Larry Fink started this year with a rallying cry. In his much-anticipated annual letter, published in January, Fink told CEOs of companies in which BlackRock is invested that climate change is now a major investment risk and declared that BlackRock would make sustainability a factor in all its investments.
Climate change, said BlackRock’s chairman and CEO, was defining the future of every business and would prompt a massive movement of global capital. The head of the world’s largest asset manager whose fortunes are intertwined with markets made a bold case that climate change will reshape finance altogether.
“From my 20-plus meetings with clients a week, where climate change is a consistent theme they ask about, it became very clear to me that markets were beginning to price climate change as an investment risk,” says Fink, speaking with
This paper attempts to provide a definition and context for the term,
Environmental, Social and Governance (“ESG”), explain how and why it is used, demonstrate how investors are driving the proliferation of ESG reporting, illuminate how investor reliance on ESG information creates new risks for reporting companies, and suggest steps attorneys can take to help mitigate the risks. This paper also provides a short summary on some hot topics in the ESG world.
I. The Evolution of ESG Disclosures
A. What is ESG?
In basic terms, ESG is a collection of information about a company’s operations in three broad areas of activity: Environmental, Social and Governance. It is data-based as well as narrative, and typically static or backward-looking. Increasingly, ESG reporting is goal-oriented and aspirational. Oftentimes, ESG is used interchangeably with the term “sustainability.”