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The ESG GC: How Your Role as Chief Legal Officer is Integral To Your Company's ESG Efforts

The ESG GC: How Your Role as Chief Legal Officer is Integral To Your Company’s ESG Efforts Background Image

Published in CorpGov, February 17, 2021

General counsels are often charged with a complex collection of duties, responsibilities and poorly defined issues to worry about, and with the rise of public interest in ESG matters, navigating ESG considerations has been added to many GCs’ long lists of to-dos. ESG is, and should be treated as, a new practice area, and GCs should seek appropriate internal and external support. Finding external ESG support requires a type of due diligence similar to that required for finding external counsel, with the caveat that being an ESG expert is currently a bit more trendy than it is likely. However, companies rarely rush out to hire internal ESG expertise, and so often GCs are charged with playing the role for some period of time. That being said, even when companies hire internal ESG expertise, the GC role will remain integral to an effective ESG strategy.

We have outlined below the principles we think may help GCs support their management teams and boards in overseeing and implementing the company’s ESG strategy.

Your role as a leader who helps establish the “tone at the top” and the company’s ethical culture

As GC, you play a unique role as a gatekeeper of good corporate practices and ethical considerations. What does this mean practically speaking for ESG purposes? It means that you should be a guardian with respect to disclosure controls, the company’s litigation strategy and the company’s compliance practices. In summary, your involvement in the review of the company’s disclosures should include reviewing voluntary disclosures, and you should apply your critical lawyer’s eye to whether those disclosures are tied to effective controls or involve too much puffery (particularly if they are included in SEC filings). You should also consider whether cautionary or clarifying language is appropriate. You also are the person who likely is most aware of the company’s litigation strategy. If there are aspects of the litigation strategy that conflict or could appear to conflict with the company’s ESG positions, you should consider how those conflicts or potential conflicts may be mitigated, and should perhaps bring those matters to the attention of other senior members of management and the board. Lastly, you may also be the person most aware of potential compliance issues or developing areas of legal risk, and you should also apply the ESG lens to that role. Examples of that include the ways in which traditional areas of compliance with respect to environmental, labor and ethical matters have real implications for the company’s ESG strategy.

Your role with respect to managing and mitigating risks

As mentioned above, you are likely the person charged with the full view of the company’s legal matters and litigation strategy. You also are likely one of the people within the organization with the most consistent view of the company’s risk profile and appetite, and the company’s options for managing and mitigating material risks. Given that, it is important that you have conversations with outside counsel, external ESG support and internal risk management personnel regarding potential areas of ESG risk at least 1 – 2 times a year. ESG case law is still developing, and we think staying abreast of those developments and what they may mean given your company’s strategic and operational footprint is important. We also believe that you should keep yourself informed on how the company is integrating ESG into its enterprise risk management processes and procedures.

Your role with respect to facilitating accountability

In the right context, it is also the GC’s duty to have potentially sensitive conversations with the board. Not every company will experience these types of challenges, but where members of management or the board are exhibiting behaviors or taking public positions or making public statements that may conflict or appear to conflict with the company’s ESG policies and statements, the GC may be uniquely positioned to consider the implications and help the company navigate any resulting fallout. Put more bluntly, where a member of management or the board has acted unethically, immorally or imprudently, the GC, as the company’s counsel, may be called upon to help the company negotiate any resulting public statements and related considerations, including any disciplinary actions or exit. If any unethical, immoral or imprudent behaviors, positions or statements do occur and conflict or appear to conflict with ESG positions the company has taken, the resulting fallout could be exacerbated. If these types of matters do arise, you should almost always include your outside counsel in discussions regarding accountability. It goes without saying that having ESG-sophisticated counsel can be a significant advantage in this scenario. We also think it is appropriate for the GC to keep their eye on the company’s performance against any publicly disclosed ESG goals or targets.

Your role with respect to policies and procedures

This item is not going to come as a surprise –evaluating a company’s existing policies and procedures for ESG considerations is key to establishing an effective ESG corporate strategy. We’re also of the view that the “G” in ESG remains critical, and so we believe that your involvement in encouraging the board and management towards more effective governance practices is key. In our experience, it is extremely difficult for companies to make to progress on managing the risks and opportunities of the “E“ and the “S“ without a deep commitment to ensuring their governance is equipped to manage these priorities. Practically speaking, this means having external ESG support conduct a deep ESG audit of existing policies, procedures and practices.

Your role with respect to strategy

So much of a company’s strategy requires careful consideration of legal matters. In the role you play in helping the company navigate its strategic development, we think applying an ESG lens can be invaluable. For example, is the company going to apply ESG considerations as part of the due diligence process? To the extent the company decides to pursue ESG opportunities, what are the legal implications of those decisions and how does the company mitigate any legal risks associated with those decisions? In connection with this role, it is important for you to keep up with the broader trends in ESG and how they may impact the company. External ESG support can help with this task.

Conclusion

As the company’s chief legal officer, a GC is charged with supporting the directors of the board in the fulfillment of their fiduciary duties, which means the GC should be guided by similar principles, including the duty of care. As ESG continues to rise in importance, we expect the role of GCs to becoming increasingly more central to how their companies consider the risks and opportunities associated with their ESG strategies.

V&E’s Environmental, Social and Governance (ESG) team is dedicated to helping companies, investors and stakeholders proactively understand and manage ESG risks and opportunities. By equipping our clients with the right resources, we can help organizations build long-term ESG strategies and deliver an empowered message to their stakeholders. Covering a range of topics including sustainability, climate change, corporate social responsibility, human rights, diversity, cybersecurity, investor relations, and more, our ESG practitioners are committed to providing practical guidance for organizations, whether they are just beginning to understand ESG or are implementing complex ESG strategies.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.