ESG is a vast and complex topic, and many senior leaders within organisations feel that they need to be an expert before they engage. However, General Counsel and in-house legal teams have so much to contribute in this arena that it is important for them to take the initiative – and get involved early and often.

This was one of the key takeaways from a recent event hosted by Winmark and chaired by Marsden’s Sarita Rai. Under discussion were a number of topics including: the aspects of ESG legal should be responsible for; how the legal function can assist the wider business in meeting its ESG targets; and, if there is already a Chief Sustainability Officer in place, how should legal interact with them?

There is a shift towards regulation, with businesses moving from consumer-driven ESG initiatives to compliance-driven ones.

• This can fragment responsibility, and turn ESG into a ‘tick-box’ exercise, rather than an integral part of business strategy. While compliance and risk management are essential, they should not stifle innovation.
• In some businesses, ESG falls very heavily on the legal function, which is often required to handle investor-driven benchmarks such as annual carbon reports. One GC dealt with this challenge by working hard to transition these responsibilities to a sustainability function, since ESG requires expertise beyond legal. This freed the legal team to focus more on corporate governance issues such as modern slavery and supply-chain audits, and has also benefitted other business functions by empowering them to own and drive ESG-related activities.

Legal departments often serve as the backbone in creating structures for ESG initiatives.

• While lawyers can contribute by ensuring compliance and strategic alignment with the company’s overall goals, it is important that other functions are involved—sustainability, finance, corporate affairs—and that the company has a clear framework to tackle sustainability goals. In short, legal can support the ESG strategy, but for maximum effectiveness it should not ‘own’ it.
• For ESG to succeed, it must be embedded into the company’s culture and ethos, and needs to permeate all levels of the business, not just legal and compliance.
• Many businesses can benefit by employing a sword, shield and standards analogy:
  • shield: the legal team protects the business from risks (such as ensuring compliance with modern slavery laws);
  • sword: legal helps drive competitive advantage through strategic ESG initiatives; and
  • standards: legal ensures that the company adheres to baseline compliance and hygiene factors.

What are the key challenges faced by businesses – and how can legal help?

• If there isn’t a CSO in place in the business, the responsibility for ESG often lies with the General Counsel. If there is a CSO, legal needs to take on supportive role and work closely with them to ensure compliance and accountability. CSOs can carry significant responsibilities with many moving parts, often without sufficient budget or representation, and a supportive GC can help drive integration into the company ethos to create a cohesive strategy for success.
• The remit and definition of ESG is constantly evolving. It is going beyond fulfilling stakeholder expectations to looking at the business’ true material impact. Double materiality—i.e. the consideration of both financial and non-financial impacts—is becoming increasingly relevant. There are also constant new challenges, such as the energy consumption impact of the increasing use of AI and its subsequent environmental impact.
• For a GC to be successful in influencing change, it is crucial to understand each audience and provide a tailored approach for each in order to align with what drives each stakeholder. Some may prioritise reputation, others cost savings, others a desire to outperform competitors.

Involvement in ESG strategy and delivery is just one of the many demands faced by today’s General Counsel. The Marsden in-house team is here to help, advise and add value to our GC/CLO network on this topic as well the other challenges facing them, such as AI/legal tech and legal operations. Contact Karen Glass, Sarita Rai, Kate Bramwell, Liam Richardson or Angela Floydd (permanent) or Amanda Chard (interim).