Although nearly 80 percent of companies in a new survey have identified and adopted environmental performance goals beyond what regulations require, fewer than half measure their company’s performance against those goals—and in some cases are experiencing challenges implementing them, according to a new survey of top decision-makers by law firm Crowell & Moring.
The new report, ESG Survey: Environmental Performance and the Stakes for Your Business, finds that 44 percent of respondents say their organizations are measuring their carbon footprint, and 13 percent are measuring their environmental impact on ethnically and racially diverse communities on an ongoing basis. Both are likely to be key areas of focus of the current U.S. administration’s regulatory and enforcement activities.
The potential gap between setting environmental performance goals and measuring progress against them may not only hinder a company’s efforts, but can expose a company to increased risks from a rising tide of regulatory enforcement and litigation from advocacy groups, consumers, and investors. And given the intensifying competitive pressure to advance effective ESG programs, such a gap may also cause companies to fall behind their industry peers.
“Pressure to improve ESG performance could soon reach a fever pitch. Businesses are increasingly expected to measure, improve, and disclose their ESG performance to investors, to consumers, and to regulators. Their efforts are reaching into every area of their operations, as are the risks and opportunities that follow,” said Thomas A. Lorenzen, co-chair of Crowell & Moring’s Environment & Natural Resources Group and a former assistant chief of the Environmental Defense Section of the U.S. Department of Justice, in a news release.
“Sentiment and the expression of voice from corporate stakeholders, led by employees, consumers, and investors, have changed significantly over the past few years. Companies are recognizing the crossroads before them. They know ESG matters—not just to better equip themselves to comply with the law and mitigate risk—but also to more effectively compete in the global race to attract and retain customers, investors, and top talent,” said Preston L. Pugh, co-lead of Crowell & Moring’s False Claims Act Practice, court-appointed compliance monitor, and former federal prosecutor, in the release. “We created this report to help companies learn from their peers and identify the right practices that can help them prepare for the road ahead.”
Complications surrounding supply chains
As the supply chain crisis persists, companies report they remain focused on ESG concerns for their often-sprawling global supply chains. Nearly 6 in 10 respondents are setting environmental goals for their supply chains. And 3 in 10 respondents are considering the environmental policies and record of a supplier’s host country’s government in decision making.
“As we look ahead to 2022, companies will be exploring how environmental performance impacts the entire value chain—from the smallest vendor to comprehensive advertising strategy. Many companies will be considering proactive environmental initiatives for the first time, monitoring key environmental performance metrics, and sharing their performance with the public using voluntary disclosure frameworks. It’s new terrain, and it comes with distinct risks and opportunities, particularly given the current lack of standardization,” said Elizabeth B. Dawson, a leader of the firm’s global ESG Advisory Team and a former trial attorney in DOJ’s Environmental Defense Section, in the release.
Effect of the Biden-Harris Administration
The survey was fielded in July and August 2021, six months after President Biden took office. Even though the Biden-Harris administration’s regulatory process had just begun, nearly half of respondents (45 percent) said the change had already driven strategic business decisions, with 40 percent saying it has impacted their compliance budget.
Change in Washington is clearly on respondents’ minds. One said their approach to environmental issues over the next three years “depends on the legislative/regulatory environment and that depends on the 2022 midterm elections.”
Other top findings in the report include:
- In-house lawyers less bullish: Nearly 90 percent of ESG and sustainability professionals surveyed said their organizations have identified and adopted environmental performance goals beyond required compliance, compared to 49 percent of in-house counsel.
- Customers drive change: Half of the survey respondents said that brand image and reputation among customers are driving their companies to adopt environmental goals.
- Companies are talking: From advertisements to PR, companies are sharing environmental performance data beyond required disclosures, but in-house legal departments may not always be aware of it.
- A majority of companies do not assess their carbon footprint: Among respondents, 56 percent said their companies do not measure their carbon footprint. Of those that do, less than half measure Scope 3 emissions, which are indirect and often emerge from suppliers.
- Measurement questions persist: Less than half of respondents say their companies are measuring in key areas, such as product recycling, water use, and electronic waste.
- Leadership on board: Most respondents (82 percent) feel their boards of directors are adequately focused on the environment.
The survey includes input from 225 respondents, including in-house counsel and compliance, ESG, and sustainability professionals.