The last five years have seen a consistent rise in climate litigations across industries and jurisdictions. This is a trend that in-house counsel should be aware of, recognizing the potential risks it presents to their respective organizations.
It is imperative for companies to be aware of the impact of their activities on the environment, society, and internal governance structures, not only to avoid legal repercussions but also to promote positive values.
Legal teams are under pressure, now more than ever, to hold the torch for their corporate leaders, providing guidance on how to navigate issues around sustainability and keep their organizations safe from regulatory penalties and reputational damages that arise from lapses related to sustainability responsibilities.
That said, sustainability is a vast and multifaceted framework encompassing diverse areas of concern like environmental, social, and corporate governance issues. And considering the rate at which the various sustainability standards and reporting requirements are evolving, keeping up can feel like walking a tightrope, even for experienced legal professionals.
Additionally, sustainability reporting often requires collecting and sharing sensitive data, which raises data privacy and transparency concerns. In privacy-sensitive industries like finance and health, balancing the need to disclose meaningful sustainability information with the imperative to protect sensitive data can be quite a dilemma.
In this guide, we will discuss the various ways you can navigate these complexities, covering common challenges as well as proven solutions you can consider.
The fundamentals of corporate sustainability
"Sustainability has clearly become a boardroom topic, and regardless of whether your company places ESG at the center of everything it does or not, sustainability has moved from being seen as 'going the extra mile' to being the norm."
~ Aleksandra Schellenberg, Global Head Of Legal, Sustainable Finance, UBS
The In-House View
Corporate sustainability, also known as Corporate Social Responsibility (CSR) is a modern business approach that focuses on integrating economic, environmental, and social considerations into business activities and decision-making processes.
Owing to a combination of factors, from increased awareness of environmental and social issues to changing consumer preferences, investor demands, and regulatory pressures, organizations are beginning to recognize the need to strike a balance between profitability and corporate responsibility.
This shift in perspective goes beyond merely complying with regulations or engaging in philanthropic activities. Instead, it involves a proactive commitment to responsible business practices that not only benefit the company in the long run, but also contribute positively to society and the planet.
Speaking of benefits, companies that incorporate sustainability into business practices generally enjoy improved brand reputation, reduced operational costs, access to new markets, and enhanced employee morale.
Sustainability encompasses a variety of dimensions, including but not limited to:
#1 Environmental, Social, and Governance (ESG) obligations
ESG criteria are at the heart of sustainability efforts. Environmental considerations involve reducing carbon emissions, conserving natural resources, and minimizing environmental impact. Social aspects encompass diversity and inclusion, labor practices, and community engagement, while governance focuses on ethical decision-making, transparent reporting, and responsible leadership.
#2 Innovation and research sponsorships
Sustainable businesses often invest in research and innovative projects to develop new processes and technologies that are environmentally-friendly and socially responsible. These innovations can result in the creation of sustainable products and services, reducing environmental harm and meeting new consumer demands.
#3 Supply chain management
Choosing suppliers with strong sustainability practices, reducing waste in the supply chain, and ensuring fair labor practices in a bid to improve the impact of supply chain activities on environmental and social conditions are involved in efficient supply chain management
#4 Stakeholder engagement
To get started with stakeholder engagement, companies can develop an understanding of the expectations of customers, employees, investors, and local communities and leading processes that address their respective concerns.
The role of in-house counsel in corporate sustainability
"At many companies, ESG issues have the full attention of the C-Suite and the board of directors. Anything that has that level of attention should automatically have the attention of the general counsel and the legal department."
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Essential Issues For In-House Counsel
Where sustainability is concerned, risk and reputation are inextricably intertwined. For the legal counsel, the responsibilities, though manifold, boil down to two things: to align the company’s business goals, strategies, and processes with sustainability responsibilities and to protect the organization from regulatory penalties and reputational damages.
To achieve these, there are several things the in-house counsel must put in place. This section discusses them in detail.
#1 Legal compliance and risk management
The in-house counsel is responsible for ensuring the company's operations align with environmental, social, and governance standards. This includes monitoring changes in environmental protection laws, labor standards, and anti-corruption regulations, assessing the company's current practices, and implementing necessary adjustments to remain compliant.
They’re also responsible for handling risk assessment processes, developing risk mitigation strategies, and advising the company's leadership on potential risks associated with their sustainability initiatives.
#2 Policy development and implementation
In-house counsel plays a key role in developing and implementing sustainability policies and procedures that align with the company's values and business goals. These policies may cover areas such as environmental protection, supply chain ethics, diversity and inclusion, and employee well-being.
#3 Reporting and disclosure
Corporate sustainability often requires transparent reporting on environmental, social, and governance performance. In-house counsel works with relevant teams to collect, analyze, and disclose accurate data to stakeholders, including investors, regulators, and the public.
