Audit, Compliance and Risk Blog

If You Want Everyone To Know You’re A Transparent and Sustainable Company, Delaware Can Help

Posted by Jon Elliott on Tue, Feb 19, 2019

Delaware flagWhen companies claim they’re reducing their environmental impacts, how does anyone distinguish actual improvements from greenwashing? A growing number of national and international nonprofits and industry trade associations offer benchmarks and standards that companies can subscribe to, and third parties offer their services to evaluate and validate claims. Effective October 1, 2018 the state of Delaware has added a governmental layer, which Delaware companies can use to submit information and claims under penalty of perjury in order to gain formal state acknowledgement. The state claims this is the first such law.

The rest of this article summarizes this new Delaware “Certification of Adoption of Sustainability and Transparency Standards Act.”

What Types of Entities Are Eligible?

The Act is available for use by the full range of entities organized under Delaware state laws, including:

  • Corporation (stock or nonstock). 

  • Partnership (whether general (including a limited liability partnership) or limited (including a limited liability limited partnership)).

  • Limited liability company.

  • Statutory trust. 

  • Joint-stock association or joint-stock company.

  • Any unincorporated association, trust or other enterprise having members or having outstanding shares of stock or other evidences of financial or beneficial interest therein.

The entity must be in good standing under applicable state laws at the time of each annual declaration. Entities incorporated or organized in other states are not eligible, even if they do business in Delaware.

How Does an Entity “Signal Its Commitment to Global Sustainability”?

  • Adopt Formal Resolutions

The Act requires an entity’s governing body to adopt resolution(s) setting forth its “standards and assessment measures” relating to transparency and sustainability. The Act does not define “transparency” or “sustainability” – presumably to maximize entities’ flexibility – but does define:

“’Assessment Measures’ shall mean, with respect to any Entity, the policies, procedures or practices adopted by such Entity to adduce objective factual information to assess the Entity’s performance in meeting its Standards, including any procedures for internal or external verification of such information.”

***

“’Standards’ shall mean, with respect to an Entity, the principles, guidelines or standards adopted by the Entity to assess and report the impacts of its activities on society and the environment, which principles, guidelines or standards shall be based on or derived from Third Party Criteria.”

***

“’ Third Party’ means, with respect to any Entity, any person or entity other than any person or entity that controls, is controlled by or under common control with such Entity, including any governmental or non-governmental organization that provides services, standards, or criteria with respect to measuring, managing or reporting the social and environmental impact of businesses or other enterprises.”

The entity can decide which assessment measures and standards to adopt, and which ones are relevant and valid to its operations. Credible third party criteria shift the judgment about means and ends away from the entity’s management and onto the third party sponsors – general purpose efforts such as the Greenhouse Gas Protocol, the International Organization for Standards (ISO), or the United Nations, and focused efforts such as New Plastics Economy Global Commitment (which I wrote about here). Furthermore, using third party criteria provides another opportunity for the entity to claim credit for activities it may be undertaking pursuant to commitments to these outside organizations.

  • Prepare A Report

Each entity must prepare a report relating to its adopted standards and assessment measures, covering a “reporting period” (typically a year), including the following:

  • Summary of the Standards and Assessment Measures in effect during the applicable Reporting Period, including any Third Party Criteria and any other source used.

  • Summary of the Entity’s actions or activities to meet the Standards during the reporting period.

  • The most recent available objective and factual information developed pursuant to the Assessment Measures regarding the Entity’s performance.

  • Assessment by the Governing Body whether the Entity has been successful in meeting the Standards, and any additional efforts the Governing Body has determined the Entity will undertake to improve its performance.

  • Either the identity of any Provider assisting the Entity in measuring, managing or reporting the impact of the Entity’s business and operations in light of its Standards, or a statement that the Entity has not used such a provider.

  • Summary of any changes to the Standards, Assessment Measures or Reporting Period, the process by which such changes were identified, developed and approved, and any Third Party Criteria used to develop any changes to the Standards.

  • Summary of the actions or activities planned for the next succeeding Reporting Period.

  • Post Information On The Internet

The entity must provide information about these activities, including Standards and Assessment Measures, any Third Party Criteria used to develop the Standards, a description of the process used to identify, develop and approve such Standards, and copies of each Report filed or to be filed by the Entity. This includes an Internet site – on the entity’s own website or a third party – where the information will be readily available at no cost and without a requirement to provide any user information, and will remain available for so long as the Entity remains a Reporting Entity.

  • File a Standards Statement with the State

For each reporting period, an entity files a Standards Statement that provides the following information:

  • Acknowledgement that the entity’s governing body has adopted resolutions setting forth standards and assessment measures.

  • Identifies the required Internet link.

  • Acknowledges that the entity will provide its most recent report to the state within 30 days after a request.

  • Acknowledges that the entity has committed to the following:

    • Use the Assessment Measures to assess the Entity’s performance in meeting its Standards.

    • Review and assess its Standards and Assessment Measures from time to time, and make “such changes thereto as the Governing Body in good faith determines are necessary or advisable in furtherance of meeting the Entity’s Standards”.

    • Prepare and make readily available required information on the Internet site within 90 days after the end of each reporting period.

  • Provide an address for correspondence.

  • Includes an acknowledgement by an authorized person of the entity, made under penalty of perjury.

Filings are due annually, between October 1 and December 31. The Delaware Division of Corporations (assigned by Secretary of State) has created a model format for this report. The Act provides for initial and renewal statements. Required fees must also be paid (see below).

What Formal Acknowledgement Does The State Provide?

The Delaware Division of Corporations (assigned by Secretary of State) will issue a “certificate of adoption of transparency and sustainability standards” to each entity that meets the requirements above. Fees are $250 per year, which includes the statutory filing fee for the entity and fee for issuance of the state certificate (the state can charge $5,000 to restore a lapsed certification).

The Act provides a very broad hold-harmless provision:

“Neither the failure by an Entity to satisfy any of its Standards, nor the selection of specific Assessment Measures, nor any other action taken by or on behalf of the Entity pursuant to this chapter or any omission to take any action required by this chapter to seek, obtain or maintain status as a Reporting Entity, shall, in and of itself, create any right of action on the part of any person or entity or otherwise give rise to any claim for breach of any fiduciary or similar duty owed to any person or entity.”

However, that the “authorized person’s” acknowledgement of the information in each Standards Statement is made subject to penalty of perjury, the information that the entity does choose to provide must be truthful.

Now What?

Since the state’s certification is based on self-reporting rather than any review of information, certification does not amount to a state approval of an entity’s commitments or activities, but provides another centralized place for participants to publicize their commitments. The Division of Corporations' website for this law includes a compilation of entities that have filed, with links to their webpages. If it proves popular, I imagine that other jurisdictions will create similar clearinghouse functions.

Self-Assessment Checklist

Does the organization conduct activities that produce environmental impacts?

  • Has it evaluated the extent of such impacts (such as resource and energy use, waste disposal, pollution, or greenhouse gas emissions, etc.)?

  • Has it developed policies and procedures to evaluate and/or reduce these impacts?

  • Do any of these policies and procedures employ third party standards?

  • Has it reported these (potential) effects, and its efforts to evaluate and reduce them?

  • Voluntarily or subject to a legal requirement?

  • To other agencies, stakeholders, and/or the public?

Where Can I Go For More Information?

Specialty Technical Publishers (STP) provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. 

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About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 25 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at: tei@ix.netcom.com

 

Tags: Business & Legal, sustainability, Environmental, directors & officers, directors, corporate social responsibility