Philadelphia partner Doug Raymond has written “Weighing ESG Against Directors’ Fiduciary Duty,” published in the 2019 Annual Report edition of Directors & Boards. In considering the role a corporate board should play in promoting environmental, social and governance (ESG) benefits, directors—bearing in mind their fiduciary duties—should “be careful how that discussion is framed, and make sure that the corporate records tie the board’s actions to their assessment of what is in the best interest of the corporation’s owners (or other permitted constituencies).”

The newer corporate framework of the benefit corporation—and the federal version proposed by Sen. Elizabeth Warren in August 2018 in the Accountable Capitalism Act—expand the permitted constituencies to include employees, the environment and the greater society. Some ESG proponents argue that the traditional corporate structure also can incorporate ESG principles “on the basis that if it is good for society, or the planet, it must also be good for the corporation.”

Doug concludes that the “debate is expected to continue over the proper role that corporations should play in promoting and protecting worthy societal objectives such as environmental impacts and social justice. As part of this, important constituencies are advocating for boards to take a more active role in such matters, and embrace the broader mandate of addressing at least some of the problems that we face as a society.” He warns directors, as they “consider how to respond to these advocates, they should realize that their discretion is not without limits.”

Source: Directors & Boards
Leave Drinker Biddle to Learn More