The European Union recently passed rules to guarantee that products within its jurisdiction do not contribute to deforestation and other forest degradation. The news is a positive sign for individuals and organizations committed to preserving our environment. This regulation marks another step toward ESG in corporate activities, the focus of today’s blog.

We provide a quick summary of ESG, its relevance to GCs and their legal departments, and some quick tips to improve your team’s ESG performance.

Key Takeaways

• ESG has the potential to impact every action and operation of a legal department and the business units it serves.
• GCs must incorporate ESG factors into their analysis when making strategic recommendations to C-suite and board members to maintain their business partnership status.
• You can improve ESG performance in your legal team by creating oversight committees, hiring ESG-focused talent, and building other safeguards into your SOPs.

What Is ESG, and Why Should it Matter to GCs?

Environmental, social, and governance (ESG) refers to an investor methodology that emphasizes the listed factors in addition to traditional financial measures. ESG’s importance extends beyond investment choices, influencing consumer loyalty to brands and prospective employee selection of employers. In short, ESG is an unavoidable metric for organizations, and neglecting it can lead to a negative business reputation. Specifically, ESG covers the following areas:

• Environmental: Concerns affecting our environment, including energy, climate change, natural resource stewardship, and biodiversity.
• Social: Focus on the treatment of labor and employees and efforts toward civil rights, especially for underrepresented and underprivileged groups.
• Governance: Focuses on internal practices, including leadership design and management within the organization to promote a sustainable operation. This pillar also touches on issues related to protecting companies from anti-competitive or corrupt practices.

For GCs and their legal departments, ESG issues are simply another element you must consider as an advisor. This is true for both your daily legal operations and specific strategic recommendations to your C-suite or other stakeholders. Legal teams not well-versed in ESG risk short-sided decision-making, which could lead to irreparable consequences, such as significant regulatory scrutiny or public resentment.

How Legal Departments Can Impact an Organization’s ESG

Every action a business takes – or fails to take – can create an ESG impact. Legal departments are no exception, as much of their work involves ESG issues as they aid other business units and stakeholders. Here’s how:

Contract drafting and negotiating: Crafting terms that protect the organization from the ESG mistakes of suppliers, contractors, and other business relationships. You might include certain representations and warranties for third parties, referencing compliance with ESG-focused regulations.

Regulatory compliance: Developing internal controls and reporting processes, including audits, to track and correct divergences from ESG best practices.

Marketing and promotional activity: Ensuring other business units accurately represent their ESG commitments to outside parties.

Due diligence: Reviewing public information, private disclosures, and other available data to make informed legal recommendations on the ESG impact of business decisions.

How to Improve ESG Performance Through Legal Operations

Consider the following initiatives to enhance your legal team’s ESG performance and demonstrate competence in this area to your C-suite.

Assign Committees with Representatives for Each Pillar of ESG

An intentional focus on ESG performance begins with oversight. Appointing representatives and committees for each branch of ESG will promote proactive behavior and keep your team one step ahead on key issues.

Align representatives with backgrounds that fit each part, such as employment & labor attorneys for social issues within ESG. Alternatively, your corporate transaction attorneys can provide oversight into the governance structures and policies of the company. Take the oversight one step further by building committees with stakeholders from other business units.

Conduct Audits of ESG Performance to Identify Risks and Opportunities

Review current and past ESG performance to know if your actions are making a positive contribution. ESG audits lend credibility to your organization’s public statements and should extend past the direct behaviors of the organization and include verifications from your third-party business relationships.

Prioritize ESG in Your Hiring Process

Building a positive ESG presence in your legal department requires talent committed and knowledgeable in these causes. Find candidates with prior work experience, education, or volunteerism in ESG issues and work them into your team. If you notice members of your legal team lack ESG experience, build this skill set through educational seminars and other opportunities.

Update Playbooks and Process Maps with ESG Checks and Balances

Implement ESG protocols into your legal operations by including protocols in your playbooks and process maps. The same as you would want a discussion of indemnity terms in a licensing agreement, you might want language that addresses compliance with environmental or social regulations.

Build ESG into CLM, Data Analysis, and Legal Technology Solutions

Add ESG elements to your CLM software and other platforms so your team can track related data more efficiently. This will save you time and other resources during audits and disclosures.

Review Use of Outside Counsel and ALSPs for Their ESG Scores

Most legal departments require the use of ALSPs and outside counsel to advise on niche issues or assist with high-volume projects. Typically, you would make these selections based on cost and outcome – i.e., who can get the project done right for the least amount of money.

You might add ESG into this equation when building rosters of panel firms and hiring on select projects. Consider ESG when selecting ALSPs and outside counsel. Look at their internal track record and governance and the records of their known clients.

Improve Your ESG Practices with Morae’s Legal Design Team

Morae is an ALSP that prioritizes the use of data and technology to improve the workflows of corporate legal departments around the world. Pairing technology with the diverse experiences and skills of our team, we help legal departments grow in a measured, cost-sensitive manner, with an eye toward productivity and the pressing needs of modern GCs, including ESG issues.

We offer organization, automation, and workflow management solutions for legal departments looking to improve performance.

Meet with an Morae Design Expert today to get started.