On-Demand | Environmental, Social and Governance--Operational and Legal Considerations

In terms of format for today's program, we decided to dispense with the customary slide deck and never-ending list of bullets in favor of a more conversational approach to ESG aimed at addressing and discussing the legal considerations and risks that companies face when it comes to ESG. So as the moderator suggested, if y'all have questions at any point in time, please feel free to submit them through the WebEx platform and we'll do our best to answer them. If for whatever reason we're unable to answer them or time doesn't allow which may very well be the case, then one of us will certainly get back to you after the program and provide you with a response.

In terms of thinking about how we would kick this off and how we would start it off, it occurred to me and I suspect that of the 300 plus or minus of you out there that there may be varying degrees of exposure to ESG. So for some of you, it may be all that you do every day and for others, it may be a relatively new concept. So what we wanted to do in order to level set and provide a baseline for the conversation that we'll have today is to provide an ESG primer that hopefully will give you some additional information and be a reminder to those who spend a lot of time with this so that we have a baseline for moving forward.

ESG stands for environmental, social and governance. There's lots of definitions as to what ESG means. It means different things to different people. The way I like to look at it is at its most basic level, ESG is a way of judging a company by factors other than financial performance. And those factors seek to identify and uncover material risks and opportunities to a company by asking the following questions. So what are the environmental, social and governance risks to your company? What are you doing to address them? And what are you doing to really maximize the chances that your company will be sustainable and successful over the long term? And the answers to those questions, whether they're found in regulatory filings and disclosures, other public statements on the website, in social media, wherever they are, the answers to those questions can provide really valuable insight into a company's long term value proposition.

Many of you are probably familiar with the concept of corporate social responsibility or CSR. It's been around for decades. And ESG really builds on that concept by providing a framework and then providing data points that are both measurable and reportable. At its core, ESG really is an investment strategy where investors take into account non-financial factors in the areas of environmental, social, and corporate governance as a supplement to the traditional bottom line financial metrics when making investment decisions. And the results are pretty clear.

The research shows that companies that proactively identify and address material, environmental, social and governance risks tend to be less risky investments than companies that don't. I'm not suggesting that's the case in every instance, because it's not. And I'm not giving you investment advice, because I'm not. But it's just certainly a way to look at how the trend is moving. The trend is moving that companies that are adopting ESG profiles and taking ESG seriously tend to be more successful and they tend to be less risky investment. But ESG is really more than just an investment strategy. For example, consumers are key stakeholder in the world of ESG and they're a key stakeholder group that companies really should be thinking about when they're trying to develop or modify or hone their own ESG profile.

Consumers are increasingly focused on purchasing goods and services from companies with an ESG profile that mirrors or aligns with their own values when it comes to environmental and social issues. People want to feel good about what they buy, people want to feel good about who they buy it from. And so if protecting the environment is your thing, then my guess is that you are going to prioritize in your purchasing decisions, making choices by purchasing from companies that have, for example, a solid track record when it comes to environmental compliance.

Just to give you a sense of how things have shifted, in 2018, 48% of consumers said that they would be willing to change their spending habits if it had a positive environmental impact. A year later in 2019, that 48% jumped to 73%. And just last year, 70% of consumers amazingly said that they would be willing to pay a 35% premium on goods and services if they knew that those goods and services were coming from an environmentally friendly company. So consumers definitely are a key stakeholder and an important consideration for any ESG profile, particularly for companies that are consumer facing.

Employees are another very important stakeholder group that companies should be thinking about in considering when developing their ESG profile. Like consumers, employees are increasingly focused on wanting to work for companies that align with their own values. They want to feel good about where they go to work every day and they want to feel good about the impact that their employer is having on the environment and the communities in which they operate. They want to feel like they have meaning at work. And I think the pandemic has really put a bright light on that. I think many of us feel that way. After a year away from the workplace, we want to find greater meaning in what we do.

A recent Forbes study of 2200 professionals over across, I think it was 26 industries of professionals. Nine out of 10 of those professionals said that they would be willing to trade a healthy percentage of their lifetime earnings for greater meaning at work. So employees are clearly an important stakeholder group. They're important both in the attraction of good talent and then ultimately the retention of good talent. So something certainly that companies need to be taking into account and considering.

I'm going to say this slowly so it can come up. If we could take a quick look at some of the factors that investors and other key stakeholders take into account and consider under the E, S and G pillars, we're going to get a slide. I told you there'd be no slides. I lied. There is only one. But as you'll see, when the slide comes up, there are the three pillars and then the various considerations and factors that fall underneath each of them. Not every factor is going to apply to every company, not every factor is going to apply to every industry, but I think it provides a pretty good overview and a pretty good picture of the various characteristics and factors that are being considered.

