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Batten down
The core of our report is arranged in nine sections analysing the key trends in the ESG arena drawn from our interviews.
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‘There’s a whole infrastructure emerging’ – Soundbites from legal chiefs on ESG
On approaching ESG
On governance and the role of the GC
On non-financial reporting
On investor pressure
If you’re around the executive table you’re not there as a lawyer, you’re there as a member of the senior management team. It comes down to fully understanding the business from every level. When you can do that, and you’ve got a bit of legal, analytical knowledge, that’s when you can make a really powerful case to the business.
GC, public sector
When does the board talk about ESG? Every time we talk about strategy, which is every meeting. And because it’s so broad you need to monitor performance, create strategy, drive change.
GC, FTSE 100 banking group
GCs are afforded a view across everything. They are mostly afforded a view across the darkest stuff, which is helpful with ESG. They are allowed to talk to each other, they have the secrets of the company but no-one worries about GCs talking to other GCs and that network is powerful, albeit fractured
GC, property firm
It’s such a massive area – it’s not like a lot of the other risks that cross your radar. This is here to stay and it’s multi-faceted to the point where, honestly, it’s not even close to just being a legally-managed thing – there’s a whole infrastructure emerging in the company.
GC, global pharma group
In terms of ESG concerns – and Covid has put an accelerator on this – it is the trend towards actions not words. We all used to get away with just slapping something on a wall related to purpose and your five values, which would have integrity and trust in there and everyone would have the same, a nice little acronym in lovely colours.
GC, FTSE 250 business services group
For years it was all about: ‘Do the right thing.’ Now we’re back in the foothills of compliance with some of the EU legislation on supply chains and directors’ liabilities. And once we get to directors’ liabilities it becomes more of a compliance issue but I’m not sure that is yet understood.
GC, FTSE 100 retailer
My approach has been to stay enough ahead of the ESG curve to not get slapped across the back but I’ve got to get better at it.
GC, US pharma firm
Used correctly, ESG is a pretty holistic filter for how you want to run your business to cover all manner of risks that would sit across the principal risk register of a listed firm.
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methodology
It is common in professional services to find great significance in emerging trends and legislation. But while brewing financial storms and regulatory squalls can seem dramatic to advisers acutely focused on narrow areas, for clients consumed with the daily risks and rewards of business, prophecies of impending doom or bountiful opportunity can sound like noise to be largely discounted, if not ignored. The difference with the topic at the heart of this report – environmental, social and governance (ESG) factors – is that even the most cursory glance at the converging forces powering its ascent make it clear the scale of the challenge, for once, lives entirely up to billing.
The environmental field alone requires startling levels of investment, regulatory upheaval and far-reaching social change over the next 30 years if nations are to have a hope of hitting Paris Agreement targets to decarbonise their economies. While there was substantial progress in taking electricity generation green during the 2010s, harder challenges in tackling emissions in transport and heavy industry now await. Meanwhile, social factors like diversity, worker welfare and mental health that for years business could bat away with platitudes, have shot up the agenda, not least because of the humanitarian crisis that is the Covid-19 pandemic. If the E and the S have come to the fore in the last three years, enhanced governance has been a long-term journey towards tougher regulatory and compliance frameworks. Social expectations placed on companies have risen substantively over the last 20 years and all indications are that the bar will keep rising through the 2020s as changing consumer attitudes meet new fronts of legislation like human rights due diligence and enhanced non-financial reporting requirements. In short, companies face the defining business transformation challenge of the age and one that will dominate corporate agendas through the decade and beyond as nations, regulators, investors, staff and consumers press on all sides. Few in the C-suite will be more engaged in meeting that challenge than general counsel (GCs), professionals whose independence and free-roaming remits make them so well placed to help their businesses tackle ESG. Based on 20 in-depth interviews with legal heads at major companies and institutions, Herbert Smith Freehills sought to explore the key trends from the perspective of GCs, gauging current practice and pain points, and drawing informed conclusions on the direction of travel. Our assessment is arranged into nine core areas, based on what legal heads told us was happening on the ground and mattered most to their firms. If the task facing GCs looks daunting, the rewards should be equally striking for the legal teams that play substantive roles in driving their firms’ transitions; ESG is set to change the position of the chief legal officer as much as it will transform the businesses around them. How’s that for significance?
