The Rise of Environmental Justice: The ESG Risk You May Be Missing
While environmental justice (EJ) is rarely called out as an environmental, social, and governance (ESG) topic, it sits squarely at the intersection of some of the most pressing ESG challenges that we face today, including climate change, racial inequality like race-based health disparities, and human rights. Notably, the Biden administration acknowledges these linkages, taking an intersectional, whole-of-government approach, and adding an explicit EJ lens to a range of executive orders, policies, and plans relating to climate change, infrastructure, jobs, and health.
In parallel, the administration has also indicated an increasing focus on regulation of ESG practices in the financial sector. This is evidenced by a range of recent developments at the U.S. Securities and Exchange Commission (SEC), including attention to promoting consistency in climate disclosures.
Both the strong focus on ESG and social justice issues, and the nuanced and holistic approach to addressing both on the part of the current administration suggest that we should not be looking at these in isolation as the regulatory agenda continues to unfold. In April, our webcast Environmental Justice: The ESG Risk You May be Missing discussed the recent rise in prominence of EJ, and what it could mean for business and investors. Some key highlights are summarized below.
EJ is inextricably linked to other social and racial justice issues
If viewed through the lens of regulatory drivers to date, one might assume that EJ concerns environmental exposures from industrial development only. However over the years, as research has expanded and deepened in scope, it has become clear that EJ is infinitely more complex and nuanced in both its causes and consequences. Discriminatory policies and practices across the housing, financial, urban planning, and disaster management disciplines over decades have contributed to communities of color bearing a disproportionate burden of pollution and poverty. In turn, these communities have been shown to experience a disproportionate share of impacts from adverse events and phenomena including COVID-19, climate change, and economic disruptions.
Current initiatives represent an unprecedented level of action on EJ
The Biden administration thus far has demonstrated a nuanced understanding of EJ and its linkages to many other current environmental and social challenges through a series of actions. This includes appointment of a White House Environmental Justice Advisory Council, establishment of the Justice 40 initiative that targets EJ communities for 40% of the benefits from federal climate action, and integration of EJ objectives into the COVID-19 relief package and the currently proposed infrastructure plan. These and other initiatives demonstrate both that EJ is a priority for the administration, and that the intent is to address systemic causes through all areas of government.
At this time, there is also an unprecedented push by many states to introduce EJ rules, and several bills have been introduced for establishment of a federal EJ law.
Continued regulatory and societal drivers
A number of state-level EJ regulations are expected to be adopted in 2021, and a federal law is possible in the near future. Companies and investors should remain up to date on regulatory developments that could affect upcoming projects or investments in real property assets and establish capacity to review EJ risks associated with such investments as relevant.
Even in the absence of EJ-specific regulations in some states, screening for EJ risks is advisable where significant new construction or upgrades of certain infrastructure types are planned, given heightened public sensitivity to environmental justice and other racial justice issues.
The exact direction of environmental justice action, and the degree to which it becomes a common consideration in responsible investment is unknown at this time. What is clear, however, is that dots continue to be connected between high-priority issues such as diversity, equity & inclusion, climate change, and social justice both in government policy and in the public consciousness. Investors would do well to remain current on these developments.
How we can help
Our ESG professionals have deep expertise in environmental, social, and permitting risks associated with construction and operation of physical assets. Through our ESG Program Management offering, we can help your firm by:
- Incorporating screening for EJ risks into ESG due diligence processes,
- Providing training on how to conduct EJ screening and identify trigger points for a more in-depth assessment, and
- Identifying potential EJ risks in your current portfolios and assisting in development of engagement and monitoring strategies to stay ahead of such risks.
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If you have questions for us on any of the topics highlighted here and how we can help you, please reach out to our ESG advisory team to request a meeting.