They must be familiar with various reporting frameworks, like the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB), ensuring compliance with relevant disclosure requirements and mitigating legal risks related to greenwashing and other forms of inaccurate sustainability reports.
#4 Contract management
Sustainability often involves engaging with suppliers, customers, and partners who share the company's sustainability goals. In-house counsel is responsible for reviewing and negotiating contracts to ensure that sustainability considerations are adequately addressed.
This includes incorporating sustainability clauses, assessing the environmental and social practices of business partners, and managing contractual relationships to align with sustainability objectives.
Pro tip: The entire process, from the initial drafting and review to execution and tracking, can be streamlined using SpotDraft, an all-in-one CLM designed to make all aspects of contract management a breeze!
#5 Ethical leadership and governance
‘The in-house lawyer has a role in influencing the right ethical position of businesses. If you simply ask if it’s legal or illegal, there’s a good chance you’ll get it wrong. Many things are legal but plainly wrong.’
~ Jeff Twentyman, Corporate Partner and Head of Sustainability, Slaughter and May
'Game-changers'– Why in-house counsel must take ownership of ESG
In the modern business landscape, where sustainability is a fundamental concern, the role of the in-house counsel goes well beyond providing standard legal advice.
They play a critical role in promoting ethical behavior and sustainability practices by advising the senior management on ethical and legal matters related to sustainability. This includes providing counsel on best practices for corporate governance, board composition, executive compensation tied to sustainability goals, and whistleblower protection.
#6 Litigation and dispute resolution
In the event of sustainability-related disputes or legal challenges, in-house counsel must be prepared to represent the company's interests. This may involve negotiating settlements, engaging in alternative dispute resolution processes, or defending the company in court.
In-house counsel should also collaborate with external legal experts with expertise in sustainability law when necessary.
Bottlenecks and solutions to in-house counsel’s role in sustainability initiatives
Imagine you are an in-house counsel in a multinational company that has recently made a commitment to sustainability and has set ambitious goals to improve positive environmental contributions, promote ethical labor practices, and take on more social responsibilities.
Your role is pivotal in ensuring the company's sustainability efforts align with legal requirements, ethical standards, and stakeholder expectations. While this presents an exciting opportunity for your career, it brings along a set of intricate challenges, some of which we’ve discussed below.
#1 Complex and rapidly evolving regulatory landscape
Sustainability regulations can be complex and vary significantly from one jurisdiction to another. This complexity arises because different countries and regions have their own sets of environmental, social, and governance standards and reporting requirements. Sometimes, these regulations overlap or conflict, creating uninvited complexities for you.
Additionally, laws and regulations related to environmental sustainability, social responsibility, and ethical business practices are constantly changing at the national and international levels due to shifting political climates, changing public sentiment, and emerging global issues. Keeping up with this can be a daunting task for you as an in-house counsel, as losing touch with the regulatory landscape can result in legal consequences for your organization.
- Stay informed about evolving regulations by subscribing to relevant industry newsletters and participating in sustainability-focused legal forums
- Develop a legal compliance team within your company to monitor and interpret new regulations and ensure compliance
- Establish strong relationships with government agencies and industry associations to stay ahead of regulatory changes and advocate for your company's interests
#2 Greenwashing risks
As sustainability becomes a more prominent factor across industries, corporate contributions to environmental, economic, and social issues are being forced under increasing scrutiny, elevating the risks of greenwashing charges from regulatory bodies, sustainability activists, and opportunistic consumers.
If found guilty of greenwashing, your organization could face financial penalties, suffer reputational damages, and end up at a competitive disadvantage.
- Ensure that all sustainability claims made by your company are transparent, accurate, and backed by credible data. Establish clear and verifiable metrics to support your sustainability claims
- Seek third-party certifications and audits to validate your sustainability declarations. Independent organizations can assess your sustainability efforts and provide credibility to your messaging
- Educate your employees, especially those involved in marketing and communications, about the importance of accurate and honest sustainability messaging. Provide training on how to avoid greenwashing pitfalls
- Set realistic and achievable sustainability goals. Avoid overpromising and under-delivering , as this can be a common trigger for greenwashing allegations
#3 Privacy concerns around data collection and reporting
Sustainability reporting often requires collecting and sharing sensitive data, which raises concerns about data privacy, especially in privacy-regulated industries like health and finance.
Policies like GDPR, HIPAA, and SOC-2 have varying standards and guidelines for managing consumer data, and balancing the need for transparency in sustainability reports with the obligation to protect customer data in compliance with the various privacy standards can be tedious, even for experienced professionals.
