ESG a ‘pressure point’ for GCs moving forward
GCs will need to better navigate the growing complexity of environmental, social and governance considerations in the near future, said one BigLaw firm.
The Corrs Chambers Westgarth’s ESG: A guide for General Counsel report maps out issues in the current economic climate and provides a framework to assist GCs identify and prioritise the varying ESG matters facing their organisations.
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According to the firm, “ESG has fast become a pressure point for organisations seeking to attract capital, retain investors and shareholders, and appeal to the next generation of employees and consumers. Against a backdrop of increased activism, litigation risk and net-zero pressure, ESG matters are increasingly on the radar of boards, management and GCs.”
The guide revealed that 87 per cent of Australians think Australia’s financial services sector has a role to play in generating positive social, environmental and economic outcomes for the country, with 67 per cent believing that ethical or responsible banks perform better in the long term.
As a result, organisations need to start considering how changes in the environment affect them and how they can utilise their environmental capital for good. In a climate change context, this includes looking at how their customers are using the products or services they supply as well as their own procurement practices and operations.
“Organisations with a well-developed approach to responsible business issues have embraced this new reality. These organisations accept that commercial strategy must properly incorporate ESG risks and opportunities. They see the environment, people and community trust as valuable assets that need to be protected,” the guide stated.
“They identify (and seek to mitigate) risks to their operations posed by ESG factors, and consider how people and the environment are impacted by their operations. Importantly, they also understand that through robust engagement with ESG factors, they may be able to derive benefits not just for themselves, but for the environment and their broader communities.”
Some key issues for businesses to be aware of in the ESG space are carbon emissions, climate change and net-zero commitments, air and water pollution, reducing embedded carbon in materials and products, decreasing energy consumption and sustainable water use, among others.
Corrs head of business and human rights, Dr Phoebe Wynn-Pope, said that ESG issues present significant risks and opportunities for organisations with the rise of climate change.
“Regulators, investors and lenders are increasingly insisting on greater transparency and demonstrated leadership on ESG issues. As we look to 2022 and beyond, ESG is only going to become more relevant but undoubtedly more complex,” she said.
Moreover, organisations need to keep social issues front of mind, including First Nations rights, child labour, diversity and inclusivity, employment rights, and workplace health and safety concern.
According to the guide, these ESG issues have combined to produce a seismic shift in the allocation of capital and what is considered corporate best practice.
“Propelled in part by unprecedented natural disasters, the first pandemic in 100 years and significant global social movements regarding gender and racial equity, this shift is manifesting itself from boardroom to courtroom,” it stated.
“Heightened investor awareness and sensitivity to the longitudinal risks of climate change, biodiversity loss, labour exploitation and human rights violations in supply chains is creating rapid and ongoing change in all sectors. Investors and consumers reallocated capital and made purchasing decisions that favoured responsible and sustainable funds and businesses in an unprecedented manner throughout the first two quarters of 2021, and shareholder and employee activism has increasingly driven organisations to take action to enhance their ESG credentials.”
It is of the utmost importance for GCs to be on top of emerging ESG issues and risks moving forward, the report emphasised – including regulatory trends, ESG and directors’ duties and shareholder activism and litigation – as not doing so may impact their ability to advise their organisations effectively.
According to the guide, “more and more, organisations are looking to their GC to lead from the front on a variety of regulatory, reputational and cultural ESG matters, and support the board in their ESG related decision-making”.
“GCs have a critical role to play when it comes to advising on compliance with current and emerging requirements and expectations and guiding an organisation’s engagement with them. Robust engagement is not only imperative at an organisational level, but also for the board in respect of the fulfilment of individual directors’ duties.”