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Silke Goldberg
We’re living in a dreamworld about how much work this is going to be. I’m worried about our reporting and making sure we are presenting shareholders with an accurate picture and that’s going to be my responsibility together with the head of investor relations. That’s going to be a big piece of work.
GC, FTSE 250 retailer
If I think back to what we were disclosing two or three years ago, we’ve moved on night and day.
UK GC, global banking group
The trick is keeping up with the new regulations but we’ve spent a lot of time, staff and resource on this because of the nature of our business. This is one of the main things that we get questions on, so we are in as good a shape as we can be and we put a lot of attention and focus on it.
UK GC, global energy firm
I can’t point at other companies and say: ‘They’re doing well,’ because I don’t always believe these companies. I believe they are setting these lofty goals and they’ll get to 2026 and be like: ‘… we didn’t hit it.
The impact of clearer benchmarks for investing? To settle that would be huge.
Deputy GC, UK financial regulator
You get some who will listen and others who say: ‘Sorry, it’s on Google, I’m giving you a red flag.’ That engagement with the proxy agencies and understanding the bigger shareholders is key.
Our deliberately head-in-the-sand approach to it several years ago was shared by a number of fund managers but I don’t know anyone now who would stand up and say: ‘I definitely don’t take ESG into account.’ That kind of 1980s attitude has fortunately disappeared.
GC, sovereign wealth fund
I tell investors: ‘You should be asking how I am doing with my life-saving drugs and can people get access to them. I try to bring people there but these folks are all about the carbon.
A perfect storm of forces is fast pushing ESG to the top of GC agendas
01
Keeping the GCs awake at night
03
Reputational risk and investor fallout top clients’ ESG concerns
Chain reactions
05
ESG factors are making supply chain intervention business-as-usual
Do no harm
07
For people businesses, social factors are increasingly driving ESG agendas
Take your seat
09
ESG momentum will further strengthen GCs’ clout in listed firm governance
Bringing it together
02
ESG governance varies hugely between firms but GCs often take a lead role
Can't please everyone
04
Proliferating ESG standards remain a huge concern, though most firms expect dominant frameworks to emerge through the 2020s
What gets measured gets done
06
New reporting requirements will reshape corporate agendas through the decade... and dominate GCs’ in-trays
Goodbye greenwashing
IEW SECTION
08
Changing investor behaviour is redrawing the ESG map. And the process has barely begun
‘You have to care’
The general counsel guide to tackling ESG
JUSTIN D'AGOSTINO, CEO
The foundation of our report is 20 interviews with general counsel at large organisations – primarily listed companies – to gauge their policies, approach and strategy regarding environmental, social and governance (ESG) factors. Aside from assessing the broader ESG developments within major firms, we sought to explore the specific role and contribution of GCs and in-house legal teams in grasping what promises to be the defining business transformation challenge of the next 20 years. Interviews were conducted in May and June 2021.
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With pressure fast-escalating from investors, consumers, regulators and workers, our panel of 20 general counsel (GC) were unanimous that environmental, social and governance (ESG) issues have in the last two years burst into the mainstream of plc agendas. Climate change had already become a key issue by the start of 2020, with a host of blue-chip firms announcing net zero commitments in the last 18 months, while nations are under pressure to achieve Paris Agreement targets to slash emissions. The onslaught of Covid-19 and the Black Lives Matter movement last year then built on a growing awareness of S factor issues, including labour conditions in supply chains, diversity and employee wellbeing. Governance had already been a core issue thanks to a 20-year global crackdown on bribery and corporate wrong-doing in the wake of landmark legislation like the UK Bribery Act and US Sarbanes-Oxley Act, not to mention the post-banking crisis vogue for tougher regulatory enforcement and ongoing discussions regarding corporate taxation. Also in the mix is an increasingly climate-conscious Biden administration in the US and this year’s UN Climate Change Conference (COP26) in November, which will be held in Glasgow. Throw in increasingly rigorous social value targets in public sector tenders, social media’s knack for spreading damaging disclosures and the willingness of US lawyers to mount ESG claims and senior in-house counsel expect the pressure to only ramp up throughout the coming decade. One legal chief at a global banking group speaks for many when asked how often the board considers ESG: “Literally every meeting. It’s almost a standing agenda item. The board is very focused on it and reviewing it the whole time.” One GC at a FTSE 100 retailer goes further, citing scrutiny of ESG as “huge,” adding: “It is the focus on strategy. It is the pervasive subject – it is everything.”