I'm not going to go through every one of these things. I'm going to probably tick off one or two under each pillar so we can keep things moving along. But I think this is just a good example of the kinds of issues that companies are struggling to get their arms around. Number one and two, trying to be responsive to when it comes to ESG. So we start on the left, right with the environmental pillar and we start where we must with climate impact. So that asks the question of how does a company and its operations impact the environment and what is the company doing about it? It's a really simple statement. It's a really complex concept. But it's not just about how does the company impact the environment, which is, I think where most people's attention is focused, it's also about how does the environment impact and how does climate impact the company.

So are you a company, for example, that has a manufacturing facility in an area that's susceptible to wildfires? Do you have company operations in an area that's susceptible to hurricanes? I'm not suggesting it's bad to operate a business in California or Florida, because I'm not, but if you are located in those jurisdictions and 0 that there's going to be the potential for some catastrophic event, whether it's a wildfire, hurricane, something else, then stakeholders want to know that you have a plan in place to mitigate the impact of a potential catastrophic event and that you're taking steps to mitigate and minimize whatever that impact might be.

In terms of the social pillar, the social pillar really focuses on relationships and what are the company's key relationships with its employees, with consumers and ultimately with the communities in which the company operates. So for example, does the company have a demonstrated track record of respecting human rights? Does the company have a demonstrated track record of respecting labor rights, because as everyone understands and knows that strike can be very disruptive. So if there's respect with labor, perhaps you can avoid potentially disruptive strikes. Does the company have a zero tolerance for harassment and discrimination of any kind? I don't think you'll find a company in today's day and age that doesn't say it has a zero tolerance policy, but the question is, is it for real? People are going to behave badly. That's an unfortunate reality of life. The question is what is the company going to do when that happens and are they going to do the right thing and step up and enforce their zero tolerance policy so they have an environment for their employees or for their customers that's hospitable and welcoming?

Does the company treat its employees well? Does it pay them fairly? Does it pay them good benefits? Is it interested in all in their happiness? Do they measure and then try to improve upon employee happiness, because that would show that, that's a priority for the company. And that's the thing that will attract good talent and then ultimately, hopefully, make the company more successful. In terms of the governance pillar, that really asks, does the company have a solid track record of good corporate governance and solid decision making when it comes to corporate policies? The easy one is does the company behave in an ethical manner? Does it follow the law in the various jurisdictions in which it operates? Of course, we hope it does, but that's not always the case.

From executive compensation, that's an easy one. Are executives paid fairly, but not excessively? When it comes to executive bonuses, are they tied and measured against anything other than the financial performance of the company? For example, are they tied to customer satisfaction? You'll get a better bonus if we've got more satisfied customers. Or are they tied to employee happiness? Again, going back to the companies that measure that, all of that can suggest where the company's priorities really lie. In terms of board diversity, it's a really important issue, because it really sets the framework for the company's commitment to diversity throughout the enterprise.

And just last month, the NASDAQ announced a new rule, which was recently of proved by the SEC regarding board diversity, which I think is important in two really key respects. The first is that I think starting maybe next year, I think it's next year, companies will be required to report and disclose a significant amount of statistical and demographic data regarding the composition of their boards. So that's one thing. Perhaps more important is that by 2025, corporate boards listed on the NASDAQ with more than five board members are going to be required to have at least two diverse board members. One of whom must self-identify as female and one of whom must self-identify as either an underrepresented minority or self-identify as LGBTQ. And I think by 2023, you have to have at least one diverse member. And then by '25, you have to have the compliment of two.

So these are just a handful of the issues that companies are facing and grappling with, and the various factors they're trying to get their arms around. And I hope that for a bit of a level set and background for the discussion that we're going to have here today. So Lisë, let me turn to you first, if I could. We all know that ESG is a super-hot topic, and I guess from my perspective, I'm interested in understanding who's driving the demand and really, what are you telling clients who are looking at and talking about starting an ESG strategy?

Lisë Stewart:Thank you, David. Actually, even before I get started, I have to say that was an excellent primer. You really gave a lot of very useful background. So thank you for that. And it's a very nice lead into some of the things that I wanted to talk about too. It's interesting in our practice. We're finding that the drive and the interest around ESG is coming from several different sources. So a lot of our privately held companies have been reaching out to us, because sometimes to their surprise and maybe to their dismay, when they're seeking capital, they're getting questions ready from investors, PE firms, and in some cases, even their banks about what's your ESG policy and how do you make sure that you are working, living and measuring and monitor those policies? What does that really look like? So sometimes we get this surprise phone call saying, "What do I do with this? I don't have an ESG policy." So certainly access to capital is one of those key drivers that we're seeing, that we're observing.

