Key Aspects of ESG: Hot topics series I

If most significant legal initiatives of 2022 could be described in one word, "ESG" would most likely come to mind. Although "ESG" (Environmental, Social, and Governance) is currently a hot topic, the perception is that the practice is still very much out of touch with practical reality. Many people talk about ESG and its importance, but few know what the acronym actually means in terms of putting it into practice. The general perception is that ESG is just a new term to refer to the already established concepts of sustainability and inclusion practices, while, in fact, its application goes far beyond that.

Looking forward to covering this topic with the full importance and depth it deserves, we will launch a series of client alerts during the month of October as part of the Responsible Business month at Hogan Lovells, focusing on the main aspects of ESG in a comprehensive yet practical manner. We will cover the following themes: (i) Building ESG Practices in Companies: Trends and Perspectives; (ii) Positive Governance, Social and Environmental Agenda in Companies; and (iii) ESG and Business Integrity - The Importance of Communicating Practices Correctly (Greenwashing, Pinkwashing, Socialwashing, and Rainbow-washing). In addition, on November 10, 2022, Hogan Lovells São Paulo will be hosting an ESG-related event in partnership with the Brazilian local counsel Pinheiro Neto Advogados law firm.  Details of that event will be made available in the coming weeks.

General overview

Although the term ESG has only gained traction in recent years, it is worth noting that its origin dates back to 2006, when it was referenced in the 2006 United Nations Principles for Responsible Investment report, reflecting a global effort to develop sustainable investments. From that point on, incorporating ESG standards has been a key element considered by the UN in evaluating projects and initiatives.  As a result of the increasing importance that ESG would acquire in the following years, 63 investment firms having trillions of U.S. dollars in assets signed the report and committed to incorporate sustainability criteria and indicators into their operations.

Together with rising environmental and sustainability concerns, we have also witnessed the expansion of corporate transparency requirements, led by laws such as the Sarbanes-Oxley Act (2002) and the enactment of anti-corruption legislation in several countries, such as the UK Bribery Act (2010) and the Brazilian Anticorruption Law (2013).

As such, although ESG is a new acronym, it reflects practices that have been evolving and being implemented over a period of several years. Despite consolidating activities and concerns that were already being incorporated into laws, regulations and corporate practices, ESG measures aim to tackle issues that were previously handled either on the sidelines or simply by an instrumental manner, such as inclusion, diversity, and corporate governance, with a joint, synchronized approach, generating added corporate value, effectiveness, and transparency, bringing to those issues additional corporate value, effectiveness, and transparency.

From 2020 onwards, there has been an increasing and exponential effort concerning local and global regulations seeking to address the topic. Regulators became concerned that ESG was more than just a matter of applying sparse laws and practices and have since included and formalized ESG obligations for companies, as evidenced in the rules of the Global Reporting Initiative published by the Global Sustainability Standards Board in 2016 and also in recent regulatory initiatives regarding certain obligations and ESG related disclosure, such as those introduced by the International Sustainability Standards Board, by the U. S. Securities and Exchange Commission, by the Corporate Sustainability Reporting Directive in the European Union, and by B3 (the Brazilian stock exchange). These are a few examples of the constantly evolving ESG regulatory framework.

Considering the complexity of navigating through this new regulatory and legislative environment, we will address, in the next alert of our series, the development of ESG practices in companies, with a focus on trends and perspectives.

Learn more:

• We have launched the Hogan Lovells ESG Academy, a video and podcast series that breaks down key issues behind critical ESG topics that impact every organization. In brief 10-15-minute episodes, our lawyers from across geographies, sectors, and practices deliver concise content that empowers in-house counsel to understand and communicate key legal and commercial issues. We’ve opened with a 15-minute high-level overview of the forces shaping ESG issues and how organizations can productively think about them -- and then we’ll be following up every few weeks with a series of podcasts that present a deeper dive into these issues. Visit hoganlovells.com/esgacademy to obtain full details of topics covered, but they range from energy transition to sustainable finance and far beyond. Let me know if you’d like to be added to the distribution list, or you can find them at hoganlovells.com/esgacademy or the Apple or Android podcast stores.
• We’ve also created ESG Global Vision, an interactive online guide to ESG laws and regulations around the world. We’re continually adding and refreshing content, but there is quite a bit there for you to reference already.
• This has been live at hoganlovells.com/esg for a while and has been very well-received by clients: our attached guide to key ESG trends and how businesses can prepare to respond to the rapidly increasing demands for stronger ESG performance from consumers, investors, and regulators.

Authored by Isabel Costa Carvalho, David Tyler, Ana Laura Pongeluppi, Cintia Rosa, Mariana Matos and Lizandra Baptista.