Companies Continue to Focus on Sustainability Despite ESG Backlash

Many companies are continuing to focus on the concept of sustainability but moving away from the term ESG (environmental, social and governance) in the wake of ESG backlash within the investor community, as Allison C. Handy writes in an article on the Perkins Coie website.

The number of anti-ESG shareholder proposals increased significantly in 2024. Meanwhile, federal agencies are ruling in a way that indicates an increasing politicization of ESG. Handy cites the United States Department of Labor’s (DOL)’s evolving stance on ESG factors when considering cases involving investment decisions.

In response, companies are now shifting away from using the term “ESG” and favoring “sustainability” to describe long-term financial and environmental strategies. The decision makes sense as it has always been difficult incorporating the three ESG pillars into a single concept. Each element requires its own strategy and presents its own set of risks and challenges, Handy writes.

There are several legal and regulatory developments on sustainability that demand companies take action. These include:

• US climate disclosure rules: While the US Securities and Exchange Commission’s adopted rules are currently suspended pending litigation, California’s climate disclosure laws (SB 253 and SB 261) will go into effect in 2025.
• European Union sustainability directives: The European Union (EU) Corporate Sustainability Reporting Directive requires the preparation of annual reports, while the Corporate Sustainability Due Diligence requires large companies to address adverse human rights and environmental impacts within their operations and supply chains.
• Forced labor diligence laws: Certain countries and US states have enacted laws mandating that companies conduct and report on due diligence efforts within their supply chains, which affects both large and small companies.
• Cybersecurity governance rules: The Securities and Exchange Commission (SEC) has adopted final rules on cybersecurity risk management, strategy, and governance. Disclosure rules include specifications on the roles of the board and management as they address cybersecurity threats.