This will be the single most important topic. This isn’t going to wane – this will keep going. Everybody in an organisation like mine will have more and more focus on it.
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General counsel, FTSE 100 engineering group
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Large companies, even across similar sectors, often have considerable differences in how they incorporate ESG into their operations and governance, though common themes emerge. It is typical to have at least one centralised team overseeing ESG or sustainability, pulling in various reports, such as HR to handle diversity & inclusion and social issues, or legal on compliance, ethics and risk. At least one sponsor on firms’ executive committee (ExCo) and a sub-committee of ExCo or the board dedicated to the field are likewise common measures. Larger listed firms will typically have multiple teams and committees addressing aspects of ESG, some covering more traditional areas like risk management or reputational risk. Other teams often handed ESG briefs include government and investor relations, contracting and procurement depending on the scale and risk profile of the business. Though not yet common, a significant number of our GC panel are moving to add ESG factors to their core risk register. GCs are, moreover, frequently deployed in prominent ESG roles, with legal chiefs in half of our group either explicitly owning the area or being one of a handful of the most senior figures below the chief executive with substantive ESG briefs. Five of our 20 companies had given their GC operational oversight of ESG, including a FTSE 100 retailer, two FTSE 250 firms and a large US technology group, while only two of the group kept their legal head largely separate from ESG initiatives. The common practice of GCs holding company secretarial briefs and positions on listed firms’ ExCos gives them considerable influence as members of senior leadership teams, including on strategic planning. Co-sec roles also hand GCs material exposure to the investors increasingly pressing C-suites on their ESG commitments. GCs are furthermore often called upon to bring together the disparate strands of ESG policy for boards and educate senior leadership on fast-moving regulatory requirements. Indeed, our panel reports that one of the key challenges of the area is to turn a huge range of issues, opportunities and risks into a coherent strategy. The traditional compliance and risk aspects of their roles, combined with the huge scope for GCs to roam across departments and tap external stakeholders and peer networks, further bolsters their ESG credentials. One public sector legal head highlights the role of GCs in keeping companies current in a fast-moving sphere. “Chairs and CEOs think they know what’s going on in the market but the reality is that they’re almost invariably two years behind. They’re all largely blokes in their 60s or late 50s who cut their teeth 30 years ago doing corporate finance and are still looking back rather than forward.”
ESG is a big part of my role because I am bringing it all together and making sure the disparate strands are one cohesive strategy. It falls to me because I sit across those strands – I’m not just HR, just governance or contracting, I am across in a way that our other functions can’t see.”
GENERAL COUNSEL, FTSE 250 business services group
Two intertwined factors stand out among GC concerns regarding ESG. Top of that list for the majority of our panel is reputational damage inflicted by major ESG controversies or disclosures. Closely behind, and obviously linked, is falling out of favour with investors, with many companies concerned they would see an immediate share-price impact or heightened cost of capital. A partial exception to those priorities are firms that are more focused on complex supply chains spanning developing markets, particularly in the textile and manufacturing sectors, where irresponsible behaviour or abusive treatment of workers can have disastrous results. Reputational concerns are unsurprisingly most acute in firms with consumer-facing businesses, with retailers recently falling foul of fast-changing customer expectations. Equally, firms with public sector clients see tarred reputations as potentially existential. Notes one GC at a major government supplier: “The biggest reputational issue would be if we messed up on the governance side – then our customers would drop us like a stone.” Private firms and sponsors are unsurprisingly the only clear exception to this intense reputational focus and even this group has become more alive to the potential impact of ESG disclosures in recent years. In comparison, ESG-related litigation remains a secondary concern for many companies, albeit one seen as likely to crystalize in earnest in the next five-to-10 years; this year’s high-profile Dutch ruling compelling Shell to more aggressively cut its CO2 emissions has been widely noted by peers. Concerns about the impact on employee retention and ability to recruit are also widely cited as a live issue with younger workers increasingly vocal on perceived shortcomings in ESG performance.
