Environmental Liabilities

Compliance Professionals as the New Face of ESG Leadership

Environmental, social, and governance (ESG) concerns make up a broad area of investor and stakeholder interest. There are many different specific definitions, but generally:

  • “E” covers a wide spectrum of environmental initiatives aimed at minimizing an entity’s harm to the environment, including climate change, pollution, biodiversity, deforestation, and greenhouse gas emissions; doing business with ecofriendly practices in mind, such as having energy efficiencies and goals; and practicing pollution mitigation, reducing-reusing-recycling product lifecycle management, waste management, and water usage reduction.

  • “S” focuses on the many aspects of social interactions and human capital, including justice, equity, diversity, and inclusion; compliance and ethics matters, including reporting hotlines, labor standards, wages, and benefits; workplace and board diversity; racial, social, and organizational justice; and stakeholder and community relations.

  • “G” is the governance and oversight of this area, such as board composition and structure, board diversity, oversight and compliance, executive compensation, political contributions and lobbying, and bribery and corruption.

Prior to 2019, the general thought was that a company’s primary purpose was to make money for its shareholders, but interest in ESG matters on the part of investors and other corporate stakeholders has intensified, and the current economic, public health, and social justice crises have made this focus acute. ESG is now a critical way in which companies are being evaluated beyond the financial reports, and there is active consideration by organizations, such as the United States Securities and Exchange Commission, and additional regulation, such as the European Commission Non-Financial Reporting Directive (NFRD).[2] The NFRD lays down the rules on disclosure of nonfinancial and diversity information by certain large companies, and in November 2022, the Council for the European Commission adopted, as part of the European Green Deal and the Sustainable Finance Agenda, the new Corporate Sustainability Report Directive (CSRD). The CSRD begins to apply to companies on a rolling basis in 2025.

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