About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

1 [1] (April 1, 2025)

handle is hein.crs/idtntocls0001 and id is 1 raw text is: Congressional Research Service Inforrning the legislative debate since 1914 Updated April 1, 2025 Introduction to Financial Services: Environmental, Social, and Governance (ESG) Issues Environmental, social, and governance (ESG) issues remain a highly debated concept among investors and public policy officials. As ESG is not a legally defined term and it encompasses a wide array of issues, arguably, what should be considered ESG is subject to interpretation. In recent Congresses, including the 119th, some Members have introduced proposals in support of and against ESG-related disclosure requirements, including materiality requirements. Furthermore, efforts are underway to roll back climate disclosures at the Securities and Exchange Commission (SEC), the President has recently signed an executive order to end diversity, equity, and inclusion (DEI) issues in federal contracting, and deregulation on a wide-range of environmental issues is being proposed and implemented. Certain state and local governments have taken deregulatory actions on these issues, while other state and local governments have further enhanced ESG requirements. Arguably, due to investor pressure and their own corporate governance principles, many corporations continue to report on aspects of ESG. To provide context to the ongoing debate about ESG issues, this In Focus provides an overview of characteristics and risks of addressing or not addressing ESG factors, including an introduction to materiality. The In Focus concludes by discussing recent SEC actions and identifying some of the bills introduced by Members in support of and against ESG requirements. What Is ESG? There is no universally agreed-upon definition of what constitutes ESG. Investors and other stakeholders consider a wide-ranging array of topics to be part of ESG. The discussion below on the characteristics and risks that can accompany ESG is not definitive. It is meant to illustrate some of the perceived risks of either addressing or ignoring various ESG factors. Characteristics and Risks Environmental. Investors and stakeholders may examine firm's impact on the environment. Some consider the interaction with the environment to be a form of capital- the stock of natural resources. Environmental risks include declining biodiversity, pollution, resource scarcity, and potential climate change impacts, including increasingly frequent and severe floods, hurricanes, and forest fires. For publicly listed and private firms, ignoring environmental risks could potentially harm their reputations, endanger employees, and imperil physical operations, which could lead to costly litigation. For other firms and communities, addressing environmental risks https://crsreo n might cause economic harm, with diminished access to y natural resources and the need to physically relocate or seek alternative production inputs at a higher cost and diminished profits. Social. Social factors encompass a firm's effects on its various stakeholders, such as consumers, employees, suppliers, contractors, and the local and broader communities. Risks include potential infringement on the rights of others when hiring or promoting employees, failure to monitor supplier and contractor pay, handling of customer data in a nontransparent and nonsecure way, political spending, and investing in projects or sectors that could be considered objectionable to specific segments of society. Companies that poorly handle these risks might experience effects similar to environmental risks, such as the inability to attract quality employees and exposure to costly litigation. In addition, some stakeholders might consider certain business operations or funding of certain entities in various areas to be unacceptable, including tobacco, gun manufacturing, private prison industries, abortion providers, and gambling. On the other hand, other stakeholders might consider any limitations placed on their right to operate or fund such lawful entities an infringement of their rights. Governance. A firm's self-governance and integrity when conducting business may raise questions. The policies, processes, and controls implemented by a firm help to define its self-governance and impact on various stakeholders. A firm's integrity could be measured by whether it avoids corruption and bribery and engages with individuals and other firms that may pose a reputational risk to the firm. If a corporation chooses not to address governance issues, the associated risks could include harm to its consumers and an environment leading to criminal activity and corporate reputational harm, potentially resulting in firm failure. Firm failure negatively affects stakeholders- employees may lose their jobs, suppliers might not be paid, and local governments may receive less tax revenue. Some examples are Enron (2001 bankruptcy), WorldCom (2002 bankruptcy), and MF Global (2011 bankruptcy). In the past decade, issues surrounding Wells Fargo Bank's creation of fake accounts not only harmed its clients but resulted in the removal of many key executives and prompted regulators to restrict the bank's growth. Similarly, as a result of deficiencies in the manufacturing quality of its planes, not only has the Boeing Company faced congressional, judicial and regulatory scrutiny, but it has suffered financial and reputational harm. )orts.congross.qov S

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most