In-House Counsel Takes a Leadership Role in Driving Companies’ ESG Strategies

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In-house counsel overwhelmingly take a leadership role in driving their companies’ ESG strategies, according to Morrison Foerster’s GCs and ESG survey. Eighty-six percent of respondents report that their companies provide ESG disclosures, half of them voluntarily. Nine in ten legal departments surveyed lead a material portion of ESG initiatives in their organizations. However, approximately one in five respondents relies on compliance officers — who do not always report to the legal department — to implement their companies’ ESG goals, pointing to a possible disconnect between strategy and execution.

Nearly half of respondents acknowledged that their companies changed their approach to environmental action in the last year by increasing public transparency (49%), making emissions changes (44%), or increasing their environmental regulatory compliance budgets (41%).

Survey highlights include:

• According to respondents, companies are more likely to put a higher emphasis on ESG’s “G” pillar (governance), followed closely by the social/human capital aspects (“S” pillar).
• Changes in the workplace and shifting social and cultural expectations about businesses have broadened the legal teams’ ESG priorities to include social/human capital management in more forms. After governance (84%), 78% ranked social and 77% ranked human capital as their companies’ biggest areas of focus. Diversity, equity and inclusion (DEI) was identified by legal departments as their top departmental ESG priority (72%).
• Looking at the environmental pillar specifically, according to respondents, improving a company’s brand image and reputation is the top motivator for organizations to adopt an environmental strategy beyond required compliance with environmental laws (85%); staying competitive in the market (73%) and increasing pressure from investors and shareholder (54%) rounded out the top three responses.

Companies are considering various levers to meet ESG objectives, and corporate governance is an important tool. However, with the increasing focus on ESG, some companies will attempt show their association with ESG strategy and operations without effecting real change. The survey respondents are aware that, for ESG to be successful, its effects must be measurable and meaningful, and that such greenwashing — or the appearance of greenwashing — is to be avoided. An important mechanism for aligning ESG priorities with a company’s operations is through executive pay, and 54% of respondents note that their companies’ executive compensation includes incentives or mandates for ESG metrics.

A separate report by Wolters Kluwer says regulatory compliance systems help companies quickly abide by a number of government and financial policies, including the upcoming European Union Taxonomy, GRI Standards, SASB Standards and other frameworks. Additionally, governance impacts corporate credit ratings the most when it comes to ESG situations, according to a report from Fitch Ratings.