Board Oversight in ESG-Evolving Trends in the Era of Increasing Disclosure Requirements

Date01 August 2022
AuthorMargaret E. Peloso and Chloe E. Schmergel
8-2022 ENVIRONMENTAL LAW REPORTER 52 ELR 10637
COMMENT
by Margaret E. Peloso and Chloe E. Schmergel
Margaret E. Peloso is a Partner at Vinson & Elkins, LLP, in Washington, D.C., where she also serves as Lead
Sustainability Partner. Chloe E. Schmergel is an Associate at Vinson & Elkins, LLP, in Houston, Texas.
BOARD OVERSIGHT IN
ESG—EVOLVING TRENDS IN THE ERA
OF INCREASING DISCLOSURE
REQUIREMENTS
In Caremark and ESG, Perfect Together: A Practical
Approach to Implementing an Integrated, Ecient, and
Eective Caremark EESG Strategy, Leo Strine and
co-authors frame a board’s duty of oversight for environ-
mental, social, and governance (ESG) issues in light of
the common-law duties articulated under Caremark.¹ e
landma rk Caremark decision articulated that corporations
and their directors have a duty to implement and monitor
compliance programs to ensure that the company honors
its legal obligations.² However, a number of recent proposed
rules from the U.S. Securities and Exchange Commission
(SEC) signal that ESG in the United States has reached
an inection point—moving from discretionar y actions
to regulatory ones. is Comment uses the SEC’s recent
proposal, e Enhancement and Standardization of Cli-
mate Related Disclosures for Investors (the SEC Climate
Proposa l),³ to examine how the shift to regulatory ESG
may impact the board’s oversight of ESG issues, potentially
rendering Strine et al.’s Caremark framework obsolete.
I. What Is ESG and Why Does It Matter
for Corporate Boards?
ESG is a widely used acronym that stands for the phrase
“environmental, social, and governance.” Over the last few
years, the term has been broadly used to refer to a range
of factors that have traditionally been considered noneco-
nomic risks, but are increasingly recognized to present
potentially material risks to public companies.
1. Leo E. Strine, Jr. et al., Caremark and ESG, Perfect Together: A Practical Ap-
proach to Implementing an Integrated, Ecient, and Eective Caremark EESG
Strategy, 106 I L. R. 1885 (2021).
2. In re Caremark, 698 A.2d 959, 970 (Del. Ch. Sept. 25, 1996).
3. Release No. 33-11042, e Enhancement and Standardization of Climate-
Related Disclosures for Investors, 87 Fed. Reg. 21334 (Apr. 11, 2022) [here-
inafter Proposal].
Increasingly, large investors and proxy advisory services
have promoted heightened ESG-related oversight by cor-
porate boards. In recent years, major institutional investors
and both proxy advisory services (ISS and Glass Lewis)
announced policies articulating their prioritization of cer-
tain ESG matters. Such policies often lead investors to
vote in favor of shareholder proposals or against key direc-
tors where the proxy advisor or institutional investor feels
that a company and its board have not been suciently
attentive to ESG matters. For example, in articulating its
belief that “robust disclosure is essential for investors to
eectively gauge the impact of companies’ business prac-
tices and strategic planning related to [environmental and
social] risks and opportunities,” BlackRock asks compa-
nies to, among other things, demonstrate their approach
to human capital management and disclose their business
plans related to the transition to global net zero. Accord-
ing to BlackRock ’s proxy voting guidelines, if shareholders
propose climate plans aligned with BlackRock’s expecta-
tions, it may then vote in favor of such proposals.
Companies have faced growing pressure from their
shareholders regarding ESG matters in the form of share-
holder proposals, as well. Shareholder proposals regarding
ESG issues have become much more prevalent in recent
years, with 530 environmental and social-related proposals
being led at U.S. companies in 2021, a record amount,
4. See generally BlackRock, BlackRock Investment Stewardship: Proxy Voting
Guidelines for U.S. Securities (Dec. 2021), https://www.blackrock.com/
corporate/literature/fact-sheet/blk-responsible-investment-guidelines-us.
pdf; Cyrus Taraporevala, President & CEO of State Street Global Advi-
sors, CEO’s Letter on Our 2022 Voting Agenda (Jan. 2022), https://www.ssga.
com/us/en/intermediary/ic/insights/ceo-letter-2022-proxy-voting-agenda;
Vanguard Funds, Global Investment Stewardship Principles (Jan. 2022),
https://global.vanguard.com/documents/global-investment-stewardship-
principles.pdf; Glass Lewis, 2022 Policy Guidelines (Jan. 2022), https://
www.glasslewis.com/wp-content/uploads/2021/11/US-Voting-Guidelines-
US-GL-2022.pdf.
5. BlackRock, supra note 3, at 16-18.
6. Id.
Copyright © 2022 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.

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