Another thing that is maybe a little bit surprising, but you alluded to it really nice in your opening comments, and that is that in many of our privately held companies, we have a younger generation of leaders who are coming up through the business. Maybe they're the second or third or fourth generation in a family owned business, or just younger leaders full stop. And they are really pressing the issue. They're concerned, corporate social responsibility. And therefore, the definitions around ESG become an important way in which they want to lead the company and to see the company being actively engaged in some of the things that reflect their values. So this new generation of leadership is absolutely pushing this as well as the consumer.

And then, of course, in some cases too, we're getting pressure from the boards. Some of our publicly traded companies, particularly those that are a little bit newer in being publicly traded, they're getting pressure from their boards. They want to be able to see those disclosures. They want to see the reporting mechanisms. They want to make sure that they're doing what they say they do. So I think that in some cases, it's a little bit of deer in headlights. It's like, wow, this is coming at us so fast, what do we do with this? And how do we really make this work? So when we get a request from a company to help them to get started, I think, it's very important that they begin some of their existing successes.

So first of all, we talk about the fact that an ESG policy and your practices that you're going to put in place, can't be just bolted on, oh, let's just do a little bit of this and then we can report on it and maybe we can tick that box. That is not sustainable. It's not going to work. And we'll talk probably later about how that potentially can backfire for you. Instead, ESG really needs to be built into the practice. It needs to be built into your strategic plan. So how do you get started even doing that? So, the first question that we ask our clients is what are you doing today that's helping to create success for your company, but non-financial success? What are some of the things that you're doing that you're really proud of?

And we talk to customers, clients all the time who are very proud of their philanthropy. They may be very proud of some of their internal policies and practices. They may be really pleased with the way in which they help their local communities. We were just recently working with a restaurant that specializes in seafood. And they talked about how they just volunteer the time of their employees to go around their area and collect oyster shells so that those can then be donated back to help to rebuild river beds and other areas. So let's start by asking the question, what are you already doing well that you think makes a difference? Let's look at some of your environmental community practices.

And then from the governance side, how are you making those decisions? How are you really determining what difference that it's making? Who's being impacted by this? So start with your wins. Figure out what you want to be able to maintain and then grow. What do you want to improve? And then what do you need to add? Don't bite off too much at once. I've worked with companies that have called because they've said, "Oh my gosh, this is crushing us, we can't do it all." And you take a look at what they're trying to achieve and they've downloaded all of the GRI, all of the standards and they're trying to work across the board to achieve as many as possible. That's a lose, lose. Start with what you're doing well and build upon those early successes. And then you're far more likely to get the momentum that you need to not only put your program in place, but to actually keep it in place, and then to be able to prove it, to be able to verify and validate that you're doing what you said you were going to do.

David Colvin:Yeah, I can empathize with the amount of information coming at companies. Pamela and I get emails every day with a listing of all the articles that have been published on ESG over the last 24 hours. And frankly, the rest of my life to read all those articles, I still wouldn't get through them. So it's a lot, and it's certainly a lot for companies that are trying to get their arms around it and trying to manage the potential expense up against the benefit that might not be realized for some period of time. So, Pamela, Lisë talked about boards and owners and investors a little bit, what are some possible ESG legal considerations that are important to employees from your perspective?

Pamela Grinter:Sure. So first, Lisë, I just want to say that I thought that was really helpful, the way you talked about how and why and how to get started, because I think that's a difficult starting place for people. But I also, similar to your approach, really like to start with what companies are already doing right or what they're already doing well. I love the idea of starting with their existing success and building on that. So I think that's a really valuable theme to just continue to focus on. With regard to employees, when a company decides to start in the material ESG analysis, I think that employees really are absolutely key stakeholders that need to be involved in that process. The employees really should be able to advise on the company's material ESG initiatives under all three of the ESG pillars. Since they're working in the business, they should be experts on the impact of ESG issues in their day to day work. So they're key stakeholders and need to be involved in the entire process.

But in a more targeted way, employees also have valid information to provide on the human capital component of the social pillar. So remembering back to the slide, there's the social, and under the social pillar, there's human capital. And as David said, correctly, healthy, happy, loyal, experienced workers are key to having a sustainable business. And the sustainable business is really a big part of the overall goal of ESG initiatives. So under the social pillar, we have human capital. Within human capital, there can be a number of subcategories. We saw a few on the slide earlier. And so just thinking about some of those slides, we can come to some questions that companies can ask themselves about where they are and where they would like to go in protecting their human capital and the sustainability of their business.

