ESG and Fiduciaries: A New Age Dawns

James C. Woolery is a Partner and founder at Woolery & Co, and Tim Martin is a Partner at Kaplan Hecker & Fink LLP. This post is based on a Woolery & Kaplan Hecker & Fink piece by Mr. Woolery, Mr. Martin, Trevor Morrison, Carmen Iguina Gonzalez, and Matt Saur. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita; Does Enlightened Shareholder Value add Value (discussed on the Forum here) and Stakeholder Capitalism in the Time of COVID (discussed on the Forum here) both by Lucian Bebchuk, Kobi Kastiel, Roberto Tallarita; Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock (discussed on the Forum here) by Leo E. Strine, Jr.; and Corporate Purpose and Corporate Competition (discussed on the Forum here) by Mark J. Roe. 


  • Corporate directors and fiduciary leaders have long known about ESG, but the discussion has intensified in recent years. And this is just the beginning: ESG is the new frontier in defining fiduciary duties.
  • Being reactive is no longer an option – directors and fiduciary leaders must usher their enterprise into the new era by incorporating ESG into their business and investment strategies.
  • Woolery & Co. and Kaplan Hecker & Fink have outlined a strategy to help directors and fiduciary leaders make the business, investment, and legal case for ESG.

Fiduciaries are facing a daunting new era in the world of environmental, social and governance (“ESG”) considerations. Of course, the push for socially-conscious business and investing decisions is familiar. But in recent years, the ESG discussion has intensified, demanding corporate and investment fiduciaries’ renewed attention. What many don’t realize is that this is just the beginning: ESG is the new frontier in defining fiduciary duties.

Legal activity around ESG issues – from a lawsuit by half the U.S. state attorneys general to President Biden’s first veto – is on the rise. Both pro- and anti-ESG advocates are turning to the law as a way to enforce their own vision of fiduciary duties. Facing conflicting demands from investors, shareholders, regulators, and politicians, directors and fiduciary leaders are in a precarious situation. Being reactive is no longer an option – directors, managers, and other senior fiduciaries must affirmatively determine how ESG aligns with their business strategies and investment goals.

To help directors and fiduciaries ready themselves for the new age, we have written this letter reviewing the relevant factual developments and resulting trends in ESG and outlining, in broad strokes, our recommended strategic approach for moving forward in this fragile and rapidly changing environment.

To start, ESG has become a central focus within the business and investment management sectors. Large pools of investment capital have organized themselves around ESG mandates and goals, and pro-ESG investors have made public commitments to support ESG integration in portfolio companies.[1] Shareholders are exerting their power to pressure companies to step up on ESG, using shareholder proposals to force companies to examine and respond, in a very public way, to how ESG considerations factor into company policies and actions. [2] And regulators have encouraged, and in some cases mandated, consideration of ESG factors through disclosure requirements [3] and retirement plan regulations. [4] These pro-ESG advocates argue that directors, managers, and other corporate leaders are required to consider ESG factors as part of their fiduciary duty given the financial and reputational risks of ignoring them.

But directors and managers face conflicting claims from anti-ESG advocates, who staunchly believe that considering ESG factors – what they call “woke capitalism” – is a violation of those same fiduciary duties. Investment groups and asset management companies have organized around the aim of forcing corporate leaders to focus on profit over politics. [5] Anti-ESG shareholders and investors are pressing companies and funds to explain how ESG considerations align with the mandate to serve their economic best interests. [6] And anti-ESG politicians and regulators, especially at the state level, are passing new laws, threatening legal action, and launching legislative investigations, all aimed at curbing consideration of ESG factors in the boardroom, C-suite, and investment committee. [7]

Given this highly politicized backdrop, it is an understatement to say that directors, managers and other senior fiduciaries are in a delicate spot. Whatever other pressures they face, directors and senior fiduciaries must ensure that managers comply with domestic and foreign reporting requirements around ESG issues – and no matter the future of ESG regulations in the United States, E.U. rules on ESG considerations and disclosures impose demanding requirements on U.S. companies. Balancing the conflicting demands from regulators, investors, shareholders, politicians, and others is no easy feat. It is no surprise, therefore, that prominent companies and investment firms have begun voluntarily discussing how to balance ESG considerations in their public filings. [8] For instance, recognizing both the increased investor emphasis on ESG issues and the “anti-ESG” movement, ADT recently added the following disclosure to its shareholders as part of its risk assessment for 2024:

If we are unable to provide sufficient disclosure about our ESG practices, or if we fail to establish and achieve the objectives of our ESG program … we may not be viewed as an attractive investment, service provider, workplace, or business, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. In addition, there exists certain “anti-ESG” sentiment [and] we could face a negative reaction or legislation that impedes our activities or reflects poorly upon the Company, any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. [9]

In the midst of this uncertainty, one thing is clear: ESG issues are, and will continue to be, the subject of a fierce debate and increasing scrutiny by courts, regulators, politicians, and concentrated pools of investment capital across the globe.

Directors, managers, and senior fiduciaries, therefore, cannot afford to be reactive or boilerplate in their approach. Failure to act will leave them – and most importantly, the people they serve – vulnerable to outside, volatile forces. Directors and fund managers must work with senior management to adopt and refine ESG policies that respond to the current landscape and anticipate future developments. Of course, any such policy must account for the various ESG compliance, tracking, and disclosure requirements applicable to fiduciaries under U.S., state, and foreign law. But ensuring compliance with tracking and disclosure requirements is not enough.

ESG policies must reflect how such considerations are relevant to the specific business and investment strategy, profitability, and ability to attract investment and employee capital. Simply put, fiduciary leaders must make the business case for ESG in their particular enterprise. The following is an overview of key steps fiduciaries should take.

First, directors, managers, and senior fiduciaries must assess how ESG needs vary based on specific industry, business and investment strategy, ownership base, employee network, client portfolio, vendor supply chain, and other mission-critical factors. Just citing to climate change as a risk to business generally will not do – fiduciary leaders must understand how environmental factors will impact the company’s particular business or investment goals. Similarly, diversity in hiring cannot be a goal in the abstract, divorced from company needs; directors, managers, and senior fiduciaries must understand how diversity – or lack thereof – affects the ability of their particular enterprise to attract and retain talent and capital.

Second, armed with the information about how ESG affects their enterprise in particular, directors, managers, and senior fiduciaries must ensure that management is explicitly and credibly making the case for why particular ESG factors align with their respective business plans, investment goals, and long-term strategies. They must explain how incorporating ESG helps them to (1) optimize shareholder or investor assets and value, and (2) minimize identifiable material risks to the enterprise. Again, fiduciary leaders must oversee and manage the articulation of the business case for their ESG choices and explain why their particular approach to ESG is consistent with their fiduciary duties.

Third, ESG-oriented activities and investments must not be a separate category of expenditure, but rather a consideration that is incorporated into the overall investment decisions of management, and accounted for and reported on as such. By ensuring that ESG considerations are integrated into overall decision making and execution, in direct alignment with an approved business and investment plan, fiduciary leaders can affirmatively establish traditional due care. The business judgement rule exists to protect directors, fund managers, and other senior fiduciaries to whom it applies when they follow appropriate processes and exercise care in actively overseeing company business and investment decisions. Being able to articulate and document a thorough, business-based strategic choice to affirmatively consider ESG in fiduciary decision-making is the key to unlocking the broad protections of the business judgment rule. [10]


1Asset manager BlackRock, for example, announced in 2020 that 100% of its active and advisory portfolios would be ESG-integrated. BlackRock’s 2020 Letter to Clients: Sustainability as BlackRock’s New Standard for Investing, BlackRock, (last visited Apr. 11, 2023). State Street Global Advisors, another asset manager, has developed an ESG scoring system to support the development of sustainable capital markets. See Rakhi Kumar, R-Factor™: Reinventing ESG Investing Through a Transparent Scoring System, State Street Global Advisors (July 2019), Both BlackRock and State Street Global Advisors are part of the Net Zero Asset Managers Initiative, an international group of more than 300 asset managers committed to supporting the goal of net zero greenhouse gas emissions by the year 2050. See Signatories, The Net Zero Asset Managers Initiative (Dec. 31, 2020)(go back)