This is a combination of reputational risk, investor risk, media risk and the future of the organisation – if we don’t get this right our customers won’t want to bank with us, and our colleagues won’t want to work with us…. If I think about ESG, my greatest concern is we fail to do what we should be doing.
GENERAL COUNSEL, FTSE 100 banking group
For multi-nationals the rapidly-expanding list of benchmarks and methodologies for ESG – particularly concerning sustainable investing and carbon emissions reporting – has become an increasingly pressing issue. Among the standards cited by our panel were the Sustainability Accounting Standards Board (SASB) framework – typically cited in the US, not least because it has been championed by investment giant BlackRock. The UN’s Sustainable Development Goals (SDGs) are even more widely used, while a handful of our panel used Global Reporting Initiative standards or the Science Based Targets initiative methodology. By far the most commonly cited framework is that recommended by the Task Force on Climate-Related Financial Disclosures (TCFD), an industry-led initiative on assessing and reporting climate risk. With the UK making TCFD reporting mandatory on a comply-or-explain basis for all UK premium listed companies from 2022, the majority of our in-house panel were currently working through how to apply the standard, with a much smaller group already reporting. A number of GCs flagged concerns about the struggle to adapt a one-size-fits-all standard across different industries. In contrast, the 17 global SDGs are touted as a useful and flexible benchmark, while some see US backing as making SASB a contender for a dominant global standard. The hope and general expectation among large companies is that the 2020s will see more co-ordination and the emergence of globally agreed ESG benchmarks. Even barring international cooperation, many GCs cite the extraterritorial realities whereby key legislation in hub jurisdictions spreads out, reflecting as well multi-nationals’ strong preference for global standards. As one energy GC notes: “The higher bar gets complied with.” Noting the pressing need for consolidation, Herbert Smith Freehills energy partner Silke Goldberg argues that EU rules are in prime position to drive global standards. “Anything that comes out of the EU will likely take over – it is simply the jurisdiction that has the most advanced legislation.” Herbert Smith Freehills’ head of impact investment and ESG specialist, Rebecca Perlman, points also to the looming creation of the International Financial Reporting Standards Foundation’s Sustainability Standards Board, arguing that ESG reporting will likely follow a similar path to the previous adoption of globally applied accounting rules. “I don't think we are looking at a long-term time horizon for a global standard to emerge. There’s too much pressure and momentum across industries for greater convergence and clarity.”
Our biggest challenge is the lack of a consistent approach for a global organisation – when somebody says something is green, the nuance is different in Hong Kong, Australia and the UK.
UK GENERAL COUNSEL, global banking group
Kicked off by the 2015 UK Modern Slavery Act and encouraged by similar legislation in Australia and now looming European law on human rights due diligence and Scope 3 carbon reporting requirements, our panel confirms that large companies are working in ever closer partnership with their suppliers. Whether binding suppliers to ethical and climate targets – supplier code of conduct charters now being commonplace – or working in partnership to address a range of ESG concerns, the supplier/client relationship has never been so close. Such arrangements are often embedded at the contractual level and this is expected to rapidly expand as GCs aim to bind suppliers to their own net zero commitments. These tactics are unsurprisingly most pronounced at high carbon-emitting companies or firms operating with complex supply chains in manufacturing and textiles that usher in additional risks in developing markets; one of our canvassed firms had a larger budget for its ethic unit than its legal team to allow it to effectively police its supply chain. One GC of a FTSE 100 consumer group says the realities of trying to hit net zero targets are already generating large amounts of contract work: “You can’t move forward with soft promises, you need to take hard measures and set targets to your supply chain partners.” Says the UK GC of a global banking group: “Understanding of the supply chain issues is becoming much more attuned for us. As a lender we’re asking customers, not only: ‘What are you using this for?’ but, ‘What about your suppliers?’ It’s no longer the third-party risk, it’s the fourth, fifth-party risk.” The expectation is that business, risk management and corporate reputations will be increasingly – and contractually – bound together in the years ahead.
