Environment, social and governance (“ESG”) issues are more important than ever and it’s essential for business leaders to have a clear and effective ESG strategy.

Kate Fergusson, Head of Responsible Business at Irwin Mitchell, recently chaired a panel discussion hosted by The Lawyer, looking at a smart approach to ESG. 

You can watch the session on our YouTube channel.

Following the discussion, we have summarised below some practical tips to help in-house Legal Teams approach ESG smartly, and balance ESG priorities with their existing responsibilities

The role of General Counsel when it comes to ESG

ESG isn’t new. The environment, sustainability, diversity and good governance are all common issues that have been discussed previously. The difference now is the enhanced focus on ESG, particularly from customers, shareholders and investors, and the subsequent increase in regulation that has come from this.

As a GC, a key role is to understand the business’ approach to ESG and consider the specific areas that the business is focusing on. This enables a GC to properly consider the risks associated with the business’ specific ESG strategy, rather than trying to break down the risks associated with ESG generally, which is a huge topic.

ESG is a far-reaching issue that runs through everyone’s role in the business. GCs are in a unique position as they see all areas of the business, meaning they can connect different stands to implement one cohesive ESG strategy. GCs should therefore understand how each team in the business is approaching ESG and encourage collaboration between them.

Legal function and ESG strategy 

Legal Teams can help ESG strategy by enabling the business to deliver ESG initiatives. GCs can support the business by advising on the risks, and helping implement, different parts of the business’ ESG strategy to ensure it is delivered properly and effectively.

There are specific strands of ESG that Legal Teams should understand and advise on, including contracts, regulations, legislation, data protection and more. However, it’s important for Legal Teams to also understand the business’ overarching ESG objectives. Understanding the bigger picture helps align the different stands of ESG and makes working on ESG more rewarding and engaging. There’s a lot of scope for internal education in this regard. ESG experts in the business, such as sustainability officers, can have internal discussions to improve everyone’s understanding of ESG, and the business’ specific ESG strategy.

Legal Teams can also hold the business to account in relation to the ESG strategy it’s created. For example, GCs often control the agenda at board meetings and they can use this function to ensure that ESG is properly discussed and addressed, including when boards are making decisions. At times, it can be challenging to keep ESG on the agenda as talk around performance can dominate. However, GCs scan steer meetings to ensure ESG gets the attention it needs.

GCs can influence the business’ agenda through approval systems and internal processes. For example, GCs can create a decision making framework that requires directors to consider ESG implications when making decisions about the company, in accordance with the requirements of section 172 of the Companies Act 2006.

Approaching risks smartly 

Customer facing businesses need to be aware of consumer risk and business risk:

  • Consumers are increasingly making “conscious” purchasing decisions, meaning that they are more likely than ever to spend money elsewhere if a business is not doing well on ESG. So ESG can have an impact on profitability as poor ESG performance could result in a drop in sales. Equally, not living up to your ESG claims can have a material adverse impact on a business and its reputation.
  • Investors are looking closely at what they want to invest in and many businesses benefit from sitting within ESG funds. Poor ESG performance can therefore impact share price and investment levels as well.

All businesses should be aware of the risk of trying to deliver on ESG too quickly. There’s pressure for businesses to implement ESG policies rapidly, but ESG is a long-term issue that needs to be considered carefully. For example, setting net-zero carbon goals and carbon footprint targets without properly considering how, and if, such goals can be delivered can lead to greater issues and reputation damage if such targets are missed. GCs should therefore help the business strike a balance between pace and accuracy.

If you’d like to chat with us about your ESG strategy and how to approach ESG issues, please contact Faye Bargery.