ESG plays a key role in measuring investments in businesses and determining the company’s sustainability, often based on an ESG based framework and a grading system. Reporting on ESG is important for companies to keep a healthy relationship with investors, shareholders, and other key stakeholders, and to establish themselves as having a positive impact on their communities and the planet. 

As the guardian of the business with a deep understanding of risk and proactive mitigation, it is upon the Corporate legal department (CLD) to lead the ESG strategy and guide the business through their efforts by:

1) Effectively communicating the risk and opportunities of the ESG strategy 

In-house corporate lawyers have two advantages: technical expertise and a good awareness of the company's limitations in implementing its ESG strategy. They act as a catalyst in the definition of the strategy for controlling ESG risks and support all departments of the company involved. 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.

2) Developing ESG reporting and disclosure mechanisms 

In this process, the Chief Legal Officer can play a role in helping leaders understand the risks and opportunities inherent in the ESG strategy by clearly communicating how ESG risks are identified and prioritised. The leadership opportunity here lies in the effective communication of the ESG framework to all stakeholders (including not only shareholders, but also others such as leadership, employees, customers, regulators, and the board) and the development of a strong and enforceable ESG compliance program across the enterprise.

3) Influencing the regulatory environment by sharing their experiences with regulators and developing ESG regulatory structure to have positive outcomes

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. 

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.

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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