What’s my biggest ESG concern? A million people in my supply chain.
GENERAL COUNSEL, FTSE 100 retail group
Even the most cynical legal heads concede that rapidly expanding non-financial reporting (NFR) requirements will drive ESG further into the mainstream in the next five years, pushing firms to operationalise policies that still often exist as unstructured aspirations. With proliferating standards already in existence or in the pipeline, the top priority for most public firms will be implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Premium listed companies in the UK will be required to report against the TCFD framework from 2022 on a comply-or-explain basis. With the rules covering foreign firms with a UK listing, the majority of our panel are currently working through the process . TCFD has also gained traction abroad, with the framework also being mandated in Hong Kong and New Zealand, and endorsed by the Australian securities regulator. Such measures come amid expectations that the EU is to greatly expand its NFR requirements for companies. This includes the European Commission's announcement this year regarding proposals for a new Corporate Sustainability Reporting Directive to be enacted by 2023. If adopted, the reforms would greatly extend the scope of ESG disclosures and number of companies impacted across Europe, rising from 12,000 firms to 50,000. By consensus, expanded reporting requirements, combined with an increasingly proactive investor base, are probably the biggest factors driving ESG on to the agenda of GCs in major firms, reflecting also that market disclosures are often a primary area legal teams are called on to enact ESG policies. It is also one of the fastest-moving and most risk-laden areas, with one legal head at a global pharma group commenting: “GCs not paying attention to [ESG] right now are sleeping at the wheel. A few years ago, it was viewed as a nice add-on to your other reporting, now it’s rock hard and you’ve got to be as rigidly focused here as other areas.”
I don’t like reporting being the reason that drives things but actually, when necks have got to be put on blocks, it concentrates minds.
GENERAL COUNSEL, FTSE 250 housebuilder
Despite less obvious regulatory and investor drivers compared to environmental issues, GCs at people-driven firms with relatively small carbon footprints frequently highlight social issues as taking the lead over well-aired climate change concerns. Factors here include the Black Lives Matter movement, which was regularly cited in our panel, as well as the people impact of Covid-19 on employee mental health and well-being. For outfits operating in high-profile or sensitive areas such as defence, government procurement or pharma, social factors and strong governance were also viewed as being essential for effective risk and reputation management. “Covid highlighted the materiality of social factors in a really stark way. It is an inherently humanitarian crisis but one which hugely disrupted trade and supply chains. In that context, people who were already vulnerable have also been disproportionally impacted by Covid. We have seen how vulnerable they are, but also how much our economy depends on these people,” says Herbert Smith Freehills partner Antony Crockett, a leading figure in the firm’s ESG practice. “The pandemic has shone a spotlight on what it means to be a good corporate citizen – respecting human rights and looking after people is essential.” One of the strongest forces behind this renewed people focus is dramatically changing employee expectations regarding treatment of workers and diversity and inclusion. A number of our panel cited expanded employee networks – often with positive results – and increased commitments to racial diversity and black representation being put in place over the last 12 months. Expectations of diversity were notably heightened at firms with substantial US operations, reflecting the reality that progress has habitually lagged aspirations in the field and that claimant law firms are increasingly likely to bring claims based on representation or board composition. An enhanced focus reflects also that some early movers on the environment are now looking to catch up on the social front. Notes one GC at a global bank: “Five years ago everyone was talking about the environment, now it’s about society and increasingly talking about the importance of governance.”
