More and more General Counsels are taking direct responsibility for the leadership of ESG programmes. Even if not your direct responsibility, you have a seat at the table and the ability to influence how your organisation thinks about this issue.
Here are five fundamental shifts in mindset that corporate leadership must make to be successful with ESG. Bringing these shifts into the discussion will accelerate your organisation’s transformation.
1. ESG is nice to have ➵ ESG is a business imperative
For the last two decades, corporate social and environmental programmes were “a nice to have”. Corporations started foundations to make charitable donations, employee green teams volunteered time to green some company operations, human resources launched community volunteer programmes etc. These are great things to do. They help the community and build corporate culture. But, as nice to have, they have always been vulnerable to budget cuts and leadership changes, and they don’t strike at the heart of business strategy.
Today’s corporate leaders must recognise that ESG has shifted into a business imperative. It is simply not optional:
- Countries are enacting regulations that require corporations to act on ESG factors and report their actions transparently.
- Investors are demanding non-financial reporting to measure risks like climate change.
- Activist shareholders are bringing landmark court cases against large corporations.
- Customers and employees are choosing companies that demonstrate strong ESG values.
General Counsel can build awareness of ESG drivers among the executive team. Legal and compliance functions must monitor and advise on the regulatory landscape. For a powerful combination, partner with the CFO on non-financial disclosure requirements and risk-management. The best arguments for change bring together all these factors.
2. ESG is a volunteer programme ➵ ESG requires leadership commitment and resources
This is a common stumbling block. Leadership agendas are already overflowing. It is tempting to delegate ESG to an existing function as an extra duty and move on. This won’t be sufficient. The challenges are too deep and complicated.
Environmental requirements are a great example. For most companies, the biggest demand in this area is carbon reporting and reduction. Even just the first step of creating an accurate carbon measurement requires cooperation from almost every operational team and function in the company. Expertise (likely external) is needed to assess possible reduction targets. This all must be presented to the executive team for a decision on what targets to adopt. Implementation of any meaningful reduction plan will require capital investment and fundamental changes in operations. This is not a side hustle.
3. ESG is good marketing ➵ ESG requires transformational change
Too often in the past corporations have approached ESG issues from a marketing perspective. Webpages and brochures would talk about values and highlight feel-good activities – but in many cases, real change was not made. Statements that aren’t backed up with action do more harm than good.
The changes that need to be made are deep and transformational. Consider the social dialogue around diversity, equity and inclusion (DEI) over the last year. Most corporations were caught off guard by the George Floyd murder and the ferocity of demands for businesses to take strong stances on the injustice.
Corporations had various DEI programmes in place, but success over decades has been mediocre. All but a few were caught in a reactionary state, unsure of what to say or how to say it, tempted to take quick actions with new programmes but concerned about balancing speed with quality of the response.
Racism, gender-bias and other forms of discrimination are deeply entrenched social problems. HR programmes and diversity expertise are critical to success but not sufficient. Transformational change is required across every department in the organisation.
The same is true with environmental challenges. Corporations must fundamentally change how they operate in order to reduce and eventually eliminate their carbon footprint.
4. ESG is low-tech ➵ ESG programmes require sophisticated data collection and analysis
Don’t underestimate the importance of technology when setting up an ESG programme. You can only manage what you can measure. An excel spreadsheet is not a sufficient tool to track and report on the data needed to support non-financial performance.
You must be able to accurately measure your starting point and your progress. This requires ongoing data collection from a wide variety of sources. For example, an accurate carbon footprint requires continuous data about:
- Energy usage in buildings and at industrial sites
- Fleet consumption
- Travel
- Commute patterns
- Supplier carbon data
No matter which ESG factors your company focuses on, you will need accurate data to report transparently and make progress.
As general counsel, you should verify that strong data collection procedures are in place. Whatever statements are shared about your company externally must be accurate to meet regulatory expectations.
5. ESG is a cost ➵ ESG is an opportunity
Setting up an ESG programme will cost money. However, if you build a thoughtful programme that addresses issues important to your stakeholders, it will also create business opportunities.
There are many ways in which investing in ESG can deliver financial value to the bottom line. Here are a few areas to consider:
- Are ESG factors important to your customer base? If so, you may be able to create a competitive differentiator.
- Are ESG factors important to your investors?
- Do you have significant energy or water expenses? If so, resource efficiency could drive down costs?
- Are ESG factors important to your current or prospective employees? Recruiting top talent and reducing attrition both have positive business impacts.
The final step is to examine your product and service lines for opportunities to create innovative offerings in the ESG market. Can your company help others be more sustainable?
If you are a General Counsel interested in ESG – there has never been a better time to get these issues on the corporate agenda. The need is urgent. The opportunity is there. You can make a difference.
About the author: Christine Uri is Chief Sustainability and Legal Officer at ENGIE Impact.
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