2According to Rhia Ventures—a women-led venture capital firm in California focusing on reproductive healthcare issues—investors, including the Educational Foundation of America, the Tara Health Foundation, and Arjuna Capital, “have filed thirty-one (31) shareholder proposals addressing the intersections between corporate policy and reproductive health care, more than doubling the volume” from such proposals in 2022. Shareholder Proposals Address Reproductive & Maternal Health Benefits, Rhia Ventures (Jan. 24, 2023), The Tara Health Foundation, for example, is asking Pfizer Inc. to publish a report explaining how its political expenditures match up with its stated goal to end discrimination against women. Shareholder Proposal for Pfizer 2023 Proxy Ballot re Political Contributions Misalignment Submitted by Tara Health Foundation, Rhia Ventures, (last visited Apr. 11, 2023). And Change Finance PBC—a majority women-run asset manager—is asking American Express Co. to prepare a report concerning data privacy for AmEx consumers targeted by law enforcement in states where abortion access is criminalized. 2023 Shareholder Proposal Submitted by Change Finance: Abortion & Consumer Data Privacy (AmEx), Rhia Ventures(go back)

3Robust new reporting requirements in the European Union will mandate detailed ESG disclosures from many corporations, including many U.S. companies. See Thibault Meynier, Sarah H. Mishkin & Matthew Triggs, EU Finalizes ESG Reporting Rules with International Impacts, Harvard Law School Forum on Corporate Governance (Jan. 30, 2023), And the Securities and Exchange Commission has announced proposed rulemaking requiring companies to include certain climate-related disclosures in registration statements and reports. SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for Investors, SEC (Mar. 21, 2022)(go back)

4The U.S. Department of Labor has issued a final rule removing previous barriers to the consideration of ESG factors in plan investments, recognizing that such factors are relevant to fiduciary risk-return analysis. US Department of Labor Announces Final Rule to Remove Barriers to Considering Environmental, Social, Governance Factors in Plan Investments, Dep’t of Labor (Nov. 22, 2022), President Biden just used his first presidential veto to overturn a Republican-led proposal that would have undone this regulation, noting that it “would put at risk the retirement savings of individuals across the country.” See Zoë Richards, Biden Issues His First Veto, Blocking Measure to Block New Investment Rule, NBC News (Mar. 20, 2023)(go back)

5See, e.g., Sheelah Kolhatkar, The C.E.O. of Anti-Woke, Inc., The New Yorker (Dec. 19, 2022)(go back)

6The National Center for Public Policy Research, for instance, has filed numerous proxy proposals urging companies to respond to how ESG practices fit in with the companies’ fiduciary duty to shareholders and investors. See Andrew Ramonas, Disney, BofA, Apple Among ESG Proxy Targets for Conservatives, Bloomberg Law (Jan. 30, 2023)(go back)

7At least 25 states have sought to ban consideration of ESG factors in state retirement plan investment decisions. And State Attorneys General from 21 states recently sent a letter to asset managers setting out their concerns over their “use [of] client assets to change portfolio company behavior so that it aligns with” ESG goals. See March 31, 2023 Letter from Austin Knudsen, A.G. of Montana, and 20 other Attorneys General, to 53 Asset Managers,; see also Andrew Ramonas, ESG Top of Mind as New State Attorneys General Flex Powers, Bloomberg Law (Feb. 13, 2023), And at the end of March, Senator Ted Cruz announced he was investigating the failure of Silicon Valley Bank and if it may have been due, in part, to its ESG policies and initiatives.(go back)

8See Andrew Ramonas, Citi, Valero, ADT Flag New Investment Risk: the Anti-ESG Effect, Bloomberg Law (Mar. 15, 2023)(go back)

9ADT Inc., Annual Report (Form 10-K) (Feb. 28, 2023).(go back)

10See, e.g., Quadrant Structured Prod. Co. v. Vertin, 102 A.3d 155, 192 (Del. Ch. 2014) (applying the business judgment rule to directors’ decision to pursue a specific investment approach); Jonathan R. Macey, ESG Investing: Why Here? Why Now?, 19 Berkeley Bus. L.J. 258, 265 (2022) (“[T]hrough the business judgment rule, corporate law gives officers discretion to pursue profits and ESG goals as they see fit while still honoring their fiduciary duties…. That deference effectively gives corporations broad, indeed virtually unfettered, discretion to take actions that they believe further ESG goals and objectives.”).(go back)

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