Document Type

Article

Publication Date

3-1-2024

Abstract

This Article argues that we must remain vigilant about policing environmental, social and governance (“ESG”) hypocrisy in voluntary ESG disclosures. ESG hypocrisy refers to circumstances whereby organizations convey ESG information or commitments inconsistent from their own observed be- behaviors regarding employees, climate, diversity, and other ESG initiatives. On the one hand, the rise of ESG has sparked considerable backlash, suggesting that any focus on ESG is no longer warranted. However, available evidence indicates that most companies continue to publish ESG disclosure and seek to live up to their ESG commitments, including companies that have shied away from more visible ESG statements. On the other hand, anecdotal and empirical research reveals serious concerns surrounding the accuracy and reliability of voluntary ESG disclosure—suggesting that the existing voluntary disclosure landscape is rife with ESG hypocrisy. These hypocrisy concerns not only have prompted a push for mandatory ESG disclosure, but also have shifted attention away from addressing the accuracy and hypocrisy issues associated with voluntary ESG disclosure. This Article insists that this shift is inappropriate and, given the likelihood that ESG will continue to be a business priority, this Article emphasizes the need to remain attentive to ESG hypocrisy in voluntary disclosures for at least three reasons. First, voluntary ESG disclosures provides important benefits that cannot be replicated by mandatory disclosure but also cannot be harnessed if accuracy problems persist. Second, because corporations have increasingly used voluntary ESG disclosure to enhance their reputation, hypocrisy in voluntary ESG disclosure can generate significant damage to corporate reputation and expose corporations to the financial harms associated with that reputational damage. Third, the connected nature of all public disclosure means that hypocrisy in voluntary ESG disclosure can impact the accuracy and reliability of mandatory ESG disclosures. As a result, even if mandatory disclosure emerges, we must stay the course with respect to reducing ESG hypocrisy in voluntary disclosure. The Article then advances three reforms aimed at ameliorating ESG hypocrisy in voluntary ESG disclosure.

Publication Title

New York University Journal of Legislation and Public Policy

Publication Citation

26 N.Y.U. J. Legis. & Pub. Pol’y 127 (2024).

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