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ANALYSIS: Corporate Reputation Is What Drives ESG Disclosures

Nov. 8, 2021, 6:25 PM

There are a lot of reasons why companies are thinking about their ESG disclosures right now. Gary Gensler, chairman of the Securities and Exchange Commission, has made it clear that improving corporate ESG disclosure is an SEC priority. The 2021 United Nations Climate Change Conference (COP26) has focused world leaders’ attention on committing to ambitious emissions reduction targets, and attorneys are watching how these commitments will inevitably affect their corporate clients. And there is continued attention from activist investors on ESG-related topics.

But what is the primary driver for companies to prepare ESG disclosures? Reputation.

Bloomberg Law recently surveyed lawyers who advise clients on ESG-related matters. Company reputation was most often selected—and by a large majority of respondents (83%)—as a primary driver of client decisions to prepare environmental, social, and governance disclosures.

Respondents to another survey question also noted several challenges to successfully advising clients on ESG matters generally, including more than half who said lack of clarity around voluntary industry standards and frameworks (53%), as well as a rapidly changing regulatory landscape (51%).

With many aspects of ESG disclosures still uncertain, attorneys should remember there are steps that they can take to stay ahead of reputational risks, including:

Identify potential reputation risk triggers. These could be social issues (like diversity, equality, and inclusion; labor relations; or community impact, to name a few), governance risks (like compliance failures or activist investors), or environmental risks (like greenhouse gas emissions or waste management).

Put a program in place. Manage reputational risk as part of the company’s overall governance and culture. Practices and policies are key to a credible reputational risk program, rather than aspirational goals. Regular assessments of potential risk triggers, damage, and successes should be central to the program.

Bloomberg Law subscribers can find related content on our Practical Guidance: ESG Risk Management page, as well as our ESG Practice page.

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