So one, health and safety. Some questions to consider. Does the company's working conditions show respect for employee health and safety? Is it a safe work environment? Do they have sufficient safety protocols? And not just what is legally required, but what is really and truly best for the employees in that workplace. Does the company meet and exceed federal and state safety standards in their workplace? But similarly, does the company provide a robust health insurance? Do they provide paid time off and other benefits that really support employee wellness? I read a quote recently from a company that said, "We want to sure our employees are using our PTO or our sick time, because we want to know for sure that they're taking the time to be well, they're not coming in when they're sick because they come in and make other people sick or they can't do their job." So do you have robust health plans and other programs, but also are your employees using those plans and programs?

Another subcategory is labor management. And I think of this more than just the union or non-union way, but the workforce generally. Does the company pay a fair wage? Do employees receive regular feedback? How are they doing? And what can they do to improve? Is there a path for those employees within the company? Are they hired and they going to be stuck in one job or do they see a way to work through the company and improve their skills and move up? Do employee views on ESG matters align with the company's goals? If there's alignment between an employee's views and efforts and the company's, then all working together towards the same end. Does the company provide HR programs that support an organizational climate towards sustainability? Are there subsidies for public transportation? I know in Seattle, for example, that I think it's generally required. Are there facilities for biking to work? Is there time off for nonprofit volunteer activities? Some of the things David mentioned earlier. So do you really encourage your employees to move towards the same mission?

And then human capital management. Does the company have regular training programs that allows employees to build their skills in the business or outside the business, because it improves them generally? Does the company cross train employees on other jobs within the same group? We know that's beneficial to the employer and the employee. Are employees rewarded for helping the company meet its ESG goals? Does the company provide training for employees on the knowledge and skills that are needed to help the company achieve its ESG goals? So wrapping employee development in with the company goals.

And then of course, supply chain labor standards. Does the company require that their supply chain act ethically and to the same standards that the company has run? So these are a few of the issues that a company should consider with regard to employees. Employees really are key to the ESG materiality analysis and goal setting, because they're valuable stakeholders, but they're also key to the operation of a sustainable business. So providing supports to the company's human capital will have a positive impact on the company's sustainability.

David Colvin:Yeah. And Pamela in terms of the wellness aspects of what you were talking about, I also think one area we're likely to see an increase in or I should say at least increased attention to is mental health. And I don't just mean like that the company provides a 1-800 number for someone to call if they're having mental health issues or are feeling like they need to reach out, I mean are they fostering an environment that creates a healthy mental environment for folks to work in where it's not a 24/7 type of atmosphere and where they feel like their mental health is respected as much as their physical health has been traditionally? And I think there was a lawsuit recently filed in Europe related to a trader who felt as if the pressures of that job and the treatment that trader received during that job or as part of doing that job had a negative of impact on his mental health. And that's a lawsuit that I think we're going to start seeing more of as time moves forward and that mental health becomes more prevalent, and frankly, better appreciated and better managed by companies.

Charles, let me turn to you if I can, my friend. In addition to the legal considerations that Pamela was discussing, I know there are many number of standards and frameworks for companies to benchmark against and try to meet. It's a bit of an alphabet soup of various organizations. Can you talk a little bit about those? And is one better than any other? And if I'm a company out there trying to figure out, okay, what do I need to do, how do I figure out which one to use, essentially?

1. Charles Waring: Sure. Thanks, David. And this is really one of the areas that is the murky part of ESG. Developing the initiatives and putting in place a program is one thing. But because of the variety of frameworks, there is no set of officially blessed or required set of standards right now. This is the part that really is making it too difficult for companies to really capture and report fully on all the efforts that they're undertaking. I'd first say that there isn't one that's better than the other. However, I'd say there are certain ones that are maybe more applicable to a company's ESG strategy and approach. So I'll just touch on a few of these here. Again, could spend the entire afternoon talking about these in detail.

But so SASB is one that I think many of the folks on the line might have heard about. This one would be for a company that really is trying to focus on the key metrics in their industry, which are closely tied to financial performance from environmental, social or governance side. The SASB has broken down their framework into 77 different industries. So I think that most of the companies and clients that we've been working with do identify with one. Sometimes based upon your business approach, you might have to loop in a second or third one, if you're crossing multiple business units there or business types. But each of one of those subsets there — They typically have about 10 to 15 metrics or elements that are to be captured and considered for disclosing.

