ESG-Related Risk Factors

2 minute read
February.15.2023

Companies should make sure they are considering emerging practices for disclosing environmental-, social-, and governance- (“ESG”) related risk factors, as these disclosures are now a common practice.

Based on our review of companies in the S&P 500, the number of companies with an ESG-related risk factor has increased year-over-year, in the period from 2019 to 2022. Risk factors spanned a range of ESG-related topics, primarily related to climate change, but also including diversity-, other environmental-, or general ESG-related risks. We expect this trend to be followed by small- and mid-cap companies. To see the graph that shows the percentage of the S&P 500 with an ESG-Related Risk Factor in the annual report (by fiscal year), please see this guest post for TheCorporateCounsel.net:
ESG-Related Risk Factors: Nearly All S&P 500 Co’s Now Have Them .
Climate-related risks accounted for most ESG-related risk factors in the S&P 500, with a significant increase in the number of companies reporting climate related risks since 2019.
Most climate-related risk factors were specific to the reporting company’s business. The most common type of climate-related risks reported for fiscal year 2021 were physical risks related to business operations, including potential disruptions in the supply chain due to climate related events and the direct exposure of company assets and operations to more severe hurricanes and wildfires.
In the upcoming years, we expect more disclosures with respect to climate-related legal and regulatory risks, given the SEC’s proposed climate-related disclosure rules, which are expected to be finalized this year, and the European Union’s Corporate Sustainability Reporting Directive, which went into effect this year.
To see the percentage breakdown of the S&P 500 (by industry) with a specific Climate-Related Risk Factor in the annual report (by fiscal year), please see this guest post for TheCorporateCounsel.net:
Categories of Climate-Related Risk Factors: Data By Industry .
In addition to the growing number of ESG-related risk factors, we’ve seen an increase in the number of ESG-related risks specific to the reporting company’s business, rather than “general” or “other” risks. To see examples of specific vs general ESG risk factor and the percent of S&P 500 companies that has specific ESG-related risk factors, please see this guest post for TheCorporateCounsel.net:
ESG-Related Risk Factors: Getting More Specific .
Not every company will have ESG- or climate-related risk factors. But regardless of your industry, if you do not have a process in place to identify material company-specific ESG-related risks, especially climate-related risks, there is a potential that your risk management processes and disclosures will fall behind market practices.

Authors

J. T. Ho Partner, Gouvernance d'entreprise, Capital Markets

San Francisco

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D:+1 415 773 5624
E: [email protected]

Practice:

Gouvernance d'entreprise
Capital Markets
Compensation & Benefits
Environmental, Social & Corporate Governance (ESG)

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J. T. Ho Partner

San Francisco

J.T. counsels companies on Board and committee oversight, assessment and composition issues, developing effective shareholder engagement programs and governance-related disclosures, and helps companies to understand and consider the views of proxy advisors and institutional shareholders and other long-term stakeholders in their decision making. Recently, he has helped many companies successfully address ESG related shareholder proposals and activism campaigns and refine their disclosure controls and procedures and enterprise risk management programs to address cybersecurity and climate risk.

On the securities front, he focuses on advising clients in connection with securities offerings, proxy statements, periodic SEC reports, stock exchange listing obligations, stock repurchases and the sale and reporting of securities by insiders. He regularly counsels companies on difficult disclosure issues and provides training on disclosure best practices.

J.T. also advises on compensation committee matters and related disclosures as well as the design of cash and equity incentive plans, and has helped over a dozen companies remediate failed or low "say on pay" votes.

J.T. plays a leading role in Orrick’s ESG practice, helping companies identify and understand the risks and opportunities associated with ESG and incorporating ESG into a company’s overall business strategy and incentive plans. More recently, he has helped companies navigate the growing anti-ESG movement.

