Shareholder Climate Action Has Companies Calling Lawyers on ESG

Exxon Mobil Corp. and Chevron Corp. shareholder activism is spurring rivals to seek law firms’ help in navigating the world of environmental, social and corporate governance.

“We got a lot of phone calls from oil and gas companies that said, ‘I guess I should start paying attention to this now,’” said Travis Wofford, chair of the Houston corporate practice at Baker Botts LLP. “‘You’ve been telling us for years.”

Climate-activist shareholders in May won three seats on the Exxon Mobil board, and Chevron shareholders that same month approved a resolution requiring the company to cut emissions from its customers. The actions show the rise in importance of ESG, a set of non-financial benchmarks that socially-conscious investors use to evaluate companies and make decisions about deploying capital.

Baker Botts and Vinson & Elkins, two firms with deep Texas oil and gas roots, acknowledge receiving the company calls for help and rendering assistance. But they are tight-lipped about who they are advising and what exactly they are telling companies to do to improve sustainability.

The firms’ past work, however, has connected them to some of the country’s largest energy producers. Baker Botts clients have included Koch Energy Services, Halliburton Co. and Hess Corp., while Vinson & Elkins has represented Sunoco LP, American Electric Power Co., and Energy Transfer LP.

ON ESG issues, Baker Botts this year has assisted a “multinational corporation” as well as a “downstream energy company,” each with an extensive U.S. physical footprint, partner Alexandra Dunn told Bloomberg Law. The firm helped them think through “the legal risks associated with ESG issues, including environmental justice,” she said.

Vinson & Elkins “advised one independent U.S. oil and natural gas company with more than $3 billion in revenue that is engaged in the exploration, development, and production of natural gas,” spokeswoman Courtney Binick said.

No Box Checking

“The first thing we tell our clients is that ESG is not a check-the-box activity,” said Dunn, a member of Baker Botts’ environmental, safety and incident response section and a former EPA assistant administrator. “It requires a commitment from the leadership of the company to do some fairly deep reflection across the company’s operations.”

Wofford said law firms shouldn’t use ESG as a way to simply get counsel into the board room or to merely push for more disclosures. It requires an operational expertise, he said, such as, what type of plastic are companies using in their products?

“Is the business model sustainable?” Wofford said. “Is the way you’re running the business sustainable?”

Because ESG involves compliance in various aspects of the company’s operations, such as environmental, labor, and even advertising, lawyers from different practice areas have to work together, he said. Baker Botts has around 50 attorneys in its environmental, safety and incident response practice group.

At Vinson and Elkins LLP, Sarah Fortt created the firm’s ESG taskforce. She focuses on corporate governance, while other attorneys on the team address environment and climate, human rights, diversity and inclusion, and cybersecurity and privacy.

Taxonomy

A challenges is the lack of an agreed upon taxonomy, Fortt said. Companies approach ESG and reporting in completely different ways, Fortt said.

“You have companies that are reporting on ESG from a highly, sophisticated, scientific perspective,” she said. That includes “delving deep into how they operate, how they think about risk, how they think about strategy, how they think about engaging with third parties and suppliers. And their reporting is based on that sophisticated knowledge.”

“Then it goes to the other extreme,” Fortt said, “where you’ve got folks that are saying something, but it’s skin-deep; it hasn’t sunk in to the organization. They may not even be fully verifying the quality of their data.”

While Fortt and her colleagues won’t tell their clients to change their operations, they need to make sure there isn’t a gap between what a client is saying and what they are doing.

“Our job as a counsel is to help them manage the liability associated with ESG,” Fortt said. “And there’s very real liability risk to ESG.”

Attorneys look for gaps in corporate responsibility disclosures, examine the integrity of the data behind the reports, and help companies evaluate carbon emissions throughout the supply chain, said Eddie Lewis, the co-head of U.S. energy, infrastructure, and environmental practice group at Norton Rose Fulbright.

“We anticipate doing more,” Lewis said. “Reviewing these reports, helping with the creation of those reports, looking at them to see if there are there gaps—and what is the integrity of the data.”