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ESG and the Sustainable Economy - Diverse and Inclusive Businesses

While governance in the context of ESG considerations is generally focused on how a company is managed by its executives, directors, and management team, investors more focused on governance often look beyond the tone-setting thought leadership and dissect the internal system of practices, controls, and procedures companies adopt in order to govern themselves, make effective and conscious decisions, comply with the law, and meet the needs of internal and external stakeholders from the broader sustainable economy perspective. In essence, to excel in governance requires corporate behavior and leadership to master not only the letter of the law, but also the spirit of it.

Driving forces behind blue-ribbon corporate governance and behavior now stem from the companies’ employees, service providers, vendors, consumers, shareholders, non-governmental organizations, and other advocacy groups, all of which are increasingly questioning the C-suite about ESG- and sustainable economy-related issues. For example: How is the company giving back to the communities where it is located? How is the company holding itself accountable for full and honest corporate, financial, and sustainability reporting? Are the board members acting in a genuine fiduciary relationship with shareholders? Are there corporate responsibility, sustainability, or governance committees responsible for board-level accountability? Is executive compensation appropriately tied to increasing the long-term value, viability, and profitability of the business? What about ESG and sustainable economy targets? How is the company working to fix pay-equity issues based on gender, race, or other demographic factors? How does the company manage its human capital? Is health and wellness embedded into the workplace?

One of the hottest topics around governance during the last several years has been equity, diversity, and inclusion, particularly at the board level. Many businesses have embraced serious efforts to create more inclusive hiring and promotion systems, in part because of a greater agreement that equal pay is a key part of fair employment practices, which are not only essential for avoiding costly litigation, but also for recruiting and retaining a high-performing and innovative workforce. Proactive approaches taken by some companies include conducting equal pay audits, promoting salary transparency, standardizing compensation setting, and eliminating salary negotiation. The move toward equity, diversity, and inclusion increases in speed as businesses see organizations that matter to them joining the effort. For example, in December 2020, Nasdaq, Inc., which governs the Nasdaq stock exchange, proposed to the U.S. Securities and Exchange Commission (SEC) that Nasdaq be permitted to require that listed companies have at least one female board member and at least one board member who is a racial minority or self-identifies as lesbian, gay, bisexual, transgender, or queer.

In addition, many laws concerning diversity and inclusion have been enacted around the world, though these laws vary significantly depending on the enacting jurisdiction and its cultural and racial composition. For example, Sweden has required companies to promote gender equality since 2009 and has had laws otherwise seeking to combat gender discrimination for much longer, it has placed less emphasis on creating laws to combat racial and ethnic inequality. At the other end of the northern hemisphere, in 2018, the state of California passed a law mandating that public companies headquartered in California have at least one woman on their boards of directors by the end of 2019, with higher requirements of representation depending on board size. More recently, on 30 September 2020, California enacted a law requiring that, by the end of 2021, publicly held companies headquartered in the state must include members of underrepresented communities, defined as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual or transgender,” on their boards of directors.

Copyright 2023 K & L GatesNational Law Review, Volume XI, Number 182

About this Author

Elizabeth Crouse Tax Lawyer K&L Gates Law Firm

Elizabeth Crouse is a partner in the tax group of the Seattle office. She provides business-focused solutions for U.S. federal, state, and international tax matters pertinent to mergers and acquisitions, corporate divestitures, internal reorganizations, cross-border transactions, private equity and venture capital fund creation and investments, and start-up companies.

Ms. Crouse is also experienced with U.S. federal and state alternative energy tax incentive programs (including the investment tax credit, production tax credit, and 1603 cash...

Elisabeth McNeil Seattle International Energy Attorney K&L Gates LLP

Elisabeth Yandell McNeil represents a variety of U.S. and international clients. Her practice focuses on energy and infrastructure transactions, including mergers and acquisitions, joint ventures, and investments in wind, solar, biomass, and other energy projects and services. She also advises clients in transactions involving clean energy and energy efficiency technologies.

Elisabeth is recognized in The Best Lawyers in America© 2021 for Corporate Law and the Washington Rising Stars list (2016-20).

Molly K. Barker Environment, Land and Natural Resources K&L Gates Seattle, WA

Molly Barker is an associate at the firm’s Seattle office. She is a member of the environment, land and natural resources practice group.

Professional Background

Prior to joining the firm, Ms. Barker served as an associate at an environmental and energy law firm where she focused her practice on environmental, real estate, energy, natural resources and land use law. She worked with public and private clients to conduct due diligence for permitting energy projects, obtain regulatory closure for contaminated sites, bring business operations into environmental regulatory...

Caitlin C. Blanche, KL Gates, false advertising lawyer, unfair competition litigation attorney

Caitlin Blanche's practice primarily focuses on product liability and other complex litigation, representing manufacturers of pharmaceuticals, medical devices, food and beverage, apparel, sporting goods and other consumer products, as well as motor vehicles and accessories in personal injury, false advertising and unfair competition litigation. Caitlin also has experience counseling clients on measures for avoiding litigation in regards to sales and marketing practices, pre and post-market surveillance, and compliance with state and federal statutes posing litigation...

Daniel Cohen, KL Gates Law Firm, Washington DC, Finance Law Attorney

Dan Nuñez Cohen is an associate in the firm's Washington, D.C. office. Dan advises and advocates for clients at the intersection of federal legislative and regulatory policy and compliance, focusing on financial services issues affecting depository institutions, trust companies, money services businesses including digital asset exchanges, wallet providers, and token issuers; and the cannabis industry. He has experience assisting with bank charters and money transmitter licenses; counseling clients on compliance with federal banking and trust laws; and advocating for...