The whole excitement on carbon offsets was very big a few years ago but the well-being and people side has so much jumped over carbon. The ESG at the minute is all about the S. Covid was an accelerator to a trend that was already there
From BlackRock’s championing of sustainability, to activist shareholders using ESG to leverage boards, to dramatic increases in renewable power productivity – fast-shifting investor behaviour is one of the strongest forces driving C-suite focus on ESG. While fears of a dot.com-style bust following the current green energy investment boom are widespread, huge state intervention like the EU’s Green Deal, which sets out the bloc’s agenda for going net zero by 2050, and the Biden administration’s climate commitments, promise to underwrite long-term shifts to sustainable investment. With many GCs having substantial investor exposure due to company secretarial roles, our in-house panel reports striking changes in the level of interest and scrutiny in climate policies from mainstream asset managers over the last two years. The Economist noted recently that $178bn flowed into green-focused investment funds in the first quarter of 2021 alone. Observes one GC at a FTSE 100 retail group: “Investors were rubbish five years ago, when you’d get quizzed by some enthusiastic junior. Now, they’re good – very detailed and analytical – and looking to know whether they can put you into their ESG funds because they’ve made big mistakes.” Such dynamics suggest senior in-house counsel will be pressed to further engage with investors throughout the decade. Comments one legal head with a FTSE 250 business services group: “The good shareholders ask questions; the lazy shareholders follow the agencies. Engaging with the agencies is really key: understanding what their drivers are, getting into dialogue, giving them the data, being transparent.” The widely forecast emergence of global standards for green investment, most likely coalescing under the EU’s Taxonomy framework, would only further intensify pressures on listed companies to achieve credible climate strategies. Our panel unanimously felt that pressure from investors will continue to grow.
I was out talking to a bunch of senior investors and they’re all pounding the table saying: ‘If your director can’t tell me what their material issues are on ESG they shouldn’t be a director.’ I said: ‘Look, they can all talk about their material issues, they just won’t be able to categorise it in their minds as ESG.’
GENERAL COUNSEL, US pharma firm
With legal chiefs having climbed the corporate ladder over the last 20 years thanks to a tougher enforcement and regulatory climate, the rise of ESG looks set to complete their journey to core C-suite members. As soft law principles are increasingly transposed into prescriptive legislation, our GC panel believes that codified ESG requirements will further raise their boardroom influence. With the majority of our panel already holding company secretarial briefs and executive committee roles, looming climate reporting requirements and the medium-term prospect of ESG-driven disputes are already helping GCs gain increased exposure to investors and external stakeholders. Moreover, the wide-ranging scope of the GC role is often cited as core to their expanded ESG remits, given their ease working with the board and across divisions, as well as their deep experience with ethical, risk and governance issues. Even on sustainability policies – the area furthest outside GCs’ traditional briefs – external scrutiny of firms’ net zero commitments is helping get legal chiefs rapidly up to speed. Hebert Smith Freehills partner, Timothy Stutt notes that legal heads are “in a really strong position to be the natural leaders for ESG initiatives, being at the nexus of law, policy, investor relations, risk management and operations. Moreover, where they also hold the company secretarial role, they also perform an important role as gatekeepers to the board and, in particular, can be influential in guiding items onto the board’s agenda”. And, with a growing body of hard law underpinning the field, that position is set to strengthen throughout the decade, adds Stutt arguing that it is “fundamental that you’ve got the GC at the heart of ESG-related efforts”. One legal head of a FTSE 100 engineering group calls on his peers to seize the opportunities of ESG: “There is a need for tomorrow’s GC to make the right calls and for that to happen lawyers need much more exposure to soft law issues. Get away from the comfort zone of advising on contracts or litigation and take a broader, elbows-out perspective and assume leadership.”