GRI. Now, this one currently is a framework, is organized by topics. So this is the slide that David, you first went through. Aligns to many of those areas there that are called out across the environmental, social and governance side. The GRI has 40 plus topics. And again, each one of these typically have one to five different detail reporting elements there that would be captured. Now, I say that this is the current GRI framework, because starting next week, they're rolling out a big announcement on refresh. And then that's another thing with the ESG reporting space. It's very evolving a lot of moving parts here which doesn't make anything easier, but it moves in the right direction.

The last one I would touch upon is CDP. This is one that is really focused more on environmental and in emissions and energy space. It's a comprehensive checklist, which is really supposed to be completed and submitted on an annual basis to the CDP program. And it is a very detailed and cumbersome submission, over 200 pages of questions there. So those are the three larger ones that we typically are encountering. There are other ones from an industry segment that some industry groups have developed and proposed for members in their industry to consider, such as the oil and gas. But when you're going through, there should be consideration on what best fits your practice. Now, as far as which ones that a company should consider for using, I break it down to four areas there. So I first say, again, stepping back, what is the objective of our assessment or reporting? Are we receiving a question or request from a certain stakeholder, an investor, a board member? What's the prompting of our assessment and reporting process?

The other one I would say is that what is our overall strategy and approach? Are we looking to define ourselves or distinguish ourselves more in environmental space, the social space, a subcategory there? But what's our overall ESG strategy, because our reporting should align to that overall program. The third piece I'd say is what are the other peers or competitors or even the industry leaders within our industry segment, what are they reporting on disclosing against? So those ones could also help influence what you might want to consider.

And I guess, the fourth piece here Pamela had talked about and I think Lisë mentioned as well, the materiality assessment. That's really the starting point in the overall both in your strategy, but also in the reporting side here. And so if those first three parts haven't identified anything of that we want to specifically call out, what is being called out is the key areas in the materiality assessment, and which frameworks really align to some of those key areas that we want to consider. So that's how we walk it through with our clients as far as what's the process for consideration of the frameworks and as part of the assessment process.

David Colvin:Yeah, that's super helpful, because the frameworks themselves are Byzantine in many ways and difficult to get your arms around. So what do you say, Charles, to a company that hasn't been asked about ESG or they haven't prepared a report? Does any of this apply to them? Should they be thinking about it? And what do you tell clients who have not yet dipped their toe into the ESG pool or at least have it on their mind?

Charles Waring: Right. So I'd say that the short answer is if a company or a client hasn't heard about or been requested to do this, it's just a matter of time. I think that sometimes you might have something on your website that represents or talks about your environmental programs, your community engagement, and that might be sufficient for time being, but what we're seeing is that the stakeholders are increasingly asking for more data behind that, what's substantiating that and having those concrete details to back up to your public positions. The few things I'd remind companies to consider is do you sell products or provide services to larger public companies, because these companies are likely undergoing their own ESG initiatives and assessment. And one of the big components of that is what's in the value chain or supply chain.

So if you're providing services or selling to larger companies, it's just a matter of time before they're going to start to ask what you're doing about these programs as well, as well as do you have any public positions on saying we're environmentally focused or socially conscious. And again, what's the data and the support to back that up? Other things would be from a standpoint of, I think that Lisë has mentioned, that are you seeking or have private equity or are you looking to public offering? Again, investors are really keen into this, and they're really demanding that companies have a strong ESG posture when they're placing those investment dollars. Are you getting discussions at the board level or also are your competitors doing this?

Those are the things that are on the radar that it might not necessarily be, hey, I haven't gotten the request for an ESG report, but it's likely looming. And really it comes down to, do you want to wait for that request to come or do you want to get ahead of that? Because if you're being proactive, especially if this is really new to the organization you can identify those gaps or those areas for enhancement that you want to tackle before that third party request comes.

David Colvin:Yeah. And Pamela, I think that Charles's discussion there provides a pretty good segue into the role that the board can play when it comes to assessments and reporting, and essentially leading on risk management when it comes to ESG. Can you talk a little bit about that from your experience and perspective?

Pamela Grinter:Definitely. Obviously, the board of directors is a critical element in the company's oversight of ESG issues. In performing the ESG materiality analysis, the board needs to work with management and be engaged together, engaged with each other and the other relevant stakeholders like employees, which we've talked about, to assess the risks and opportunities for the business. Management certainly can develop and present to the board for the board's review and for input from the board. But the board's input and direction is critically important. Then when the company is setting targets for improvement, the board would work with management in adopting a strategic plan that identifies the material ESG risks and opportunities would set the targets for improvement, a plan for making improvements and then the process for assessing improvement.

