Environmental, Social and Governance (ESG) strategies are becoming increasingly more important to companies across industries. Companies that don’t already have environmental and social responsibility embedded into their corporate purpose are rethinking the way they do business. Diversity, inclusion, and environmental sustainability are becoming top priorities not only for companies, but for their customers, investors and other stakeholders. Companies must now make decisions that will keep both their shareholders and stakeholders happy, and their legal leadership plays an important role in enabling ESG policies and priorities.
Many top tier international law firms and consulting firms have recently announced dedicated ESG practice groups. There has also been an emergence of specialist ESG consultancies brought on by financial institutions, governments, and multinational corporations. To navigate and integrate the fast pace of ESG related changes and expectations, organizations are appointing a Chief Responsibility Officer (CRO). The role of a CRO is to help an organization navigate the ESG environment and to strategize and implement its purpose-led goals and commitments.
While the role of the CRO is becoming more important as companies’ ESG strategies mature, they will need help to keep those strategies on track. General counsels (GCs) and Chief Legal Officers (CLOs) will need to work hand-in-hand with CROs to lead and support ESG initiatives. Here are three ways that legal leadership can help embed ESG into your company’s strategy.
Influencing planning and decision-making
In-house legal leadership needs to be deeply involved in setting the strategic direction of sustainability and ESG within your organization. This includes ensuring sustainability is embedded into corporate governance and integrated into broader business operations.
A key component has been integrating ESG criteria into investment decision-making and ensuring adequate due diligence strategies are in place. As more companies set ESG targets and commitments, legal teams have been vital in reviewing these commitments before launch and ensuring they stand up to external scrutiny.
GCs and CLOs will evaluate potential partnerships, internal policies, the company’s supply chain, and more to ensure that the company is living up to its publicly disclosed ESG goals and targets.
Managing ESG risks so your company can reap the rewards
Navigating ESG challenges is ultimately about risk and reward and identifying challenges and opportunities. Lawyers are experts in identifying and dealing with risk. They are the first to spot trends in the evolution of regulations and other factors that can have a material impact on the business.
One of the biggest risks in the ESG space is “greenwashing” or misrepresenting a product, investment, or service as more sustainable than it actually is. This can apply to environmental objectives, or to social responsibility more generally. Ultimately, GCs and CLOs carry a lot of responsibility in ensuring that their company “walks the talk,” and lives up to their ESG goals and targets.
Legal leadership also determines the level of transparency and disclosure. Legal teams are central to ensuring companies report on their sustainability progress transparently, and in a way that explains material issues and how they are managed. GCs and CLOs make sure that corporate reporting meets the relevant reporting standards, and that disclosure addresses the ESG factors that are important to all stakeholders. In turn, this builds trust with stakeholders as they know your company is delivering on its ESG promises.
Environmental and social impact extends beyond a company’s own operations and into their value chain, from suppliers to customers and beyond. Legal leadership will lead reviews of their value chain for human rights, environmental and governance risks, and provide guidance on the management of broader ESG impact.
While the objective for GCs and CLOs is often to mitigate negative impact, there is also an opportunity to encourage positive impact. Legal leadership can have significant input into the partners a company selects, and the way that the company is perceived in the marketplace. Forward-thinking GCs and CLOs can enable partnerships with innovative, socially responsible companies that will help your company achieve its ESG goals.
Legal leadership can also work alongside HR and the CRO to create and participate in groups internal to your company related to diversity, equity, and inclusion, and other ESG priorities to drive impact from the inside-out. By fostering an ESG-forward environment across the business, both employees and leadership will feel empowered to drive your company’s ESG goals and commitments.
CROs and legal leadership need to align an organization’s business model and operations with its ESG strategies and commitments. Doing what is required today will not be enough tomorrow given the fast output in laws, regulations, industry standards and public expectations. Sustainability and equity are imperative in the future of work, and strong legal leadership is integral in driving the changes that will help their companies succeed.
This article is the second in a series that will explore how each business function plays a role in ESG success. Stay tuned for the next blogs in the series in which we’ll discuss how finance and procurement leadership can help embed ESG practices across your company.