An inflection point for corporate social responsibility

Will private actors, including multinational corporations, lead a new era of environmental progress? On February 8, 2022, Roger Martella, GE”™s Chief Sustainability Officer, delivered the Gilbert and Sarah Kerlin Lecture on Environmental Law at the Elisabeth Haub School of Law at Pace University. (a video of the lecture is available here). In the lecture, This Decade of Action: How Corporate Social Responsibility Will Define the Most Historic Period of Environmental Progress, Mr. Martella charted how political polarization has stalled public environmental lawmaking, in particular with respect to the control of greenhouse gas emissions, and predicted that multinational corporations””catalyzed by stakeholders including employees, customers, investors, financers, activists, nongovernmental organizations, and government””will usher in an equity-centered Global Sustainability Era. In describing the promise of private environmental governance, he noted the capacity of multinational corporations to deliver finance, technology, and innovation; highlighted how disclosure requirements and environmental, social and governance (ESG) reporting and commitments can give rise to immediate accountability; and explained how private governance approaches can proceed even against a backdrop of political gridlock.

Mr. Martella”™s prediction that corporate action will drive environmental progress is bold and optimistic, but it derives credibility from his deep knowledge and experience, as well as from numerous developments that underline the potential of private environmental governance. Looking beyond the points Mr. Martella raised in the lecture, we see increasing focus and developments in this area. For example, policymakers are working to refine and strengthen legal tools to support private environmental governance. For example, the Securities and Exchange Commission will soon propose new disclosure rules related to climate change. Shareholder proposals, divestment campaigns, preferential investing in sustainable portfolios, and ESG-commitments by institutional investors are yielding high profile results. Universities, including most Ivy League institutions (the laggards are Princeton, Yale, and the University of Pennsylvania), have divested from fossil fuels. Three climate advocates were elected to the board of Exxon Mobil Corp. Most recently, with respect to the power of private governance generally, some commentators have suggested that voluntary corporate decisions to dissociate from Russia have had more immediate and painful impacts than formal government sanctions.

Constraints on private governance approaches are, however, important to cognize and understand. Financial reporting suggests that, while some major energy companies have been persuaded to voluntarily shed their dirtiest fossil fuel assets, they are selling those assets to what we might think of as corporate bottom feeders””companies and investors with little or no sensitivity to socially conscious public or shareholder pressure (such as private-held companies) that are eager to maximize short-term profit. In the context of climate change, this type of entity-to-entity leakage can negate any reduction in emissions and even potentially increase emissions. The downward cascade of fossil fuel production to bottom feeders could increase emissions if those companies are less attentive to and accountable for process emissions (for example, methane leaks) generated in the extraction and refining process. More study is needed to understand the potential for the exercise of investor and public “voice” to push dirty assets and enterprises to entities more insulated from public and investor scrutiny and pressure.

And we are just beginning to contemplate the relationship between corporate social responsibility and corporate government and public relations efforts. Should a company”™s ESG commitments extend to is efforts to shape public law through lobbying and public communications? Are we comfortable with companies honoring ESG goals in their own practices and conduct while actively working against the adoption of public laws that would advance those same ESG goals? Utility donations to trade groups lobbying against renewable energy and climate controls have come under withering scrutiny, as have the involvement of public relations firms in energy company-funded climate disinformation. State courts are starting to weigh the legal consequences of some fossil fuel companies”™ purposeful efforts to mislead the public about the threat from climate change and their products”™ contribution to it in cases seeking compensation under state consumer protection laws, product liability, and nuisance. Meanwhile, in February, the White House Office of Science and Technology Policy hosted a roundtable to discuss “climate delayism,” the latest incarnation of corporate-funded climate disinformation.

To maximize the value of corporate social responsibility and private environmental governance measures, a first step is to recognize their value and take them seriously. The next step is to put in the hard work needed to study, understand, and refine private environmental governance, including by developing the laws and policies needed to support it.