So the board's participation is really critical from beginning to end of the process. The board really needs to be a leader in the material ESG analysis from a strategic standpoint. But also the G in ESG stands for governance. The term governance can mean a wide range of things, including management issues and board governance. If we take a step back for a minute to basic corporate law, the board of directors of the corporation has the obligation to oversee the business of the company. State corporate laws provide that all corporate powers are exercised by or under the authority of the board. And the company's business and affairs are managed by or under the direction of the board and subject to the board's oversight. So the board's responsibility is to oversee the management of the corporation, the basic fiduciary duties established by state corporate law.

The board then selects the top management, appoints the officers. The board also has responsibility for succession planning and strategic planning and guidance. So in other words, the management team, is responsible for maximizing the long term value of the company, but subject to the strategic plan and the oversight of the board of directors. In the ESG context, as we've already talked about, the word value means a lot more than just monetary value, but overall company value. And to me, this is the critical component of ESG. And what's so exciting about this movement, I learned in law school over 30 years ago that corporations are required be managed to maximize shareholder value. And this is exciting to me that it's not just monetary value, but it's the bigger picture. And that a company's good citizenship contributes to the company's value as well. To me, this is the most exciting part of ESG.

So once the company has identified key ESG issues, of course, the board of directors works with management to examine the company's performance on the metrics that they've decided are important. And then the board will help shape the company's strategy. So the board helps identify the issues, helps shape the strategy, monitors the organizational results compared to the plan, and then making sure that the results are reported with integrity. And so as a part of all of that, the board needs to make ESG a regular topic of discussion at board meetings. The board needs to be talking about this on a regular basis. And because of the board's obligations with regard to strategy, some things to think about are, are the ESG risks and opportunities integrated into the company's long term strategy? Are the operations organized in a way to maximize the ability to exercise on that strategy? And how does the company measure and monitor their progress against the milestones and goals set as a part of that strategy? So all of those things can be regularly reviewed and discussed by the board at regular meetings.

If we think back to our one slide, under the governance pillar, there is the category for corporate governance. And so within corporate governance, we need to consider board diversity, all types of diversity, racial, gender, skillset. A broad based skillset is critical to a good board's operation. Executive pay. Is it reasonable? Is it defensible? Is it deductible? Ownership. How does the ownership impact the business? Accounting controls. Are there adequate accounting controls in place? Is there adequate supervision? Are you in compliance with GAAP or whatever other standards apply to this business?

Also, under the governance pillar is corporate behavior. Some issues to consider with corporate behavior are business ethics generally. Is the business ethical? Are its ethical standards visible? Can we see their standards in their operations? Anti-competitive practices. We want business to be competitive, but not anti-competitive. Corruption. Are the policies and procedures in place to ensure there's no bribery or corrupt activities? Is the financial system stable? Is there transparency on the tax reporting and payment? So overall, the board really does play a critical and key role in the original materiality analysis, but the implementation and the reporting of the progress as well.

David Colvin:That's super helpful. And thank you for that, Pamela. Lisë, just picking up on the role of the board, when it comes to despite best intentions, the board can deploy a marketing strategy around ESG, that my guess is from time to time isn't successful. So can you give us some examples and maybe some lessons learned about what's worked and what hasn't worked when it comes to those types of marketing efforts?

Lisë Stewart:Sure. Actually, I think, David, this is going to become an even more important topic, because now that everybody knows how vital it is to be doing something that's either environmentally friendly or that you're a really good employer, everybody and his pet dog is jumping on this wagon and trying to be able to have a little piece of this, and sometimes it's going to backfire. So whether the directive comes from the board or from your marketing department or wherever in the organization, we have to really be careful that if you say you are doing it, if you say it's important, make sure that you're really following through, because if you are not, it will come out eventually.

It is interesting, a month or two ago, I met with a very large, it's a privately held company, but it's large and well known. And I was meeting with a number of their senior executives. We were going to be talking about strategy and growth. I did my homework, I looked all through their website and got some information on the company. And ESG was plastered everywhere on that website. It talked about how they had solid ESG policies and principles, and that they cared about the environment, they really cared about their employees. Lots of really lovely language. And so when I got into the meeting, I asked these senior executives, so tell me about your ESG program. It just sounds so exciting and so engaging. And they looked at me and they looked at each other and they had no idea what I was talking about. And so obviously somebody in the marketing department or someone had really put together something that was slick, it was compelling and it was untruthful. It was just spin. Great spin.