J.T. serves on the advisory board of The Corporate Counsel and hosts J.T.'s Fast Five, a monthly podcast on The Corporate Counsel where J.T. covers the five things public companies ought know each month. J.T. Ho also regularly presents on and contributes articles related to corporate governance, securities, executive compensation and ESG. He has presented at notable conferences sponsored by The Corporate Counsel, the Securities Regulation Institute, The Rock Center for Corporate Governance, the Society for Corporate Governance, the ABA, the Practical Law Institute, Compensation Standards, Practical ESG and NASPP. He is recognized as a Next Generation Partner by Legal 500, as one of the Ones to Watch® Best Lawyers in America, and was named a Rising Star by Super Lawyers in 2018, 2019, 2020, 2021 and 2022.

Carolyn Frantz Senior Counsel

Seattle

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Practice:

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Carolyn Frantz Senior Counsel

Seattle

A former Rhodes Scholar, Carolyn clerked for Supreme Court Justice Sandra Day O’Connor and D.C. Circuit Court of Appeals Judge David S. Tatel, before teaching at the University of Chicago Law School. She was a litigation partner at a major law firm for eight years before joining Microsoft, where she managed the company’s worldwide tax litigation until her appointment as Corporate Secretary.

As Microsoft’s Corporate Secretary, Carolyn had the opportunity to work closely with the company’s Board of Directors and senior leadership, gaining a first-hand understanding of the opportunities and challenges facing technology companies in a dynamic competitive and regulatory environment. As the head of the Corporate Legal Group, Carolyn was responsible for legal issues regarding securities law and disclosures, treasury and finance, international trade, procurement, real estate, and many other issues. Building on her extensive litigation experience, which includes managing tax disputes domestically and abroad, as well as litigating multidistrict products liability, consumer cases, and commercial contract disputes, Carolyn understands the practical challenges companies face and how those intersect with Board reporting, securities disclosures, and internal accountability. She also brings her understanding of board governance, corporate law, and ESG to select litigation matters.

Carolyn is also frequently called on to serve as a resource to new legal leaders in their roles supporting and interacting with their Boards.

Bobby Bee Practice Support Counsel, Capital Markets

New York

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D:+1 212 506 5000
E: [email protected]

Practice:

Capital Markets

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Bobby Bee Practice Support Counsel

New York

Prior to joining Orrick, he was with Lowenstein Sandler LLP from 2015 to 2022, with a practice focusing on public company governance matters and securities law compliance, including reporting and disclosure obligations under the Securities Exchange Act of 1934. He also advised companies regarding capital markets transactions including IPOs, SPACs, follow-on offerings, shelf registrations, and private placements.

Prior to Lowenstein Sandler LLP, Bobby’s experience included positions as a tax senior for Deloitte Tax LLP and a financial statement audit senior for Deloitte & Touche.

Hayden Goudy Director of Environmental Social and Governance and Corporate Governance

Seattle

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D:+1 206 839 4356
E: [email protected]

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Hayden Goudy Director of Environmental Social and Governance and Corporate Governance

Seattle

As the Director of ESG and Corporate Governance at Orrick, Hayden provides non-legal strategic advice to clients on building the right ESG policies and getting to the bottom of their most pressing ESG issues. His area of focus includes the identification and assessment of priority ESG key performance indicators, giving investors, corporates, and other stakeholder insight and clarity into the alphabet soup of ESG. Driven by finding simple solutions to complex research and data problems, Hayden brings a key skill set to the ESG team’s services.

Prior to Orrick, Hayden worked in the Business Intelligence and Investigations practice with Kroll, a global leader in governance, risk and transparency. He was based in their London office, where he founded a taskforce to help clients address ESG issues, including in emerging and frontier markets. He has experience across sectors, including financial institutions, technology, manufacturing, and oil and gas. He has managed teams providing flexible analytical support towards ESG issues, including pre-transaction investigative ESG due diligence and human rights investigations. He has also provided business intelligence research for market entry; counseling on reputational risk, including integrity due diligence and social media assessments; guidance on regulatory and compliance risks; and intelligence and analytical support in litigation and disputes.