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The first quarter of 2021 has inundated full-service law firms with demand from corporate clients for legal advice on how to manage the insecure disclosure process and reputation management of their company’s environmental, social and governance (ESG) activities.
ESG practitioners at Blank Rome, Ballard Spahr and Armstrong Teasdale say the influx of ESG-related matters was due to the Biden administration’s stated efforts to expand corporate disclosure requirements.
ESG practice groups are spreading across the industry – for example, Gibson, Dunn & Crutcher announced a new ESG group in March, and Seyfarth Shaw formed an ESG group in February. Last month, Morgan, Lewis & Bockius strengthened their own ESG group by hiring four Patterson Belknap Webb & Tyler attorneys to represent philanthropic and nonprofit organizations, as well as the nonprofits that work with them.
“ESG is beginning to be seen as part of a risk management program where you need to consider these factors and how they affect your business,” said Stacy Louizos, co-lead of the 25-plus ESG team and co-chair of Blank Rome Company’s investment management group.
John Sten, partner at Armstrong Teasdale, co-head of securities regulation and litigation for the company, said the disclosure of “S” and “G” -related activities in “ESG” is not as standardized as the “E” part for years carbon-emitting companies responsible for their climate-related impacts.
Under the Biden administration, Sten, a former enforcement officer for the Securities and Exchange Commission before joining Armstrong Teasdale, said he expected “a plethora of new guidelines, regulations and enforcement actions” on how companies should include ESG in their disclosure statements. In contrast, the Trump administration’s comparatively loose approach to regulation and enforcement has created an uncertain culture of how companies are held accountable, he said.
“This phase is really about advising clients on what ESG disclosures really mean, developing best practices for implementing them, while also understanding that at certain times we will be communicating with regulators who want to make sure they are make sure this I’ll go the way, ”he said. “The last part hasn’t landed yet, but you know it’s coming.”
According to Sten, Armstrong Teasdale is in the process of organizing an ESG group to outgrow the company’s own values of diversity, inclusion and sustainability.
Industry leaders say the change in management isn’t the only thing driving client demand for ESG legal counsel. Investors in all industries are demanding greater transparency from the companies in which they invest about their impact on the environment, their equitable use of human capital and their diversity in corporate governance. In his annual letter to CEOs, Larry Fink, CEO of BlackRock, told companies and BlackRock customers in January that they should disclose business plans to reduce carbon emissions to zero by 2050.
“If you’re an oil company, lots [ESG] will be at the forefront, ”said Kahlil Williams, a litigation attorney at Ballard Spahr who co-leads the company’s recently formed ESG group. “More and more people are saying that it doesn’t matter if you are a bank or whatever you do, you should do your part.”
At Ballard Spahr, corporate leaders have organized a working group of more than 50 attorneys led by practitioners who lead each of the three components of the ESG: partner April Hamlin, a corporate and securities practitioner, leads the group’s governance side; Williams, who leads the group’s S component on diversity and pay equity; and lawyer Lorene Boudreau, who supports clients in environmental disputes.
“We need to understand what is happening in the ESG space,” said Williams. “There’s a lot of trouble to see and make sure everyone is on the same page in an area that is growing fast.”
For many customers, Williams said, the lack of a standardized protocol to disclose is a source of frustration for businesses concerned about opening up to liability and reputational costs. He said much of the ESG disclosure-related activity stems from tensions between shareholder disclosure proposals and running a business, and much of his work revolves around advising clients on how to ensure consistency among the companies stated company values and their actual business activities.
Williams said companies start litigation when their values of diversity contained in their proxy materials are not reflected in the company’s actual practices.
In response to shareholder requests, Acting Director of Corporate Finance, John Coates, stated in a public statement on March 11 that the Commission’s policy on ESG disclosures “must be both adaptable and innovative”.
“We can and should, for example, further adapt existing rules and standards to the reality of climate risk and the fact that investors are increasingly asking for ESG information in order to be able to make informed investment and voting decisions,” said Coates. “We also need to be open to and support innovation – both in institutions and in guidelines on the content, format and process for developing ESG claims.”
Blank Rome team leaders said the company’s ESG team started with five or six members in early 2020 before the COVID-19 pandemic stalled efforts. Attention was focused on advising clients on how to manage the uncertain economic landscape of the pandemic. But the police protests against racial injustices following the deaths of George Floyd and others have kept shareholder activism alive. And environmental health continues to receive attention.
ESG “has been pushed mainstream by both regulatory and government sides, but the pandemic has also accelerated interest in it,” Louizos said. “You need a multidisciplinary approach as it will affect the company differently depending on where you are in the supply chain and what type of work you are doing.”
Yelena Barychev, who co-leads Blank Rome’s ESG team with Louizos, said the group has recruited lawyers in the fields of securities and corporate law, investment management, labor and employment, and energy and environmental industries. The team leaders said the company’s midsize clients with sustainable loan funds or SPACs with ESG-driven strategies keep them for best practice advice.
“We have people coming in every day because it affects so many lines of business that we find that there are different areas of impact,” said Louizos.
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