ESG and the Evolving Role of In-house Counsel

New SEC regulations, investor demands, questions from clients and employees — everywhere you turn pressure is increasing to improve your company’s environmental, social, and governance (ESG) performance. As in-house counsel, you may be wondering what your role is in all of this.

Whether by choice or necessity, more and more in-house counsel are finding themselves at the helm of ESG issues. A recent survey found that 42% of in-house leaders are responsible for at least one aspect of ESG. And there is good reason for counsel to get involved.

When it comes to ESG performance, the stakes for companies could not be higher.

Today, most companies are already making public representations on their environmental and social performance. Some of these representations are required under regulations. The majority are voluntary statements made on websites, in sustainability reports, and in the press.

Statements on ESG are often intended to impress or appease stakeholders and support the company’s brand. But companies that make ESG representations without sufficient diligence to support them will quickly find themselves in hot water. As the focus on ESG increases, stakeholders are questioning the accuracy of ESG statements. Inaccurate statements are resulting in costly allegations of greenwashing, consumer fraud claims, litigation, and regulatory violations.

On the flip side, companies have a lot to gain from building a strong track record of ESG performance. Study after study has shown that companies with high ESG ratings deliver better financial results. The political narrative that ESG is a waste of shareholder money is simply untrue. ESG performance metrics are about mitigating environmental, social, and governance risks. Risk mitigation is a foundational element of good management. As added value, companies that are ahead of the market on ESG performance can leverage it to win business, appeal to investors, and recruit and retain top talent.

The business case for ESG is clear. But still, why should in-house counsel get involved? ESG feels like a foreign subject to most legal professionals. Even today, law school classes on the subject are few and far between, and CLEs about ESG are hard to find. Understanding ESG requires legal professionals to learn new terminology and concepts. It’s complex and sometimes intimidating.

But if you step back for a moment and look at your organization as a whole, you will realize that very few people have expertise on ESG. Finance, operations, human resources, strategy — none of these areas are likely to have a depth of knowledge on ESG. Perhaps you are fortunate enough to have a couple people with ESG experience on a corporate sustainability team. Even if that is the case, much more will be required to succeed in making real change.

We are all learning how to approach ESG together, and in-house teams have unique strengths that can be leveraged to significantly improve performance in this area.

1. You Already Cover The “G.”

Governance refers to the structures, policies, and processes put in place to ensure that companies operate ethically, are accountable to their stakeholders, and have the right level of leadership oversight. Modern corporate governance structures are largely born out of corporate law, compliance, and financial auditing requirements. As in-house counsel, you are well-versed in these requirements, and you hold much of the responsibility for ensuring they are operational.

You can integrate the “E” and the “S” into governance structures with a few simple changes:

• Define the governing body that has responsibility for environmental and social performance.

• Update your codes of conduct to include any environmental and social issues that may be missing.

• Incorporate environmental and social considerations into your risk management framework.

Taking these steps will set off a domino effect in your organization and provide the foundation needed to improve ESG performance.

2. You Know How To Manage Risk.

Risk management is a fundamental responsibility of in-house counsel. In-house legal teams are deeply involved in the risk management process. The shift we need to make is to start exploring environmental and social risks more deeply.

For example, look at a map of where you have assets and production and compare it to climate change forecasts. Consider whether you are doing business in geographies with significant political risk or whether you have subcontractors who may not be observant of labor rights. Conduct a materiality assessment to determine what your stakeholders (investors, clients, and employees) expect from you in this area.

Once you acquire more data on environmental and social risks, you will be able to prioritize and mitigate them.

3. You Are Positioned To Succeed

One of the unique aspects of ESG is its cross-functional nature. Cooperation from every department in a company is required to move the needle on environmental and social performance. In-house legal teams touch every area of the business. They have broad visibility, relationships with all the key players, and the respect it takes to move new initiatives through their company. This gives in-house counsel the platform needed to lead on many ESG issues.

Have I convinced you to dive into ESG yet? If so, the next question is where to start. There is no one right answer to this. Hopefully, I have given you a few ideas to work with. Remember that the most important thing is to start somewhere today. Every step you take will make the next one easier and prepare your company for the future.