Another year of a pandemic coupled with the public's focus on social justice issues and climate change have made "ESG" a hot topic for this upcoming proxy season. The term "ESG" refers to the environmental, social, and governance factors used by many investors to evaluate companies. Employment laws play a meaningful role in the "S" and "G" factors of ESG, including, but not limited to, a company's diversity efforts, workplace conditions, and anonymous reporting measures to address leadership issues. Many companies have already implemented ESG efforts and many more are considering the issues, including whether to make ESG-related disclosures. Companies should be cautious not to overstate efforts, as doing so may risk Rule 10b-5 violations or other legal liabilities.

Employment Aspects of ESG

ESG values matter to investors now more than ever. ESG issues are important for companies to consider as investors prioritize these factors and are increasingly focused on sustainable investing. Indeed, more brokerage firms and mutual funds now offer exchange traded funds and other products that implement ESG criteria. Further, investors believe that a company's ESG efforts have a practical purpose beyond ethical concerns. Not only is ESG used to evaluate a company's ethical behavior, but some investors also believe that a company's ESG strategy can help predict a company's future financial performance.