Today’s legal departments are more overworked and overstretched than ever, with in-house counsel spending most of their days in responsive mode, putting out fires while trying to stay on top of transactions and litigation. This setting is a perfect breeding ground for complacency and inertia to set in—to keep doing things as they’ve always been done—with seemingly little free time to ponder how creative initiatives could bolster Legal’s contribution to the broader business.
However, there are opportunities to be had. One emerging area with great potential for in-house counsel is in the development and implementation of an environmental-social-governance (ESG) framework to drive sustainability efforts within their organizations. Not only is this a good fit for our ever-expanding role given our skills and functions, but it also provides a refreshing opportunity for us to make a deep and lasting impact in our organizations.
Having recently embarked on this journey at my organization, I would like to share aspects of our ESG framework roadmap as a reference point for those on the cusp of navigating through similar waters.
What is ESG and Why is it Important?
ESG criteria are a set of factors for a company’s operations intended to measure its sustainability performance in each of the three key areas:
- Environmental (e.g., water consumption, greenhouse gas emissions)
- Social (e.g., business relationships with employees, suppliers, customers and communities)
- Governance (e.g., corporate leadership, internal controls and shareholder rights)
A company’s ESG performance is an increasingly central consideration for investors, mutual funds and brokerage firms. More fundamentally, there is emerging consensus that a company’s long-term sustainability and profitability depend on effectively serving as stewards of the environment, valued contributors in the communities where they work, and responsible corporate citizens in the eyes of their workforce and clients (among other stakeholders).
Why Should In-House Counsel Take It On?
In-house counsel are well positioned to drive the development of an ESG framework for a number of reasons:
- We enjoy broad visibility and engagement across all of the organization's business lines.
- We are intimately involved in development of corporate policies and standards, as well as in compliance, governance, human rights, anti-corruption, diversity and inclusion, and enterprise risk management (including risk mitigation) matters—all of which are at the heart of the framework.
- We are sometimes referred to as the conscience of a corporation, which aligns well with the ESG ethos.
- The GC, as a strategic and trusted business advisor, has a direct line to corporate leadership, which is critical to the effective development, implementation and oversight of the framework.
In my case, I’m the only legal officer for a public company with over 3,000 employees and operations in 15 countries. While we already had many of the underlying ESG pieces well entrenched in our organization, particularly on the health and safety side, our challenge was to formalize and consolidate our efforts under an overarching ESG framework that could apply across our global operations. Keeping that particular context in mind, pick and choose the elements of the roadmap below that make the most sense for your specific business, corporate culture and industry.
Roadmap for an Effective ESG Framework
- Establish and adopt an ESG policy. The ESG policy sets the foundation for your company’s ESG framework. It should capture your company’s guiding ESG principles and values, such as transparency, integrity and continuous improvement, and serve as the lodestar to inform and guide your efforts in ESG across operations going forward.
While identifying these elements entails some corporate soul-searching to make sure that the end product fits your company’s DNA, there’s no need to reinvent the wheel. There are all kinds of easy-to-find ESG policy examples from other companies that can serve as inspiration.
As internal buy-in to this process is critical for its long-term success, you should involve your senior management, board of directors and other key stakeholders early and often for their input. The same can be said for the broader ESG implementation process, as it’s fundamentally an exercise in embedding ESG commitments into your organization’s corporate culture and operations.
When determining which areas to focus on in your policy, consider which key priorities are aligned with your company’s values and those of your stakeholders, as well as your operational realities. Take, for example, the environmental category. While aspirational goals such as the promotion of biodiversity and responsible land management may be appropriate for a mining company, a service provider to that company may only be able to affect meaningful impact in a smaller subset of related issues, such as responsible operational water management. Also consider materiality considerations like climate risks to operations and social license to operate.
In developing your ESG policy, think about how your organization’s sustainability strategy forms part of the broader corporate purpose, strategy and vision. Taking part in such an assessment can also open the door for counsel to influence these broader guiding principles.
