Mitigating the Legal Risks of Nonprofits’ ESG and DEI&A Programs
Insights from Jeffrey S. Tenenbaum
“ESG” refers to the three broad pillars of Environmental, Social and Governance considerations, which have become increasingly important in assessing certain for-profit businesses, especially publicly traded ones. With ever-intensifying demands from regulators, investors, and the public for attention to ESG issues, for-profit companies are increasingly focused on ESG considerations, initiatives and compliance. ESG-related shareholder and class-action litigation, governmental investigations and enforcement actions in the corporate world have expanded at a rapid clip. In addition, regulators both in and outside of the United States have promulgated new mandatory rules, disclosure obligations, and enforcement mechanisms for ESG-related conduct. The Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), and state attorneys general have taken the regulatory enforcement lead domestically.
While there are no universal definitions of ESG, the three primary ESG pillars generally involve the following issues, among others:
- Environmental: climate change, resource depletion, waste and pollution and deforestation.
- Social: working conditions, employee relations and DEI&A, health and safety, interaction with local communities (including indigenous communities), and conflict and humanitarian crises.
- Governance: board diversity and structure, executive compensation and ethics.
While ESG is a broader concept than Diversity, Equity, Inclusion, and Accessibility (DEI&A), it includes and incorporates DEI&A. DEI&A programs fostering the hiring and promotion of African American employees and other underrepresented workers have been prominent in corporate America in recent years. For-profit corporations have been under enormous scrutiny of late regarding their hiring and promotion policies and practices—from both the left and right sides of the political aisle. A number of states have passed laws and issued executive orders requiring, or in some cases prohibiting, DEI&A practices. Most recently, the U.S. Supreme Court’s June 2023 decision banning race-conscious college admissions—and the rationale underlying it—have raised concerns about the ruling’s potential broader implications, particularly in federal employment law, and perhaps even more broadly, such as in connection with federal funding. And even in advance of future court rulings, concerns have been raised about the possibility of some employers’ curtailing current diversity efforts in the workplace and halting new ones.
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