Steps for Public Companies to Strengthen the Social Aspect of their ESG Program
By Tom Wilson
Discussed below are three steps public companies can take to strengthen the social aspect of their Environmental, Social and Governance (ESG) program.
First, public companies have now had their first time through on disclosures of human capital matters in their 10ks. Now is the time to review your industry members’ human capital 10K disclosures. While doing that, identify two topics often addressed in those disclosures but which you did not include in yours. Pick topics that you believe you have a good current story or are in a place to have such a good story by reporting time next year. Make a plan to improve that story throughout the remainder of this year. It is important to have actual planning and execution on your ESG goals to ensure your disclosures show you practice what you preach. Plan to make fulsome disclosure on those two topics in your 10k to be filed next year. It is important to be realistic here. This plan should not be overly aspirational. Not having a clear path to success in executing your plan on the selected topic can lead to issues with shareholders and the SEC when that failure is noticed.
Second, create or examine your community involvement plan to ensure that your community involvement will be consistent with your company goals, responsive to community need, and energizing to your employees. Good community relations are now part of the sustainability plan. A company’s license to operate is at stake. This is a difficult topic that will need thought from the board level. What topics does your company want to comment upon? What topics, because of the nature of your business or the locations where you operate, must you comment upon? How do you balance conflicting interest in terms of business opportunities and ESG priorities?
Lastly, determine the top exposures in your supply chain and either develop communications to explain their necessity to the operation or address the issues to remove the threat. Let me give you an example. An energy company is building its solar production. That is good for its environment aspect of ESG. But its supply chain for solar panels ends in a Chinese province where minority groups may be used to produce the panel and the work conditions may not be good. How does that company balance these issues? That needs to be considered before the issues conspire to become a concern for employees, customers and investors. There may not be an operational solution to all such conflicts, which means communicating about your value judgements is vital. As with life, business planning is not always perfection and seeking perfection can be the enemy of progress. You just need to communicate that point.
Each of these steps is intended to help you stay in front of the continued growing wave of interest in ESG matters. Look for future discussions of ESG matters here from the ESG Taskforce of Vinson & Elkins.
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.