Role of the lawyer in ESG (Environmental, Social, and Governance), risks, and opportunities

Those of us who have the role of compliance officer, over the years, have learned to wear multiple hats to ensure compliance with various regulations, focused on minimizing the risks that the business faces at any given time. The year 2023 started with multiple risks in our landscape, such as the polarization of world's political powers, inflation, climate change, the use of new technologies, and with it, cybersecurity issues. We do not have enough trained personnel in the use of new technologies. Some jobs have changed, others have disappeared. Therefore, we are in the process of upskilling and reskilling. We face issues related to emotional, psychological, and social well-being, among others.

This landscape requires companies to assume a different approach to risks management. A broader approach, or sustainable approach. According to the RAE, sustainability is what can be maintained for a long time without depleting resources or causing serious harm to the environment. Therefore, that approach is ESG: Environment, Social (Includiong Human Capital: education, health, and well-being / And Social Capital: culture, values, maturity of institutions, social and civil organizations), and Governance.

Currently, corporate responsibility is composed of these three elements, and these elements have the power to retain or attract customers, investors, or employees. Therefore, we must ensure the continuity of operations in a responsible manner.

Although many believe that the origins of the term ESG date back to 2015 and the Paris Agreement that aims to reduce greenhouse gas emissions to net zero by 2050, it actually started much earlier. In 2004, ESG appeared for the first time as a whole. The United Nations Global Compact published a report called "Who Cares-Wins," in which twenty financial institutions made suggestions to apply better practices for the environment, society, and governance to the fields of analysis, asset management, and brokerage. It is not a new term, nor is it something that is trendy. Almost 20 years have passed. Last year, in February 2022, a survey conducted by EY of 320 investors in 19 different countries found that 90% of them considered ESG to be the main driver of core business value in their decision-making.

In an effort to standardize reporting on the creation of sustainable values, in September 2020, the World Economic Forum published a kind of guidance or metrics to measure progress in (1) governance principles (2) planet (3) people, and (4) prosperity. As of January of this year, the European Union has new legislation to make mandatory a sustainability reporting, in addition to financial reporting.

ESG, therefore, comes to dominate the corporate agenda. Clients require their lawyers to be sufficiently prepared to understand and guide them on how to incorporate environmental, social, and governance strategies into their operations. The role of the lawyer is to help clients build greater resilience on the one hand and proactively design risk mitigation strategies on the other.

But as service providers, we are part of the value chain for our clients. The requests for proposals (RFPs) from clients already come with a series of questions incorporating ESG requirements. Sometimes in a specific way, with questions about diversity, equity, and inclusion policies, for example. Other times, they ask for processes used by our firms for monitoring water/energy consumption. Some clients incorporate specific requirements within their billing guidelines, such as requiring gender equality within the team of lawyers who will be handling their cases. And other times, it is through a communication about their sustainable management, clear expectations about the standards to be met, what they will not tolerate, and a strong commitment from their lawyers to accompany them in this process.

Therefore, it would be building an ESG culture.

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Angelina Angelov