LegalAugust 09, 2022

Does your corporate legal department lead the ESG strategy?

ESG strategy has been a hot topic among companies for several years. These criteria allow companies, their potential investors and even their customers to assess their impact on society and the environment.

But what is the role of legal departments in implementing ESG strategies in their companies? Are they involved in these issues? Do they have a leadership role? Do they have operational functions in the implementation of these strategies?

What is certain is that the legal department has expertise that is of great help to companies wishing to improve their social and environmental impact. They act as a catalyst in the definition of the strategy for controlling ESG risks. They might be responsible for defining the steps for the implementation of ESG processes, and helping the governance to position itself on decisions, especially regarding selecting criteria linked to performance.

According to the company, the Corporate legal department (CLD) is not necessarily the leader of the ESG strategy. Nevertheless, lawyers recall the deep conscious and values of the brand and the company, and they usually know how to analyse “weak signals”, i.e. indicators of potentially emerging issues. This helps them to foresee crisis trajectories, avoid any kind of local or global regulations that can be prejudicial for the company, and more generally to ensure the ethics of the company's ESG practices. It can be concluded that even if it does not carry all the ESG strategy, the corporate legal department has a leadership role in the ESG plan creation and establishment.

What are the main actions of the corporate legal department? With whom do they interact?

There is more and more regulation around ESG issues, and more and more regulatory actors.

Lawyers might have to call upon their professional branch associations and trade unions, which are the most present in the technical commissions (and are also composed of lawyers!).

General Counsel (GC) is called upon for his ability to have a holistic vision of which cursor and which ESG criterion to legitimately choose. He must ensure that the choice of repository and the reporting aggregation systems are reliable and perennial over time. The legal department has to interact with the rating agencies, create a relationship of trust with them, but also possibly discuss the rating method. Indeed, just because an agency has its own rating criteria with matrices and cursors does not mean that there is no reason to have a critical opinion on the way they work, on their completeness, or on a bias due to state ownership. It is the experienced eye of the GC that will be able to separate the wheat from the chaff.

In addition, rating agencies usually use public documents to assess the company. The GC may, if he deems it necessary, provide the agency with additional documents and information to give a broader picture of the company. His role is important because they must know what information to give, and what to confidential.

Of course, the quality of the rating is the responsibility of the assessor. The first area of work for the CLDs is the quality of the review of contracts, because a failing rating is a liability.

There is a field of litigation that might interest in-house corporate lawyers because the company might not be the object of the litigation but may be the plaintiff.

Finally, the legal department also needs to ensure that the needs of investors are considered. Shareholder activism is also a very good support for change in a company and is currently transforming corporate governance. The needs of eco-consumers should also be at the centre of the debate. The role of the GC is to help the company in its choice of benchmarks to facilitate their questioning. ESG matters are creating a new and very interesting relationship with civil society, and lawyers can act as a bridge in a virtuous partnership.
Legal departments shaping the ESG strategy
Positioned as the intersection of legal, compliance and risk management, legal departments need to take the lead in ensuring that the ESG factors are not overlooked in their businesses. To learn more on the role of legal departments in shaping the ESG strategy, download our whitepaper.
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