Issue link: https://digital.shearman.com/i/1162884
YES 52 NO 48 Shearman & Sterling LLP 18 | The Climate Changes for ESG Potential Liability CSR reports, while not subject to the same liability as filings made with the SEC, may still give rise to liability, or at least litigation costs, if not properly reviewed. Investors may make claims against public companies for inaccurate ESG disclosures under the antifraud provisions of the federal securities laws, whether or not such misstatements and omissions are contained in SEC-filed documents. Care should be taken to ensure that statements do not cross the line from aspirational goal-setting to overt puffery, YES 52 NO 48 DOES THE PROXY STATEMENT IDENTIFY ESG FACTORS AS A SKILL SET IN THE DIRECTOR SKILLS MATRIX OR NARRATIVE DESCRIPTION?** 20 16 3 9 8 Diversity Environment/Sustainability Human Capital Talent Management/ Talent Development Human Resources or worse, material misrepresentation. ESG reporting has also led to investigations by state attorneys general and municipalities. Additionally, shareholders may bring claims against directors where inaccuracies are perceived to have stemmed from a failure of oversight. All of this signals that companies should not segregate ESG reporting in a place that sits outside of a company's public reporting review structure. ** Some companies included more than one ESG factor as a skill set in their director skills matrix or narrative description. ESG INTEGRATION The degree to which ESG considerations are integrated into a company's existing strategy setting, risk management and disclosure processes is a major differentiator between companies with well-developed approaches to ESG and those that do not. Senior management teams and corporate boards have meaningfully increased their focus on ESG matters and are actively exploring ways to integrate ESG issues into all of their existing processes. Key questions include: Does the company, both management and the board, consider ESG issues as part of its long- term strategy and its risk management review? Is the ESG management team involved in the strategic planning processes? How integrated are the company's ESG and non-ESG disclosures? How is the ESG function staffed at the company, how senior is the head of ESG at the company and to whom does the head of ESG report? Are any of the company's compensation incentive metrics based on ESG?