Investors are increasingly considering environmental, social and governance (ESG) factors when assessing risk and growth opportunities in public companies. As a result, companies have a growing need for legal and policy expertise to help them navigate emerging ESG disclosure rules in the United States and abroad, integrate best practices across their operations and achieve their own ESG-related business goals.
To meet the growing demand for comprehensive guidance on ESG issues, McGuireWoods recently formed a task force that leverages the considerable experience and insight of the law firm and McGuireWoods Consulting to help clients adapt to these challenges. The services are not new, but the ESG task force pulls together the firm’s diverse capabilities and wide-ranging experience to make them more accessible to clients and prospects.
The ESG movement began with a focus on environmental issues and climate impact but it has evolved to cover a range of corporate activity — from internal issues such as labor practices, talent management and data security, to governance matters such as board and management diversity, executive pay and business ethics.
“This is going to impact everything,” said Washington, D.C., partner Allison Wood, a nationally recognized climate expert who has represented clients in precedent-setting environmental cases before the U.S. Supreme Court. She chairs the firm’s five-person executive committee leading the ESG task force.
The initiative builds on the firm’s long track record of collaborating across practices to deliver solutions for clients and create new business opportunities. The firm took a similar approach in 2020 when it formed a cross-practice response team to help clients through the business and legal issues arising from the COVID-19 pandemic. While ESG practice groups are proliferating across the legal industry, McGuireWoods is not jumping on a trendy bandwagon.
“We have the bench strength, we have the actual experts and we need to leverage them in whatever team they are on in the firm,” said London partner Marc Naidoo, a member of the task force executive committee. “Every client is on a different journey and in a different spot on the ESG spectrum. We want to be sure we can offer them guidance throughout that journey and that is how you cross-sell practices in a firm, by all working together.”
Wood joined McGuireWoods in 2020 and quickly discovered that the firm “is very well positioned in this space.”
“While the idea of ESG is a new one and has gotten a lot of attention lately, it really is an evolution of many ideas that have been ongoing in areas in which the firm can take off,” Wood said. “This is the type of work we have already been doing for our clients for a long time.”
What is new, Wood said, is the Biden administration’s “whole of government” approach to combating climate change, which filters through virtually every federal agency and touches every industry those agencies regulate.
“In the more than 20 years I have been practicing in environmental law, I have never seen an environmental law issue have this kind of prominence,” she said. “Every agency is going to be looking at how they can address climate change and what they can do to reduce the United States’ carbon emissions.”
Joining Wood and Naidoo on the task force’s executive committee are Richmond securities partner Katie DeLuca, who handles corporate governance, Securities and Exchange Commission disclosure requirements and board diversity; D.C. partner Lizzie Hogan, who covers government investigations and enforcement and ESG litigation trends; and Pittsburgh partner Penny Zacharias, who focuses on sustainable finance and ESG trends for the financial services industry in the United States.
DeLuca said companies increasingly are publishing sustainability reports, disclosing diversity and inclusion initiatives on their websites or making public statements about social justice topics. Many are setting ambitious goals to reduce carbon emissions and improve diversity and implementing other ESG-related goals. But public companies must be careful when casting those goals as critical to their operations, their growth strategies and their financial results.
“Once a public company characterizes these goals in that context — if they are public companies subject to securities laws — they need to consider how these goals and initiatives are now covered in their SEC filings,” DeLuca said.
In addition, financial institutions are using instruments such as sustainability-linked loans, socially responsible loans and bonds, and “green” loans and bonds to demonstrate their commitment to environmental and social responsibility, Zacharias said.
“Some have precise metrics, some are loosely organized, but a lot of banks are using these structures that emphasize their overall commitment to being in this space in a meaningful way,” Zacharias added.
President Joe Biden signed an executive order in May 2021 directing federal agencies to begin analyzing and mitigating the risks climate change presents to homeowners, consumers, businesses and workers, as well as to the U.S. financial system and federal government. The SEC’s 2021 examination priorities include a greater focus on risks associated with climate change. The agency is collecting feedback from market participants on the concept of mandatory climate risk and ESG reporting. As the government implements more rigorous disclosure requirements, McGuireWoods’ government investigations and enforcement expertise will be another asset for clients.
“The SEC has an exam that’s focusing on this area right now,” said Hogan, who co-chairs the firm’s securities litigation and enforcement team. “They want to know, if you’re making representations to clients about green investment programs or your sustainable investment program, what standards are you using? How are you evaluating those and how are you describing those evaluations to clients? How are they represented in your marketing materials?”
“I think we’ll see a lot of activity in this space,” said Hogan, who joined McGuireWoods in 2020 after serving as a senior officer at the Financial Industry Regulatory Authority. “It’s going to affect all sorts of clients in different ways.”
That’s why the firm is taking “a very inclusive approach” to provide clients with comprehensive legal and policy guidance as the ESG landscape evolves, Wood explained. “It’s changing a lot and it’s very dynamic.”