Prepare your Legal Department for ESG
Companies are under increasing pressure from their stakeholders to improve Environmental, Social, and Governance (ESG) performance. The legal department plays a crucial part in spearheading the necessary shifts in daily tasks and operational strategies.
Legal departments should start by aligning their practices with emerging ESG expectations. By taking a proactive approach, the legal department not only ensures legal compliance but also becomes a catalyst for change, embedding ESG principles throughout the organization's fabric. Taking these five steps will make legal departments ESG-ready:
(1) Review Upcoming Regulations. Make this your first action if you have not done it already. You really cannot delay. There are a lot of regulations on the horizon requiring disclosure and (in the EU) supply chain due diligence. These regulations may apply to your company, or you may be pulled into their orbit as a result of client requirements. Legal teams must identify applicable ESG regulatory requirements and communicate them to the business.
(2) Appoint ESG Champion(s). Change requires leadership. To make progress on ESG, someone in your department will need to make it their job. This may be all a full or part-time role depending on the size of your organization. If you are a solo GC – Congratulations, you are the new ESG champion. Large legal departments with global operations will require a network of team members spanning geographies.
(3) Educate your Team. Legal teams need to come up to speed on ESG concepts, terminology, frameworks, regulations, and reporting standards. Start with your champions. Encourage them to review existing resources (like PLC), attend training, and talk with experts. Your champions can then bring the information most relevant to your company back to your larger legal team.
(4) Identify Key Issues. A broad range of issues are included under the heading ESG. The importance of the different issues depends on your industry, size, location, and stakeholders. You will need to identify your company’s key issues and where they intersect with the legal department. Consider these areas:
• Supply Chain: Supply chain disclosure and due diligence standards are increasing sharply. Your legal team will need to build these considerations into the contracting process and terms. This includes conducting thorough assessments of suppliers' environmental, social, and governance practices to ensure alignment with ESG principles. Implementing contractual clauses that require suppliers to adhere to ESG standards can help mitigate risks and strengthen your company's commitment to sustainability.
• Disclosures: Investors, regulators, and consumers are focusing on company disclosures regarding environmental and social factors. It is crucial for your legal team to work closely with leaders responsible for internal and external communications to ensure accurate and consistent messaging across all public statements, including websites, news stories, and regulatory filings. Failure to meet this standard could give rise to allegations of greenwashing, damaging the company's reputation and undermining trust among stakeholders.
• Human Resources Policies: Human resources policies play a vital role in supporting an ESG framework. Your legal team should collaborate with the HR department to review and update existing policies, such as those related to diversity and inclusion, employee well-being, and health and safety. Emphasize the importance of creating a positive work environment that aligns with ESG principles and fosters employee engagement and satisfaction.
• Governance Structure: Strong governance is essential for effective ESG implementation. Legal departments must review the existing governance structure and recommend any changes necessary to effectively implement an ESG framework or comply with ESG regulations. Collaborate with the board of directors and executive leadership to establish clear lines of accountability and responsibility for ESG matters. This includes incorporating ESG considerations into leadership charters and establishing reporting mechanisms to monitor and disclose progress.
(5) Update your Compliance Program: Enhancing compliance programs to incorporate ESG requirements is critical. Whether it is inside or outside of the legal department, the compliance function will need to conduct a comprehensive review of existing policies and procedures, identify areas where ESG-related risks may arise (such as environmental regulations, labor standards, and data privacy), develop training programs to educate employees on ESG compliance and implement monitoring mechanisms to ensure ongoing adherence to these requirements.
By getting its own house in order and actively participating in the development and implementation of ESG initiatives, legal departments can provide valuable leadership and support in integrating ESG principles into the company's overall strategy. Embracing ESG will your company’s risk while also making it more competitive in the context of evolving market expectations.