Is ESG the opportunity GCs have been waiting for?

With global ESG assets at more than $30tn and expected to grow further, ESG will help define the future for business and society. General Counsel (GCs) have a powerful opportunity to steer businesses towards sustainability and Timothy Wilkins, Global Partner for Client Sustainability, recently led a discussion to investigate how lawyers will play a central role. He was joined by Kirin Kalsi, Head of Legal UK for E-ON; Keith Carr, General Counsel at Lafarge Holcim; and Chris Allen, General Counsel for Corporate, Commercial and Institutional Banking and General Counsel for Europe and America at Standard Chartered Bank.

Kicking off the webinar, Wilkins noted that sustainability and the economic, social and governance aspects of ESG have all now moved into the core of board strategy and C-suite decision-making. “In the transaction space lawyers face issues around the acquisitions of renewable assets and disposals of high carbon producing ones. On the litigation side – we certainly are looking at risks of the potential harms of climate change but also a growing amount litigation related to appropriate disclosure of sustainability activities. And then, of course, lawyers must assess an entire web of fast-moving regulatory changes.”

Companies and countries alike are considering carefully where to deploy resources to build back in a greener and more sustainable way after the pandemic, Wilkins added. “All these issues land squarely in the lap of our GC panelists.”

Sustainability-related risk management

The shift to ‘purpose-driven’ companies is central to the sustainability debate. But, Tim asked, how does that fit into the risk management and hard law management responsibilities of a GC?

Lafarge Holcim’s Keith Carr said that making a purposeful contribution is important. “A company now not only has to be operationally successful, it has to have the right moral compass and company ethos in everything it does.”

Considerations include health and safety, labour practices, environmental compliance, governance and more. Given this long list, Carr said GCs must go beyond ‘traditional law’ to grapple with the implications of emissions trading, NGO charters, human rights practices, sustainability metrics and UN reports, among others. “We have to adapt from what and how we learned in law school.”

Legal and compliance teams must also understand that compliance with the law is no longer good enough, Carr argued. GCs must look at the wider issues, understanding all of the possible consequences of an action.

Contributing to sustainability as a GC

With many companies now having internal sustainability teams and chief sustainability officers, Wilkins asked how a GC can best contribute to an organisation’s sustainability transition.

E-ON’s Kirin Kalsi advised to approach people directly and be proactive. “You’ll likely find an open door if you push,” she said, noting that many organisations already do a lot in sustainability –related to legal requirements like sanctions, modern slavery, environmental impact reporting – but may not report on these actions or measure them.

Becoming sustainable can be made more manageable by finding simpler short-term improvements, as well as working towards long-term goals, Kalsi said. “Speak to your supply chain colleagues. Likely you can put in some fairly straightforward additional clauses into your standard procurement contract. That’s a really easy quick win.”

She also suggested a collaborative, multidisciplinary approach. “Don’t try and do this all on your own. Talk to colleagues across the group and in other jurisdictions, and peers in other organisations.”

ESG integrated into business strategy

Standard Chartered Bank’s Chris Allen underlined the all-encompassing nature of ESG across business strategy. “ESG is not a standalone, siloed series of activities that are somehow separate from the rest of the strategy of the organisation – it’s deeply embedded.”

At the strategic level, he said, an organisation’s decisions on the future direction of a business are intertwined with ESG. “GCs are ideally part and parcel of that conversation.”

GCs also have an important role to play in risk and governance, Allen added. “The lexicon that sits around this topic is still a moving target from a legal and regulatory point of view. Embedded within that is a lot of potential reputational downside risk if you get that wrong.”

Sustainability-related regulatory frameworks increasingly sit around transactions, with evolving taxonomies. “Critically, we’ve seen changes within the last couple of years in the  regulatory capital of sustainable versus non-sustainable-linked financing, and that is significant, particularly in the realms of project finance, where it actually goes to a dollars and cents discussion – it’s not just about reputational risk.” 

Widening out to the international, cross-border transactional environment means “huge amount of fragmentation and complexity”, Allen said.  

The discussion, concluded with further questions on the potential risk of ‘greenwashing’, how GCs are dealing with issues around the pandemic, such as mental health, and the financing of sustainably-aligned strategies.