Who remembers ESG? Before the coronavirus crowded them out, environmental, social, and corporate governance (ESG) issues made headlines. Today, ESG is often relegated to the “second page”.
Of course, ESG never went away. The European Commission and European Parliament agreed in December 2020 that sustainability will be the foundation of Europe’s path forward, in the aftermath of the COVID crisis. The EU’s long-term budget has set aside €1.8 trillion for a greener, modernized, socially responsible Europe after COVID. And at the time of writing, MEPs are pushing for new corporate, environmental and human rights due diligence requirements; the draft language has already passed committee.
But you need not consult the news to know that ESG is still one of the most important issues of the day. Ask your general counsel (GC): ESG remains a top concern for corporate law departments, and a pillar of new corporate strategies.
Federico Piccaluga, group general counsel for Duferco and national representative for Swiss ACC Europe, put it well. “ESG areas (environmental, social and corporate governance) represent the common ground between sustainability management and legal department activities,” he wrote in the International In-house Counsel Journal. “In-house [counsel] have a privileged position in order to lead and drive real change and move beyond mere compliance with regulatory requirements.”
Piccaluga is markedly interested, among other aspects of ESG, in environmental criteria. Indeed, the climate crisis in particular has the attention of GCs globally. According to the Association of Corporate Counsel (ACC)’s 2021 Chief Legal Officer Survey, the world’s most comprehensive census of GCs and chief legal officers (CLOs), 15 percent of GCs are the responsible officer for ESG and associated efforts (including environmental sustainability) in their company. Separately, 15 percent of GCs predict that the biggest legal challenge to their company this year – edging out COVID, data privacy, geopolitics, and new regulation – will be directly related to climate change.
Europe has emerged as a global leader in ESG
This trend is more pronounced in Europe. An incredible one in three European GCs predict that climate change will pose the biggest legal challenge to their company this year, a higher proportion than any other region of the world. ACC data show the closest region in terms of attention to climate change among GCs is Asia-Pacific, at 24 percent.
ESG is more than environmental policy, though. Social issues like diverse hiring efforts fall under this rubric, an accelerating trend following #MeToo and the call for racial justice in the United States and various European countries. ACC data shows that GCs worldwide are adopting new diversity standards and processes. In the open-answer section of the 2021 ACC CLO Survey, respondents listed hiring diversity officers, revamping employee training, and reaching out to the community as increasingly common tactics in their ESG efforts.
To date, this focus on ESG and diversity is largely a legal, not a shareholder, initiative. In about 85 percent of companies globally, shareholders have neither encouraged nor discouraged their legal department from addressing political or social issues. The survey data suggests this number is close to 100 percent in Europe. The new attention to diversity comes from law departments, likely driven in conversation with stakeholders from employees to the board, but it is also an important business decision in the short and long-term.
GCs as strategic partner: Getting closer to the board room
And as boards themselves are calling for diverse governance, it’s no surprise that their relationships with the GC have never been so important. The 2021 ACC CLO Survey shows four out of five GCs regularly attending board meetings, a figure that has been rising steadily for as long as ACC has tracked it. This year, just under a third of GCs reported meeting frequently with board members outside of formal sessions.
Implicit in this last figure is the fact that boards rely on the GC as a strategic partner. We are in the “age of the CLO,” where GCs have outgrown the strictures of the traditional legal department and are bringing their holistic perspective on risk, privacy, regulation, and strategy to the executive table. The 2021 ACC CLO Survey shows about 80 percent of GCs report to the CEO, a trend that has risen steadily over the past few years. Modern companies have learned that a CLO’s seat at the executive table means that the CEO can count on input from the only officer whose day-to-day tasks encompass risk, data privacy, operations, regulation, litigation, ESG and more.
In a way this seems inevitable. So does the keen interest of European GCs in environmental issues: with the United States only recently having returned to the Paris Accord, Europe has emerged as a global leader in ESG over the past few years. The sitting Commission has declared its goal of 100 percent climate neutrality by 2050 and its plans for stricter corporate responsibility protocols, like human rights due diligence, seem likely to pass into law. Guiding this push, behind the scenes, are corporate lawyers and GCs.
Explore curated resources for in-house counsel in the ACC Collection: Sustainability (included in ACC membership)
Register for the 2021 ACC Europe Annual Conference and discuss the role the legal function has to play in Environmental, Social and Governance.
Join ACC’s Environmental and Sustainability Network to further your knowledge and expertise, expand access to resources, and enhance the skills needed to advise your company on related matters (included in ACC membership)