On Friday, April 22nd, the United States and the rest of the world recognized Earth Day 2022. With the theme of Investing in Our Planet, Earth Day 2022 drew additional attention to environmental, social and governance (ESG) as a key metric for assessing activities that may impact human health or the environment. This is the third and final warning in a series of publications from Bradley’s environmental law team in recognition of Earth Day 2022. In the first article, we looked back at the more than 50-year history of Earth Day and the progress made in addressing environmental issues in the United States In the second article, we discussed the birth of the ESG metric and the current status of various efforts to standardize the measurement of ESG issues, including the Securities and Exchange Commission’s proposed ESG disclosure rule. This final article provides practical guidance on setting up or refining an ESG program.
Step 1: Leadership buy-in
Before a company considers or adopts an ESG policy, it is important that the company is committed to the process and that each policy has the support of senior management and employees. Without such a commitment, the company risks losing credibility with various stakeholders, including regulators, investors, customers and members of the general public. It is important to develop a process that ensures company-wide support and participation in the ESG policy.
Step 2: The Ten Principles
The starting point for any ESG program or policy should be a review of the ten principles of the Global Compact. Referred to as fundamental responsibilities in the areas of human rights, labour, the environment and anti-corruption, the principles were derived from the Universal Declaration of Human Rights, the International Labor Organization Declaration on Fundamental Principles and Rights at Work, and the Rio Declaration on Environment and Development, and the United Nations Convention against Corruption. Although the Principles are general in nature and largely uncontroversial, the application and scope of each Principle to a particular organization may vary. For example, the eighth principle requires companies to “take initiatives to promote greater environmental responsibility.” For some companies, applying this principle may simply involve providing recycling bins for their employees and customers to use; for other companies, this may involve eliminating a product line or process that impacts the environment or depletes natural resources.
Step 3: Review the Sustainable Development Goals
In 2015, the United Nations agreed on a plan called Agenda 2030. As part of the 2030 Agenda, 17 Sustainable Development Goals (SDGs) were set. The SDGs include a number of ambitious goals (e.g. no poverty and zero hunger) and others that are less defined (e.g. affordable and clean energy and climate protection). After an organization has reviewed and evaluated the ten principles, the next step should be to review the SDGs and decide how the organization could put in place programmes, policies or procedures that can contribute to a specific SDG. Even if a company finds that one or more SDGs are not applicable to its operations or business philosophy, it is likely that each company could find one or more programs or projects that it could implement or support that align with one of the SDGs.
While no single entity would be able to eliminate poverty on a global scale (SDG 1), there are programs in most communities that an entity could work with to contribute to this SDG. Similarly, a business unit may not be able to end hunger (SDG 2), but partnering with food banks and other organizations would be one way to address this goal in a local and significant way. A company wishing to establish an effective ESG policy would assess each SDG and ask the following questions:
- Is this an appropriate goal for the communities in which we do business or where we have significant stakeholders?
- If so, are there actions we can take to achieve this goal, or are there organizations that we can work with in our communities to help achieve this goal?
- How can we assess the effectiveness of the actions/partnerships identified in b?
Identifying the goals for a company, the actions the company will take to achieve those goals, and a mechanism to measure the impact of those actions lay the foundation for an effective ESG policy.