- Launch an ESG committee. The rubber hits the road on implementation—and the legal team is not sufficient to undertake these efforts alone. Broad involvement from across the organization is necessary, and setting up an ESG committee can be an important part of this. The GC is well positioned to coordinate these efforts and serve as the liaison between the committee and senior management and the board.
In forming the committee, it’s important to include a broad yet manageable representation from across your company’s business lines and disciplines, such as regional representatives, technical experts and ESG ambassadors who help secure buy-in for the initiative.
This committee should be at the forefront of launching the framework, serving as local champions for the implementation and monitoring of initiatives; assisting in the identification of key metrics; providing input for communications initiatives; and advising on any related stakeholder concerns. The committee can also be charged with finding fun ways to engage various parts of your organization in ESG-related initiatives. For instance, you could have branches compete for most volunteer hours dedicated to local community initiatives.
- Develop an ESG repository. A critical piece of the framework is recording what your organization is already doing under the E, S and G categories. This repository performs two functions. First, it serves as the central database to measure and track progress across the various priority areas outlined in the policy. Second, it provides a useful resource to inform the ESG story conveyed to both internal and external audiences.
The process of developing the repository also helps identify potential gaps or concerns. While a quantitative analysis is part of this process (e.g., volunteer hours, frequency of meetings with community leaders), a qualitative assessment is also necessary to determine whether these engagements are having an impact. The results of this exercise should help inform necessary revisions and updates to the ESG policy.
- Develop an external-facing communications plan. After the above elements are in place, a subsequent stage may involve strategizing how to best tell your ESG story to your audiences. For example, an ESG page on your company website showcases your unique story. While this page should highlight your successes, consider also noting your challenges (e.g., targets missed) and how you’re addressing them. This page could be complemented by a social media strategy that taps into your networks across various platforms.
- Draft public disclosures. For public companies in particular, determining how you wish to relay your ESG efforts to the markets is a key consideration. You have a few options, including annual reports, sustainability reports, annual information forms and management proxy circulars. As in-house counsel, put your technical expertise to use when drafting ESG-related disclosures. Remember that the markets expect companies to identify where they’re executing and falling short, with explanations on how they intend to fix it.
- Ongoing board oversight. Markets don’t just want ESG to be top of mind for senior management; they also want someone on the board of directors to be charged with this responsibility. The chair of the corporate governance and nominating committee is often the one to assume this responsibility. Some boards have even renamed that committee the ESG Committee as a reflection of the pre-eminence this topic now has.
Potential Risks and Pitfalls
In undertaking the development of an ESG framework, a potential risk relates to reputation. If a company’s efforts are perceived as a greenwashing communications strategy or an effort to placate scrutinizing investors, it could be exposing itself to a serious reputational hit. A more thoughtful approach is to develop the communications strategy after senior leadership buy-in and a firm foundation for the framework are securely in place.
Another potential risk is the company not living up to its policy statements. For example, if greenhouse gas emission targets are set, and then repeatedly missed without good reason, the company and its leadership may be in an awkward position when asked to explain.
Finally, regarding the external communications strategy, be mindful of the risk of posting initiatives on social media before actually producing much in the way of results. Again, this speaks to the sincerity and intention behind your company’s ESG efforts.
While the above is by no means an exhaustive list of all the various elements that make up an effective ESG framework, hopefully it serves as useful guidance. It also illustrates how this is an emerging area where we, as in-house counsel, can play a significant role as agents of change.
We should be reaching beyond our organizations to collaborate with one another on ESG efforts and initiatives, to enhance both the value we bring to our organizations as individuals and the value of our profession as a collective, all while contributing to the long-term viability and sustainability of our companies.
Andrew McLaughlin is the VP–Legal Affairs, General Counsel and ESG Lead at Major Drilling Group International Inc. In 2018, he was named a Lexpert Rising Star. He previously served as a diplomat at the Canadian embassies in Havana and Mexico City. Connect with him on LinkedIn to get the conversation started.