagement among other things. Finally, stakeholders are increasingly considering the environmental effects and impacts that companies they invest and partner with have on already vulnerable and overburdened communities. Enter a new wrinkle: environmental justice scorecards by non-governmental entities.

In late August 2021, As You Sow—a non-profit organization that periodically releases “workplace justice and equity and inclusion” and “racial justice” scorecards for a large number of S&P 500 companies—added EJ to the list of factors in its racial justice scorecard for the first time. The environmental justice assessment includes, among other things, scores for environmental justices statements or policies, environmental compliance, and adverse effects on EJ communities by corporate sector. For example, for the energy sector, the scorecard assesses disproportionate climate impact, distribution of amenities, scandals and lawsuits, pay equity, and racial discrimination actions and litigation. The professed aim of the racial justice scorecard is, in part, to hold companies accountable for their EJ commitments, tie low scores to financial performance, and foster dialogue with companies that have received scores.

Investors and community groups are both increasingly focused on environmental justice, so efforts to score or benchmark EJ performance are likely to increase over time. These tools have the potential shine a negative spotlight that can spread quickly via search engines and social media. Scorecards concerning environmental justice carry an even greater risk given how elevated the topic has become in recent years. Scorecards are also a simple device that is easy enough to understand that negative scores have the potential to “go viral” and/or sway public opinion in a way that complex reporting does not. Finally, these types of scorecards can be used by large national advocacy groups to target companies for litigation and investor outreach.

Companies should (1) consider tracking racial justice and/or EJ scorecards on a regular basis, (2) develop planned responses to potential outreach by organizations that produce such scorecards, and (3) consider developing EJ statements policies and disclosures in some form. In addition, we believe that careful thought should be given to communications with any advocacy organization and that such communications should include, at the very least, an acknowledgement of the seriousness of the issue and an indication of a constructive path forward.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.