In February 2021, Securities and Exchange Commission (SEC) Acting Chair Allison Herren Lee directed the Division of Corporation Finance to focus on climate-related disclosures and use their insights to begin updating the SEC’s 2010 guidance, and the SEC has recently closed the comment period on potential climate actions in which it specifically asked whether the SEC should focus any future disclosure regulations solely on climate or whether it should consider Environmental, Social, and Governance (ESG) factors more broadly.
The Biden administration continues to consistently prioritize environmental justice concerns. The Environmental Protection Agency 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.” The “social” aspect of ESG broadly refers to a firm’s effects on its stakeholders, such as consumers, employees, suppliers, contractors, and the local and broader community. Many in the regulated community are now questioning how to reconcile these two important priorities in the context of corporate planning, disclosures, and community outreach. We provide a few considerations and actions that we believe are important:
- Consider your current policies and disclosure structure — now is the time to take stock of where environmental justice might fit into the existing ESG or 10-K disclosure infrastructure that currently exists in your company. In doing so, consider the other “social” type reporting, policies, and disclosures that already have taken place. In the alternative, consider whether environmental justice is something that you want to develop on a standalone basis in terms of policies and disclosures.
- It is important to accurately identify the level of risk your operations, development, and/or investment faces. In the context of environmental justice, this exercise is complicated because identifying environmental justice communities can be dependent on a number of demographic and environmental indicators on the local, state, and federal levels.
- It is important to determine the scope of your “social” reporting, policies, and disclosures. Environmental justice, human rights, indigenous rights, racial justice, and climate justice are all concepts which can be discussed concurrently as they have common roots in civil rights and social equity. That being said, environmental justice is a U.S.-focused concept based in U.S. laws, guidance, and orders. Other similar concepts, such as Environment & Human Rights, are primarily international, relying on soft law such as the UN Guiding Principles. Harm and risks related to climate change particularly connect the local with the international.
- Examine your community involvement plan and efforts. A community engagement plan along with consistent and meaningful community involvement is not just a required part of a sustainability plan, it is important to preserve a company’s social license to operate.