So I think that this can do so much to damage the reputation of the company. So not only does it damage the reputation of the company potentially with its own internal employees, but also with consumers and with investors. Again, we do a lot of work with employees and companies. And we often hear the story that management says one thing but does something else. And of course, you hear these stories all the time. Go take a look at Glassdoor, make sure that you're tracking what is where and what's being said on social media about your company. We also know that there's almost —  Sometimes I've referred as a vigilante consumer groups, that they're going to be looking into this. If the environment's important, if supply chain, if the treatment of local communities, in fact, global communities is important to you. You might take the time to really do your homework about a company. And if they're claiming to make sure that there is no policies or they're protecting the rights of their employees, but in the supply chain, that's not how it's working, it will come to light.

So be very careful about this whole area of green-washing. That's why I think it important that companies start out with focusing on the things that they are doing well, that they can truly measure and monitor and build that story. So when we talk about brand management, we talk about learning how to really tell your story in a way that's both convincing and compelling for other people to read and then make sure that you can back it up every step of the way. And that's, again, when I think the growing interest in these standards and using these standards is going to become truly a useful guidebook for many of our businesses to use.

David Colvin:So we have a question which I'll throw out to you guys. Whoever would like to answer it, jump on in. So I had mentioned mental health as becoming I think probably a more prevalent and getting more attention in terms of what matters to employees when they're in the workplace and how they're treated frankly in the workplace. And so we've been asked to expand more perhaps if possible on where mental health stands in ESG and the challenges within the metrics that mental health may play. I don't know if anybody has a thought on that.

Lisë Stewart:I know this may build on some of the things that Pamela was talking about, about HR policies and making sure that you are thinking about that. Interestingly enough, I just got off the phone this morning with a company that was asking those very same questions. One of the issues was that so many of their employees are saying that they don't want to come to back to work, they have found working from home is better for their families, it's better for their mental, emotional and physical health all together. And so what do companies start to do about that? So under the ESG framework, and really, if we look back to just the basic tenets of good corporate social responsibility is to try to create workplaces where people can bring their very best and to make sure that they've got the support and access to information that we're paying attention to things such as wellness programs, internal support, mentoring, coaching, some pathway to success, so there's some career development and so on.

Today, I think too we're finding more employers are really marketing their ability to look after the mental, physical, emotional health of their employees as really a way to attract top talent. So you'll find more companies today are hiring a position called a chief people officer, someone whose key role is to really look after the needs of the employees and creating an environment where people can thrive. And now, many of those behaviors are becoming enshrined in policy and in practices, particularly for our HR department. So I don't, Pamela, if you want to add more to that, but I would say this is definitely a broad trend and people are starting ask questions about what are some of the things that you're doing to protect your people.

Pamela Grinter:Yeah, I definitely agree with you, Lisë. And I think that key is your last point and that is that in this environment, companies need to attract and retain top talent. And in order to do that, you've got to have policies and procedures and benefits in place to be attractive. And employee physical and mental health and emotional wellbeing are all critical components to that.

Charles Waring: David, can I just chime in as well. So specifically as it relates to the metrics or maybe the frameworks, especially the ones that I talked about out earlier, the focus on health in the GRI frameworks doesn't necessarily speak to mental health. It's much more like the physical health and instances that would occur at a manufacturer. But this is definitely a topic that I wouldn't be surprised if there's things that are rolled out in the future frameworks, because it's obviously an area that is critical to employers. And I think that, David, you referenced the lawsuit case, and I think that it's definitely going to be something that we'll expect to see in some of the future updates to the metrics and frameworks.

David Colvin:Yeah. So do you guys mind if I ask myself a question? So I just wanted to talk for a minute about litigation trends. I see we're coming up eight minutes on the hour. So just to provide folks with some litigation trends related to ESG, and then to just touch base and to reference green-washing, which Lisë's already foreshadowed. So with the explosion of publicly available information, particularly around ESG issues, ESG litigation is certainly and definitely on the rise. Enterprising lawyers are harvesting every statement that's made by a company, whether it's a regulatory filing or whether it's on their website or in their product labeling and packaging, wherever you might find it. And they're leveraging that to manufacture and file claims based on whatever the representations are.

Cases are typically falling within three buckets. So the first bucket being consumer claims that are being filed under one or more state consumer protection laws. The second bucket being shareholder claims being filed under federal and state securities laws. And then the third bucket being government and regulatory action. So, with respect to the consumer claims, they typically arise basically from— There's three flavors, I guess I would put it, of consumer claims. So first is the more obvious, which is, hey, the statements that you made on your labeling and packaging aren't true. For example, you said that your product is 100% recyclable and it's not. So that's one kind. Or you said that your product is biodegradable and it's not. And these all come from true cases.

