Environmental, Social, and Governance (ESG) factors have become increasingly important in the business world, affecting corporate decision-making and risk management. One consequence of the pandemic has been a heightened sense of the awareness of the importance of social impacts around the world. It is clear that the way we do business is changing and it is going to continue to change significantly in the months and years ahead.
Environmental, Social, and Governance (ESG) is an important concept that companies consider when making decisions. It encompasses a broad range of factors that stakeholders use to evaluate a company’s operational performance as it relates to social an environmental impact. There are three pillars in ESG frameworks which represent the three main topic areas that companies are expected to report on.
Corporate Governance
Corporate Behaviour
As a lawyer, understanding Environmental, Social, and Governance is crucial, as clients will increasingly seek advice on navigating the complex regulatory landscape, managing potential liabilities, and addressing the reputational risks associated with it.
There are a number of areas where legal teams are frequently being asked to assist.
Lawyers should be familiar with the various ESG frameworks and standards, such as the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-related Financial Disclosures (TCFD), and others. Understanding these standards is essential for advising clients on ESG reporting and disclosure.
This includes securities laws, environmental regulations, employment laws, and more, as they pertain to ESG considerations.
Lawyers should help clients assess the legal risks associated with ESG issues. This may include environmental liabilities, employee relations, and compliance with anti-corruption laws, among others.
Advise clients on ESG-related corporate governance practices. This includes recommending changes to board structures, policies, and practices to ensure effective oversight of ESG issues.
Help clients establish ESG due diligence processes for their supply chains. This includes identifying and mitigating risks related to human rights violations, environmental impacts, and other ESG concerns in the supply chain.
Litigation and Enforcement
Be prepared to represent clients in ESG-related litigation or enforcement actions. Lawyers should understand the potential legal liabilities and litigation risks associated with ESG matters.
ESG considerations are increasingly important in M&A transactions. Lawyers should advise clients on how ESG issues may impact deal negotiations, due diligence, and post-acquisition integration. Developing robust contractual clauses can help clients manage risks and obligations more effectively.
Assist clients in preparing accurate and transparent ESG disclosures in financial reports, ensuring compliance with relevant accounting standards and regulatory requirements.
Help clients engage with stakeholders, including investors, customers, and advocacy groups, on ESG matters. Lawyers may assist in developing communication strategies and handling disputes or negotiations with stakeholders.
Encourage clients to adopt ethical and socially responsible business practices that align with ESG principles. This includes advising on sustainability initiatives, diversity and inclusion efforts, and community engagement.
Understand the legal aspects of impact investing and ESG-focused funds. This involves knowledge of fund structuring, regulatory compliance, and fiduciary duties.
Assist clients in evaluating insurance options for ESG-related risks and identifying ways to mitigate potential financial and reputational harm. Grasping its broader implications enables you to foresee and alleviate risks, safeguarding your clients’ interests. In doing so, you also ensure compliance with pertinent regulations.
Given the importance of data in ESG reporting, lawyers should be aware of data privacy regulations and cybersecurity concerns related to ESG data collection and disclosure.
If clients have global operations, lawyers need to be well-versed in international ESG standards, regulations, and cultural considerations.
It is clear that ESG is going to continue to grow in importance and embracing the changes and best practices will be crucial for both clients and professional development. Lawyers who want to demonstrate their ESG credentials can take several steps to showcase their expertise and commitment to this area of law. These can include:
With many law firms now having dedicated ESG practices globally to service growing client demand it is clear that lawyers with dedicated experience in this area will be in demand in the years ahead. Whilst Asia may still be playing catch up to the rest of the world there does appear to be a move for many corporate clients to make this area a focus and part of a dedicated strategy moving forward.
About the author
Camilla is the Founder and Managing Director of Worthington Legal. She has over 18 years of legal experience, initially as a lawyer in a top city law firm in London before moving to Hong Kong in 2014. Camilla regularly presents at partner strategy meetings, advises on market trends and hiring strategies and mentors lawyers at all career stages, both professionally and with the Women in Law Mentoring Programme.
