The role of the legal department in shaping the ESG strategy

ESG in a nutshell

Environmental, Social and Governance (ESG) are non-financial factors that investors are increasingly considering when making informed decisions regarding risk management and exploiting new opportunities. ESG plays a key role in measuring investments in businesses and determining the company’s sustainability, often based on an ESG based framework and a grading system.
Reporting on ESG is important for companies to establish themselves as having a positive impact on their communities and the planet.
Value generation from ESG is not as direct and immediate as one that could be from making a lucrative deal. However, businesses will have quantifiable advantages in the long run, which is reflective in their push to measure, report and improve their ESG criteria actions.

ESG criteria is interconnected in such a way that the benefits from environmental and social factors can be reinforced when governance is driven by legal compliance.

To sum up, ESG is critical for an organisation’s credibility.

ESG and the CLD

Positioned as the intersection of legal, compliance and risk management, legal departments need to take the lead in ensuring that the ESG factors are not overlooked in their businesses, making them answerable to the Board and other key stakeholders. The increasing importance of sustainability and ESG go hand in hand with the role of the corporate legal department.

As the guardian of the business with a deep understanding of risk and proactive mitigation, it is upon the CLD to lead the ESG strategy and guide the business through their efforts by

• effectively communicating the risk and opportunities of the ESG strategy
• developing ESG reporting and disclosure mechanisms
• Influencing the regulatory environment by sharing their experiences with regulators and developing ESG regulatory structure to have positive outcomes