Boards Are Learning From ESG Backlash, Conservative Shareholder Lawsuits

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Examining what triggered backlash against Target and Bud Light can help boards determine how to stay committed to ESG goals while limiting exposure to consumer boycotts, employee actions or shareholder lawsuits.

In recent months, boycotts, lawsuits and legislation have been used to dissuade corporations from implementing certain aspects of environmental, social governance (ESG). As a result, corporate board members are developing a better understanding of the level of risk making a commitment to ESG can have on their organization. However, they have also seen evidence that ESG can provide opportunities to significantly improve their companies. Corporate board members must now endeavor to find the right level of investigations and the right type of collaborations they need to engage in to minimize the risks and maximize the rewards associated with ESG.

The Target Corporation board is likely conducting an “ESG risk versus reward” evaluation process. After the retailer was subjected to a well-publicized boycott because of its decision to promote merchandise related to gender identity and sexual orientation during June Pride Month displays, market analysts downgraded its stock because of consumer backlash. Target’s stock price declined nearly 20 percent from mid-May to mid-August which led to a conservative shareholder filing a lawsuit accusing the Target board of contributing to those losses.

According to a Washington Post report the lawsuit claimed, “false and misleading statements [about Pride Month promotions] caused Target’s shareholders to unknowingly support Target’s Board and management in their misuse of investor funds to serve its divisive political and social goals—and ultimately lose billions.” The lawsuit has caused the company to expend financial resources defending against shareholder claims for monetary damages and placed the board members’ positions in jeopardy.

Since the filing of the lawsuit, Target executives have acknowledged that the company must more carefully consider the impact of decisions they approve that are related to ESG. National Public Radio reported that Christina Hennington, Target’s chief growth officer, told analysts last week that the boycott and backlash “is a signal for us to pause, adapt and learn so that our future approach to these moments balances celebration, inclusivity and broad-based appeal.”

Examining what triggered backlash against Target and Anheuser Bush’s Bud Light product can be helpful in determining how companies might remain committed to ESG goals while limiting exposure to consumer boycotts, employee actions or shareholder lawsuits. While Target and Anheuser Bush were targeted by conservative advocates, that is not the only reason these companies have received backlash regarding ESG concerns. The following are some considerations for boards:

• Understand the broad nature of ESG risk. Boards should be aware that the risks involved with ESG continue to evolve at a rapid pace. ESG can impact multiple aspects of a company, and the level of risk is unique to each company and each industry sector. Generally, every company will experience environmental risks differently and social risks differently. Boards may want to consider enlisting help in understanding how ESG could impact their company both positively and negatively, then devise strategies to mitigate risks and capitalize on opportunities. Set aside resources to deal with potential legal issues related to ESG, including the possibility of conservative advocate lawsuits.

• Clarify company policies on the social aspects of ESG. In recent years the news media has reported on many examples of how social issues can impact a company. Companies can learn from that. Boards might want to have conversations with management and trusted shareholders to refine company positions on many of these social situations. Social aspects of ESG include policies on health conditions in the workplace, DEI policies, engagement and interaction with communities, supply chain operations, and creating a positive impact in the world. Companies must be able to communicate their position on these types of social issues quickly and clearly to minimize backlash and possible lawsuits.

• Don’t ignore the environmental aspects of ESG. Whether you believe in climate change or not, extreme weather conditions are affecting corporate operations in significant ways. Since these events appear to be increasing in number and intensity, companies might want to explore the risks involved with extreme heat, lengthy droughts, or natural disasters. How could these events disrupt company operations and impact the company bottom line? What plans are in place to deal with these types of events? 

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