Friday, April 22, 2022 was recognized by the United States and other countries. With “Invest in Our Planet” as its theme, Earth Day 2022 focused additional attention on Environmental, Social, and Governance (ESG) as an important metric for evaluating activities that may impact human health or the environment. This is the third and final alert in a series of publications by Bradley’s Environmental Law team in recognition of Earth Day 2022. You can find the First articleWe looked back at Earth Day’s more than 50-year history and the progress made in addressing environmental problems in the U.S. The following is the Second article, we discussed the birth of the ESG metric and the current status of various efforts to standardize the way ESG issues are measured, including the Securities and Exchange Commission’s proposed rule governing ESG disclosures. This article offers practical guidance on how to create or refine an ESG program.
Step 1: Leadership Buy-In
Before an entity considers or adopts an ESG policy, it is important that the entity is committed to the process and that any policy has the support of the entity’s leadership and workforce. Without this commitment, the entity could lose credibility with stakeholders such as regulators, investors and customers. It is crucial to create a process that guarantees entity-wide support for and participation in ESG policy.
Step 2: The Ten Principles
Any ESG program or guideline should start with a review of the Ten Principles of the Global Compact. These principles are fundamental responsibilities in areas such as human rights, labor and environment, and anti-corruption. Universal Declaration of Human RightsThe International Labor Organization’s Declaration on Fundamental Principles and Rights at WorkThe Rio Declaration on Environment and Development, and United Nations Convention Against Corruption. The principles are generally applicable and not controversial, but the impact and application of each principle to an organization can vary. For example, eighth principle requires businesses to “undertake initiatives to promote greater environmental responsibility.” For some businesses the application of this principle may involve simply providing recycling containers for the use of their employees and customers; for other businesses, this may involve eliminating a product line or practice that impacts the environment or depletes natural resources.
Step 3: Reexamine the Sustainable Development Goals
In 2015, the United Nations agreed to a plan called “Agenda 2030.” Seventeen Sustainable Development Goals (SDGs) were established as part of the Agenda 2030 plan. There are a variety of aspirational goals, such as no poverty or zero hunger, and others that are more specific (e.g. affordable and clean energy, climate action). After an entity’s review and evaluation of the Ten Principles, the next step should be to review the SDGs and decide how the entity could adopt programs, policies or procedures that may contribute towards a particular SDG. Even if an entity decides that one or more SDGs do not apply to their business, it is possible that each entity could find programs or projects that match one of the SDGs.
While it is impossible for one entity to eradicate poverty worldwide (SDG 1), there may be programs that an entity could partner with to achieve that SDG. A business entity might not be able to end hunger (SDG 2), but it could partner with food banks and other organizations to achieve that goal. A business entity that wants to establish an ESG policy would evaluate each SDG, and ask the following questions.
- Is this a reasonable goal for the communities where we do business?
- If yes, are there any actions we can take to address that goal? Are there organizations we can partner in our communities with to help achieve that goal?
- How can we assess the effectiveness of actions/partnerships identified as b?
Effective ESG policies are based on identifying the goals of an entity, the actions it will take to achieve them, and a method to measure their impact.
