What could your ESG risk really cost?

Here’s an excerpt from this article by Sally Curley that ran in “Directors & Boards”:

ESG Predictions for 2024: What Boards Must Know

Several law and advisory firms have recently published predictions about ESG in 2024. I offer some of my own:

• Investor support of ESG proposals will become more selective, based on how prescriptive the proposal, the company’s response, and the proponent’s identity and connections.
• Companies will continue to use ESG, despite the backlash of 2023 and despite political use of the term. Whether you love it or hate it, the term “ESG” is firmly embedded in our lexicon and has meaning to many stakeholders.
• SEC focus on company climate, cyber and human capital disclosures will increase. With a final SEC cyber disclosure rule and draft human capital and climate rules, the SEC enforcement division is posturing to continue stepping-up efforts. Companies and audit committees will do well to review all disclosures, including risk factors, to ensure they are sufficiently, strategically, holistically and accurately painting a picture of the corporate environment across all types of communications.
• The breadth and number of greenwashing claims will continue in 2024. As a result, “greenhushing” — purposely avoiding certain environmental disclosures — will increase as enhanced disclosure risks and related penalties come into play.
• ESG third-party assurance will significantly increase in 2024. Currently, there are more companies than third-party assurers; the SEC will need to further define the term “environmental expert” within its climate disclosure proposal.
• ESG raters/rankers (ERF) will increasingly seek decarbonization plan disclosure. In fact, MSCI and Sustainalytics no longer give full credit for climate reporting. The ERFs are aligned with IFRS 1 and 2 and CSRD reporting in seeking climate mitigation plans regardless of size or industry — everyone is accountable.
• Directors may wish to consider biodiversity and natural capital impact and suggest incorporation into corporate ESG programs and disclosures.
• AI increasingly will be used in ESG statements — by companies to generate disclosure, by ERFs to rate disclosure and by stakeholders for assessment.
• During this election year, cybersecurity breaches, misinformation and disinformation will proliferate. Boards and their companies need to remain hypervigilant.
• Competing for talent will continue to be a focus. Attracting and retaining talent, relative to a company’s ability to address employee needs and wants in today’s sustainability-focused environment, will be increasingly challenging.

Most of these 2024 ESG predictions are grounded to disclosure risks. Therefore, directors need to remain especially vigilant when evaluating ESG initiatives and public commentary.