Another flavor is what the packaging and the labeling doesn't say. So a claim for omission from product labeling and packaging. So for example, you didn't tell me on the product I bought that it was manufactured using child labor. And I would not have bought your product had I known that you utilized child labor in the production of your goods. Or you didn't tell me that, that good was manufactured, and then part of the process animals were mistreated. And had I known that I would never have bought your product. So that's another flavor of consumer claim.

And then the last bucket, which is more of a catchall is that folks are combing through statements made by companies, whether it's on their website and social media. So any statement that's questionable or pushes the line or pushes the boundaries, you can be sure that lawyers are going to find a way to manufacture a claim. So how can you minimize the risk of a consumer claim. We can't ever say we're going to eliminate them. After all, I would've nothing to do if we eliminated all consumer claims. But we could certainly try to take steps to minimize the risk. So to Lisë's point before, be truthful. Most of this is common sense folks. But be truthful in what you say. If your product is only 95% recyclable, don't think you can get away with saying it's 100% recyclable, because that's a material misstatement potentially and someone will figure it out and you will be sued.

Be concise. Don't overstate, don't embellish when you're making claims about your goods, your services or the impact your company has on the environment. So avoid embellishing. And as Lisë said, as well be prepared to back up the statements that you make with demonstrable evidence that is verifiable. So if you are going to make a net zero carbon pledge that your company's going to be net zero by say 2040, that's terrific. That's terrific. But the real question is, so what are you going to do between now and then to actually put that in place? What policies do you have that will enable you to then measure your compliance, validate your compliance, and then report on it? If you don't have that second, third and fourth step, your net zero carbon pledge is aspirational. And as positive as it is, is going to land you on the other side of a lawsuit. So it's very important with all these types of claims that whatever you say, whatever you're writing about, whatever you're representing, that you can demonstrate that it's truthful and that it's verifiable, and if necessary, you can report.

So regarding government and enforcement actions in March of this year, the SEC announced that it impaneled what they're calling a climate and ESG related enforcement task force. And what that task force has been charged to do is to look at companies public filings and identify any material in the statements as it relates to climate or material gaps in the reporting and the disclosures that are being filed. Enforcement actions are underway. It's only been six months. You can expect that as the task force continues to grow so will the number of enforcement actions that the SEC takes. And by year end, we expect that the SEC will announce new rules on disclosures related to climate. That's where it's focusing its energies right now. We expect, and it probably will be the case, that those new disclosure rules will be incredibly burdensome, incredibly onerous on companies and will also be really voluminous in terms of the amount of disclosure that's required.

So again, back to the theory and the theme that the more information you put out there, the more likely you are to get yourself potentially in trouble. If you don't follow the rules of the road, you can expect that there will be an avalanche of litigation at least from the shareholder side and from the regulatory side when the SEC announces those new rules and they go into effect. We have two minutes, so I'm just going to touch green-washing and the concept of that, really, really quickly. And again, my good friend, Lisë, alluded to this. Companies are under a tremendous amount of pressure to differentiate themselves in the market and to keep up with the Joneses in terms of what everybody's doing. Everyone feels like they have to say something. Every day, we're seeing a new sustainability pledge or net zero carbon pledge or whatever the case may be. And sometimes companies are leaping before they've really thought it through.

So green-washing essentially, is the practice of making environmental claims regarding your product or service that are either false, misleading or just simply incomplete. And also, you may refer to it as green sheen, which I like compared to green-washing. But the number of claims is increasing dramatically and with good reason, because everybody's out there publishing stuff about what they're doing with regard to their impact on the environment. So again, how do you reduce the risk of being hit with a claim for green-washing? Be truthful, be truthful, be truthful, be truthful, but clearly define the environmental claim you're making so that you can avoid consumer confusion when they're looking at it on their end.

Don't make claims that whatever your environmental claim has been independently verified by some XYZ company, if you haven't, in fact, had your claim verified by XYZ company. You'd be shocked at the number of companies that are saying that they're 100% recyclable and it's been verified and validated and it's not true. It sounds good, it's slick, but it's not true. So don't make those claims if they don't, in fact, exist. And if I didn't say, be truthful, be truthful. I see that it is two o'clock. So I think that about does it. Do any of you have any final parting words of wisdom for our friends across the country?

Lisë Stewart:I just want to say thank you, because this is such an important topic. And I'm really pleased that we have the platform to address it. So thanks for the moderation there, David.

David Colvin:Absolutely. Yeah, let me just thank again, everybody, for being part of this. It was a pleasure for us to be able to work with the folks at EisnerAmper and hopefully, have the opportunity again. We will be doing more webinars and look forward to seeing you on the internet or hopefully in person, wherever that may be in the future. So thank you all for being here and have a good rest of your day.

Pamela Grinter:Thank you.

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