The Principles of Responsible Investment Association (“PRI”) commissioned Debevoise & Plimpton LLP corporate partner William Regner to author a new legal memorandum, “The Duty of US Company Directors to Consider Relevant ESG Factors” as guidance for directors of US corporations, including private equity-backed companies, on taking into account environmental, social, and governance (“ESG”) factors when making business decisions.  

Mr. Regner, who wrote the memo with input from corporate partners Gregory Gooding and Jeffrey Rosen and associate Lauren Beasley, discussed the memo as it relates to private equity-backed companies at a recent PRI webinar, US Directors’ Duties: Private Equity Backed Companies and ESG.

Key takeaways from the memo and webinar include:

• The fiduciary duties of directors of US corporations require directors to take into account ESG factors to the extent they represent material risks (in terms of legal compliance or risks to the value of the company) or material opportunities to create stockholder value.

• Directors have broad latitude to determine whether given ESG factors, do, or do not, represent material risks or opportunities, as long as they are rationally related to stockholder interests.

• Directors do not face a meaningful risk of liability for breach of fiduciary duty either for taking into account ESG factors or declining to do so, absent extreme circumstances.

About the PRI

The PRI is the world’s leading proponent of responsible investment. It works to understand the investment implications of ESG factors, and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions. The PRI encourages investors to use responsible investment to enhance returns and better manage risks, but does not operate for its own profit. It also engages with global policymakers, but is not associated with any government. It is supported by, but not part of, the United Nations.

About the Debevoise Corporate Governance Group

The Debevoise Corporate Governance Group advises senior management and boards of corporations large and small on a variety of challenges they face, including intricate securities and stock exchange requirements, evolving fiduciary principles, litigious stakeholders, a new breed of activist investors, and the need to oversee increasingly complex organizations. The Group includes M&A and general corporate lawyers and lawyers from the firm’s securities and executive compensation teams, as well as civil litigators and white collar defense lawyers – all of them with decades of experience counseling and defending boards and senior management. The practice stays abreast of governance best practices; collaborates with experts in the accounting, consulting, and public relations arenas; and provides real-world, actionable advice that informs corporate decision-makers.