It’s clear that over the past few years, investors have tweaked their voting policies to tone down use of the term “ESG.” And it’s also clear that more and more companies are changing the title of their reports relating to ESG issues to another term, with the most popular one being “Sustainability.” Other notable titles are “Growth and Impact” and “Corporate Social Responsibility.”
Not to mention that some companies are leaving industry groups devoted to climate issues – and that the District Court for the Northern District of Texas recently found that a company breached its fiduciary duties under ERISA for permitting BlackRock’s inclusion as an investment manager of its employees’ retirement assets in a 401(k) Plan because BlackRock seemingly exercised shareholder rights based on non-pecuniary ESG factors.
But all of this doesn’t mean that ESG is dead. Not by a long shot. As I blogged about recently in the context of shareholder proposal trends, E&S continues to be a hot topic during shareholder engagement. There have been media reports that a number of companies are doing less with DEI – but some of that is that companies are moving away from using the term “DEI” and being less vocal about programs so they don’t get sued. And sustainability continues to grow in importance, particularly for companies operating in jurisdictions where climate disclosure reporting frameworks are taking effect.
While some companies have scaled back elements of their ESG programs, that’s typically more a function of them having gotten out over their skis (i.e., perhaps smaller companies doing too much to keep up with the large caps) rather than a response to political pressure. And there are just as many other companies continuing to build out their programs, both in response to regulations and to customer and investor pressure. We are seeing companies undertake more focused and purposeful efforts that are responsive to specific stakeholder and regulatory demands. There isn’t a random trendy bloat occurring.
While the European CSRD regulations will force many large-cap disclosures into overarching sustainability reports, some companies are disaggregating some of their ESG activities and reporting – for example, by putting out separate stand-alone climate, diversity or supply chain sets of disclosures. This is particularly the case where one or more topics stand out in importance for stakeholders and company investment, such as GHG reporting and target setting.
Fussing about nomenclature ultimately isn’t too important, as long as key stakeholders know where to find relevant disclosure. That being said, other terms like “responsible business” or “impact” might be more palatable to some companies – even if it’s arguably a distinction without a difference.
For me, I never understood why the environmental, social and governance topics were bundled into one acronym anyway. It felt random. So the gradual unbundling of them feels like the natural order of things to me. But it also doesn’t take on greater meaning than it should. Thanks to Cooley’s Michael Mencher for his thoughts on this one!
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