A Primer for Late-Stage Private Companies on Preparing for ESG

Do late-stage private companies have to worry about environmental, social, and governance (ESG) issues? If they're planning to go public, yes, they do.

Late-stage private companies may be disappointed that the economic slowdown has largely closed the initial public offering (IPO) window. The upside? More time to prepare for public company life when the IPO window re-opens.

Business meeting paperwork discussion

One task on the checklist is to “handle ESG.” After all, public companies are under intense scrutiny when it comes to environmental, social, and governance issues.

Of course, “handle it” isn’t a strategy. This article outlines some sensible ways for late-stage private companies to approach ESG.

The Pillars of ESG

As late-stage companies grapple with ESG, here is a refresher on its three pillars:

Environmental: This pillar looks at the business’s environmental impact and can include everything from the company’s operations to its supply chain.

Social: A complex pillar, the social aspect examines how a corporation navigates social and political issues, as well as workforce matters.

Governance: Perhaps one of the most familiar aspects of ESG, governance looks at how a business makes key decisions including CEO succession, executive compensation, and board independence, but often spills into other key categories like social issues.

Does it make sense for companies to focus on ESG? There is real disagreement on this point. Some of it is performative; some of it is sincere.

Regardless, the investor momentum around ESG is clear. In addition, employees are increasingly demanding that their employers have a good ESG record.

Companies will want to have an ESG strategy to guide their actions on any issues that arise. Otherwise, they may find themselves being tossed about on the stormy seas of whatever might be the "flavor of the day.”

Preparing for ESG

ESG typically impacts corporations in one of the following ways:

  • It can be a distraction or the downfall of a company. No one wants to fall into this category.
  • It can simply be “neutral.” Most companies will find being neutral as a win when it comes to ESG.
  • It can accelerate growth.

Let’s look closer at how each pillar could go very well or very badly for corporations, depending on how they prepare.


The Securities and Exchange Commission (SEC) has been turning up the heat on climate issues for some time now.

In March 2021, the SEC announced the formation of a new task force for climate disclosures and ESG in its Division of Enforcement. Whistleblower tips are welcomed.

The SEC also proposed new rules around climate disclosures for public companies. Though not final yet, the rules have attracted plenty of controversy.

One area to watch for in the environmental category is “greenwashing.” Greenwashing is when a company spends more effort on marketing itself as a “green” company than actually practicing what it preaches.

Consider the securities class action filed against food company Oatly. The litigation was driven by a short report (“short reports” are investigative-type reports with negative allegations about a company published by short sellers), containing allegations derived from a deep dive into Oatly’s first detailed sustainability report.

One of the allegations was that Oatly made itself look more sustainable than it actually is when the company allegedly:

  • Cherry-picked the study’s results by failing to show that its impact on water consumption is worse than dairy milk;
  • Is out of compliance with Environmental Protection Agency (EPA) regulations in New Jersey;
  • Was scrutinized for the investment it received from Blackstone in 2020 when an activist pointed out a connection to the deforestation of the Amazon; and
  • Uses a certain supplier for its cocoa that has been criticized for deforestation and the endangerment of species in Africa.

Private companies that may go public should assume that they will have to comply with disclosure rules. They can prepare for this by asking key questions (as outlined in my colleague Lenin Lopez’s article on the SEC's proposed rules) and by following the steps I’ve outlined about ESG disclosures here.


Arguably one of the most complex aspects of ESG is the “social” pillar. Fundamentally, the social pillar is all about people.

What’s challenging is the answer to the question: Which people? Are they your employees, your customers, or your community?

Particularly for consumer-facing companies, taking a position in the social category can mean anything from addressing race and gender issues to dealing with sexual harassment in the workplace, to taking a corporate stand on hot-button issues at the forefront of society.

As you can imagine, things can get political fast. Consider Disney’s fight with the governor of Florida, and the fact that Disney had to take a political stance in response to pressure the company received on being silent about Florida’s Parental Rights Education bill.

While many late-stage private companies do not see themselves being as scrutinized as a Disney-type corporation, you still do not want to get bad press because of your company's social stance (or lack thereof).

Just ask Starbucks. They were on the frontlines of making pledges about trying to end racism in America (see here and here).

But now shareholders have filed suit against the company alleging that its diversity, equity, and inclusion policies amount to a preference for some races, leading to discrimination against other races.

Some of this controversy may be inevitable in modern corporate America—but surely most companies would prefer to go into a controversy purposefully and with a plan rather than accidentally and by surprise.

Having a discussion about when a company will and will not weigh in on social issues is a tough but necessary conversation for a company’s board as a company becomes more prominent—or just has more employees.


Governance is fundamentally about transparency and accountability. Governance can spill into areas of loss control, shareholder return, social policy, board diversity, and much more.

Some of the ugliest disputes can be traced back to a lack of board oversight (that is, a lack of good corporate governance).

Just ask Theranos founder Elizabeth Holmes or FTX founder Sam Bankman-Fried. Those are extreme cases, of course.

While governance can sometimes feel like a “process” or “bureaucracy,” it is also how your independent directors are judged.

Directors might still join your board if your governance is immature—but only if it seems like you are capable of maturing.

Without some effort in the governance category, you also will not get good D&O insurance—something that really matters for late-stage private companies and newly public companies.

Remember that IPO companies are more likely to be sued in the first three years of going public than at any other time (more on IPO company litigation here). This puts a lot of pressure on having the best D&O insurance possible.

Next Steps

It may be helpful for late-stage private companies planning for ESG to remember the following:

You cannot be all things to all people. Figure out what is authentic to your corporation. Maybe you have a social mission, or maybe you are environmentally concerned. At least to start, focus your efforts on taking a stand there, and perhaps aim for “neutral” on the rest.

Take the time to make a plan. Create a plan of how you will address ESG matters ahead of time, even if the plan is “we don’t do xyz” or “we only address abc.” Otherwise, you will get tossed about by whatever the latest thing is in the headlines.

Be prepared to back up any claims you make. Worse than saying nothing about ESG is saying something that turns out not to be true when challenged. Take time to create a defensible record to support any ESG claims your company is making.

The Rewards of ESG

Finally, it is worth highlighting how having a strong ESG process can be promising for the future of a corporation.

Think of companies that are prepared for the SEC’s enhanced disclosure regime versus the ones that are stumbling to catch up, diverting last-minute resources away from other priorities.

Or companies that are mired maybe not in scandal but in poor decision-making due to a lack of governance—versus companies that are on point when it comes to process, decision-making, and oversight.

Indeed, D&O insurance carriers are eager to hear from companies and the steps they are taking to handle ESG well. In some limited cases, carriers may even be able to offer special capacity for companies doing an especially good job with ESG.

Thus, there are real upsides to being good at ESG, not the least of which is getting ahead of your competitors that are busy tripping over their own feet when it comes to these matters.



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