- Collect only the data that is absolutely necessary for sustainability reporting
- Anonymize or pseudonymize sensitive data whenever possible. This involves removing or obscuring personally identifiable information (PII) so that individuals cannot be directly identified from the data. This can help maintain privacy while still allowing for meaningful reporting
- If you need to collect personal data, obtain clear and informed consent from individuals. Ensure they understand why you're collecting their data and how it will be used in sustainability reporting. Compliance with regulations like GDPR and HIPAA often requires explicit consent
- Be transparent about your data collection and reporting practices. Communicate your data privacy policies and practices to stakeholders in a transparent and understandable manner. This can build trust and help individuals understand how their data is being used
#4 Balancing profitability goals with sustainability responsibilities
Sometimes, in leading the charge for corporate sustainability, you may hit a snag in the form of conflicting priorities by the senior management, who may want to favor short-term financial gains over the long-term benefits of sustainability.
As an in-house counsel, it is your objective to advise the senior management on best practices for staying on track with their profitability objectives without neglecting environmental regulations and social responsibilities. This is often difficult to achieve as the outcomes of sustainability activities are hardly quantifiable and not immediately apparent compared to quarterly or annual financial results.
- Continuously advocate for long-term goals within the organization. Emphasize that sustainable practices may not yield immediate financial results but are essential for long-term resilience and profitability
- Conduct an in-depth risk assessment exercise to identify potential risks associated with neglecting sustainability. Highlight the financial consequences of such risks, including regulatory fines, lawsuits, and damage to the company's reputation
- Encourage the adoption of integrated reporting, which combines financial and sustainability metrics in a single report. This approach provides a more holistic view of the company's performance and helps senior management understand the interplay between financial and sustainability factors
- Show how sustainability efforts can directly contribute to short-term financial gains. For example, reducing energy consumption can lower operational costs, while sustainable product design can lead to increased sales and market share. Emphasize that sustainability is not just a cost but an investment in the company's future
#5 Multifaceted stakeholder expectations
Different stakeholders, including investors, consumers, and employees, have varying expectations regarding your company's sustainability efforts. At the same time, these expectations are constantly evolving in response to global trends, emerging issues, and shifting societal values. Keeping up and adapting to these changes is often difficult.
Additionally, different stakeholder groups may have conflicting priorities. For example, investors may prioritize short-term financial returns, while consumers and communities may advocate for more aggressive sustainability measures that could impact short-term profitability.
- Identify and categorize stakeholders according to their level of influence and interest in sustainability matters. This mapping helps prioritize engagement efforts and tailor communication strategies
- Anticipate potential shifts in stakeholder expectations by engaging in scenario planning. This can help your company adapt its sustainability strategies and messaging proactively
- Be transparent about the challenges and trade-offs involved in sustainability efforts. Let them understand that your organization is genuinely committed to contributing positively to all related areas of sustainability
- Use recognized sustainability reporting frameworks, such as GRI or SASB, to structure your reporting in a way that addresses a broad range of stakeholder concerns and provides standardized information
#6 Varying jurisdictional laws and regional priorities
As an in-house counsel in a multinational company, global variability is one of the most complicated bottlenecks you will face when playing your role in your organization’s sustainability efforts.
Different countries and regions have unique laws and regulations related to sustainability and environmental protection. These regulations may encompass reporting requirements, emissions limits, waste management standards, etc. In the same vein, cultural and social norms vary across different regions. Thus, priorities around corporate social responsibilities can vary.
Navigating this patchwork of jurisdictional regulations and social norms is often tedious, with elevated chances of slip-ups, regulatory penalties, and reputational damages.
“Social media has assured that missteps in the sustainability space will spread within hours to investors, employees and customers.”
~ Timothy Wilkins, Global Partner for Client Sustainability, Freshfields Bruckhaus Deringer'
Game-changers'– Why in-house counsel must take ownership of ESG
- Develop a global sustainability framework that outlines the company's overarching sustainability principles while allowing flexibility to accommodate local regulations and cultural differences. This framework should serve as a guiding document for sustainability efforts across regions
- Appoint regional sustainability champions or teams responsible for adapting and implementing global sustainability policies at the local level
- Employ or consult with legal experts who specialize in the sustainability and environmental laws of the regions where your company operates
- Stay vigilant and continuously monitor changes in regulations and sustainability standards in various regions
Embrace the paradigm shift
With sustainability taking center stage in recent times, many corporations are increasingly recognizing the importance of integrating environmental, social, and governance values into their business strategies.
This paradigm shift reflects not only a growing awareness of the pressing need to tackle climate change and social inequality but also a recognition of the long-term benefits that sustainable practices can bring to both the company and society at large. In light of this, the role of in-house counsel has grown beyond regular legal advice. They have transformed into strategic advisors, guardians of ethics, and facilitators of sustainability integration across their organizations.
And while the challenges are manifold, legal teams remain capable of taking ownership of sustainability endeavors and ensuring that it doesn’t just exist as a buzzword but becomes a fundamental part of the corporate DNA.
Ultimately, contracts remain at the heart of sustainable business engagements, helping organizations align business relationships with their core sustainability goals. Want to see how SpotDraft can help you manage contracts in an ecosystem driven by sustainability? Request a demo!