The environmental, social, governance ("ESG") movement advanced in 2022 in response to various market and boardroom forces supporting the adoption of ESG-conscious policies and practices. Federal and state regulators were active in this space, both offering incentives and taking enforcement actions to steer companies towards increased ESG-conscious practices.
Striving to meet and exceed regulator, public, and shareholder expectations, more companies proactively incorporated environmental justice ("EJ") and civil rights issues into their ESG efforts. Companies added to ongoing Boardroom, C-Suite, and employee conversations about greenhouse gas profiles and plans to increase resilience to the physical risks posed by climate change. They also engaged in discussions about how to better understand and measure the community and environmental impacts of their activities, whether local, national, or global. Efforts focused on developing performance targets, and integrating ESG and equity considerations into corporate values, public facing reports, and individual performance evaluations. In some cases, executive performance bonuses were tied to company performance against environmental and social values. And, at the same time, although the SEC's proposed climate reporting rule was not yet finalized, the SEC began to bring enforcement actions explicitly citing alleged misstatements in ESG/sustainability reporting.
Additionally, 2022 saw the emergence of racial equity audits. These audits evaluate a company's policies, practices, and procedures to determine the company's impact on a variety of social issues while also identifying potential areas for improvement. They provide companies with valuable information to help design and implement policies and procedures focused on social goals, and offer outside investors and shareholders information that may factor into investment strategies. In some cases, proactively undertaking a racial equity audit facilitates timely corporate response to outside investor or shareholder demands, and can head off potential shareholder suits to compel these audits.
The billions of dollars in clean energy project funds available to companies under the Inflation Reduction Act ("IRA") also put a spotlight on the nondiscrimination mandate of Title VI of the Civil Rights Act of 1964. Acceptance of federal grant funds by a private company comes with many conditions, including Title VI compliance. Companies began to explore what additional equity and justice systems are needed in connection with federal grants.
EJ considerations are also relevant to companies pursuing carbon sequestration projects, particularly in well siting. The permit process for siting of Class VI underground injection control wells and geologic sequestration facilities will require companies to analyze impacts on vulnerable communities and to develop community inclusive processes.
2022 also saw federal regulators take tangible steps to show how EJ and equity would drive their case selection and resources. For example, Department of Justice ("DOJ") and EPA announced a focus on enforcement in communities disproportionately burdened by industrial activity. In Fall 2022 EPA launched a new Office of Environmental Justice and Civil Rights, to support enforcement work in communities with EJ concerns as well as to disperse $3 billion in EJ IRA grants. DOJ announced it would pay particular attention to criminal violations implicating EJ communities, and Attorney General Garland directed U.S. Attorneys to appoint EJ Coordinators in their districts, nationwide. Deputy Attorney General Lisa Monaco in Fall 2022, and again in January 2023, also announced new policies for repeat corporate offenders – a development that certainly will support DOJ's pursuit of EJ cases.
Energy companies are well-positioned to be prepared for equity and justice requests and initiatives with 2022's release of analytical tools to identify community concerns. These include EPA's overhaul of EJScreen in 2022 and the White House's release of the Climate and Economic Justice Screening tool.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
