With increased accountability for ESG, how can lawyers best advise clients?
Sarah Mentasti and Kim Middleton from Marque Lawyers have discussed the rise of corporate accountability in the environmental, social and governance (ESG) space. Ms Mentasti spoke to Lawyers Weekly about best practice for lawyers when advising clients in light of these developments.
In their article ESG: corporate greenwashing or strategic ethical investing? senior associate Ms Mentasti and partner Ms Middleton noted a drastic shift in corporate focus on ESG over recent years.
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Companies are making significant changes in their strategic and financial decisions, they said.
Earlier this month, South32 decided not to proceed with a $1 billion expansion of its Dendrobium coking coal mine to extend the mine’s life into the 2040s.
This is despite clear economic incentives — coking coal is essential to produce iron and steel, with prices up considerably from a year ago.
The company chose not to proceed, citing “expected returns not sufficient to support an investment”.
Ms Mentasti and Ms Middleton speculated that such decisions are indicative that crackdowns on ESG greenwashing are starting to have an effect.
The Australasian Centre for Corporate Responsibility has recently expanded its landmark Federal Court case against Santos over alleged greenwashing in the company’s climate change reports.
The Australian Prudential Regulation Authority (APRA) is taking meaningful action regarding climate change risk assessments for corporations, Ms Mentasti and Ms Middleton noted.
The Australian Securities and Investments Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC) have also made it clear they are targeting greenwashers, they said.
“Investors and the market are watching with keen interest to ensure companies are developing action-based measures to improve not just sustainability but accountability,” they said. “And companies are listening.”
Ms Mentasti spoke with Lawyers Weekly about how lawyers can best advise clients in light of these developments.
“It is important for lawyers across all practice areas to know and understand the importance of ESG compliance and reporting for their clients,” she said.
“Lawyers should keep up to date with news, guidance and standards continually being published by regulatory and enforcement bodies including ASIC, APRA and the ACCC.
“Staying across updates to key pieces of legislation and industry policies is also crucial to allow lawyers to be in a position to advise their clients in a proactive rather than reactive way on the key ESG risks.
“Lawyers need to have a good understanding of the inherent ESG risk factors facing their individual clients — sometimes these are not always readily apparent.
“ESG risk factors can span across a number of different areas ranging from climate change risks and environment management practices through to workplace health and safety issues, human rights and modern slavery, consumer protection and unfair or misleading conduct, and on to directors’ duties, data protection and anti-bribery and corruption practices.”
Ms Mentasti emphasised that it is important to be on the front foot when advising clients and to be able to provide current insights and advice on best practice at a global level.
“As has been seen with the recent spate of corporate greenwashing investigations across the world, clients often need assistance when it comes to identifying, understanding, and managing their ESG risks in a proactive manner before they end up on the wrong side of an investigation or litigation,” she noted.
Ms Mentasti said her firm has seen that clients are becoming increasingly aware of the importance of ESG risk identification and mitigation.
“Investors and consumers are expecting companies to do better, and it is clear this is having a direct impact on the everyday decisions being made by companies.
“ESG compliance and reporting has become a key focus for clients, particularly in light of recent world events. Pandemics, floods, fires, corporate and political corruption, and humanitarian crises have been highlighted the world over.
“These critical issues impacting every facet of society, coupled with the increase in accessibility to 24-hour news cycles and social media, have all contributed to the spotlight being cast firmly on corporations and the actions they’re taking when it comes to ESG compliance,” she said.
This underscores the importance of appropriate ESG management and compliance as a key avenue for achieving meaningful change, she said.
“Companies leading the way and doing the right thing have shown not only that they are listening but that they understand the importance of showing up and being held accountable for their actions and decisions,” she said, “and that’s a really exciting development”.
“Often solving one ESG related issue can cause others to arise, so it’s important to be mindful of that when assisting clients to formulate the most appropriate strategies for their business,” said Ms Mentasti.
“When it comes to disclosures and reporting, clients should be advised to be as forthright as possible.
“Embellishment has no place in climate reports or investor briefings.”
Ms Mentasti said that it is essential for claims to be veracious and backed up in clear and measurable ways, so as to not increase liability for directors.
“Given the heightened focus on ESG compliance right now, there is very little room left to hide when you haven’t got it right,” she added.