Given the daunting complexity and scope of the environmental, social and governance (ESG) field, even committed organisations with substantial resources habitually struggle to turn rhetoric and aspiration into policy and coherent strategy. But while ESG approaches vary greatly between firms, discussion with veteran general counsel (GCs) reveals common themes and proven tactics to ease progress. Perhaps the most basic point to emerge from our panel of 20 GCs is the need for companies to prioritise their efforts to make progress in a sprawling arena, while many also stress the importance of setting credible goals with achievable interim targets. But even before that, GCs flag the need to commit serious thought to what the ESG landscape looks like for their individual business and grasp the broader dynamics at play. One legal head with a FTSE 100 consumer group says: “Start educating yourself – you need to understand the trends. That will bring a lot of clarity to the direction of travel and help the narrative with leadership with some factual developments and the right level of engagement. Regulation will increase dramatically… bringing some summary of that to the board and leadership helps push the dialogue forward.” Silke Goldberg, an energy partner at Herbert Smith Freehills with extensive ESG experience, echoes the point: “The first rule must be: ‘Know thyself!’ We speak to a lot of companies where there are three committees [handling ESG] – bringing those together and having a coherent approach streamlined across the company is very helpful. It’s having done that internal due diligence and having a coherent narrative.” Such education is helped by getting a governance model that dedicates enough time to achieve meaningful change and starts feeding ESG into core strategy. Notes one FTSE 250 GC: “Every business does a strategic planning process every year and if ESG becomes an element they have to include in that, it will drive changes in behaviours.” One European and Asia legal head at a global technology firm stresses the need to ground efforts in commercial realities: “As an organisation, do you know why you’re interested in ESG? Why are you doing it outside your legal obligations? There are lots of companies doing it because they think they should, which might be fine but there needs to be a purpose behind it."
You have to care. You have to lead from the top, work out what it is you are going to engage in and be quite brave about it.’
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General Counsel, FTSE 100 Bank
If co-ordination remains a huge challenge, most of our panel see the legal chief as ideally placed to bring initiatives together thanks to the free-ranging brief of the GC, which encourages working across departments and access to external stakeholders; one head of legal cites the effectiveness of getting investors in to discuss ESG with colleagues while other GCs stressed the value of personally engaging with major shareholders and regulators. This helicopter view, combined with the traditional focus on integrity and independence of in-house counsel, is regarded as a potent ESG combination. Many stress the need for GCs to challenge decisions and champion long-term vision over short-term incentives. Comments one legal chief used to policing a complex supply chain for ethical breaches: “Don’t be afraid of finding stuff. Turn over the stone, see what’s going on. Fix it, move on.” A number of GCs encouraged their peers to engage more with softer reputational or policy risks beyond strict liability. Says one bank GC: “We’re not just about legal and regulatory views but the view of the man on the street. Something may be legally watertight but that’s not the point. And it’s making sure that view is embedded all the way through the organisation.” If they can grasp the new challenge, many feel ESG will provide the final step in the long journey towards becoming core members of the C-suite. Says one legal head at a property firm: “The key is: why would you do this? Used correctly, ESG is a tool to maximise the value you create and minimise the value you waste. That’s pretty much the crux of what general counsel are there to do.”
Often getting enough leadership attention comes from having at least one dedicated body to ensure ESG is not squeezed out in board meetings. For larger companies, of course, the challenge is co-ordinating efforts, which requires clear reporting lines to management and boards to convert strategy into credible policy. One legal chief at a global banking group observes: “Policy is critical. When we get a government minister saying: ‘Why are you doing X?’ we can say, ‘Here is our approach and this is why we’re doing it.’ From a reputational and media perspective but also risk management, it gives you a much better approach than just saying: ‘We think that’s right for that company.’” Such clarity is obviously easier with support in the C-suite, though senior in-house counsel report that progressive attitudes have taken hold in recent years. “You need constant board focus, frankly,” says one legal head at a European bank. “That can’t be the end of it – you then need to implement that in a way that is translatable down through the organisation.” One group GC at a FTSE 100 bank sums up the key approach: “You have to care. You have to lead from the top, work out what it is you are going to engage in and be quite brave about it.”
