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The “one stop” resource for information about responsible executive compensation practices & disclosure.

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PracticalESG

PracticalESG.com

Keeping you in-the-know on environmental, social and governance developments

Ed. note: Today’s blog was written by Zachary Barlow who continues to support our editorial team.

A new EY/Harvard Law School survey of 1,000 General Counsel and Chief Legal Officers – published earlier this month – sheds light on how in-house lawyers are feeling as corporate legal departments gain “ESG” responsibilities. As a former practicing attorney, I understand that part of what attracts people to our field is the excitement of learning new things. But there’s also a tipping point for overwhelm, and I sympathize with those who might be reaching it. Below are a few major takeaways from the survey:

Legal departments are feeling overwhelmed.  The survey reveals that legal departments are being asked to oversee ESG issues like reputational risks. When asked about their level of concern with risks due to sustainability issues or practices, respondents ranked the risk of “Loss of customers due to reputational damage” at 75 out of 100. In comparison, they ranked the risk posed by “New laws or regulations” at 59 out of 100. While public relations isn’t in the core curriculum at most law schools, it’s something that legal teams are having to add to their repertoire as regulatory interpretations must be skillfully communicated – internally & externally. As EY points out, 96% of General Counsel believe their departments lack the expertise to manage ESG. Management of these risks is expanding the responsibilities of legal departments beyond what lawyers are used to – and what some are currently comfortable with. 

Legal departments are being asked to do a lot more with less. There is a growing trend to have corporate social responsibility and ESG teams report to the General Counsel. All of this adds up to more work for legal departments. At the same time, legal departments are being given fewer resources. While 99% of survey respondents indicated that their workload is increasing to keep up with ESG, 88% indicated that their department was facing concurrent budget cuts in the next three years. 

If it’s one thing lawyers hate, it’s uncertainty. Unfortunately for practitioners, there is a lot to be uncertain about. New regulations are a challenge, but they aren’t anything a lawyer isn’t prepared to deal with. However, unclear regulations keep lawyers up at night.  About 90% of respondents reported difficulty in drafting corporate policies on environmental & social issues due to unclear regulations. The lack of regulation in these areas is forcing attorneys to take an “educated guess” approach to policy making.

The survey reveals another big problem for practitioners – leadership isn’t listening. Only 39% of survey respondents believed that their leadership appreciated the risks associated with social issues. That number drops to a staggering 15% for environmental issues. If leadership is asking legal departments to take on new and complex problems, then leadership needs to take these issues seriously and listen to the advice of their legal departments.

So, corporate lawyers are facing an increasing workload, uncertainty from regulators, and management that may not be listening. To many lawyers, this sounds like a typical day at the office. But the frequency with which this is happening is concerning. Luckily, EY offers a few suggestions on how to meet these new challenges. Here’s a handful of them:

  • Identify non-legal risks related to environmental and social issues and create voluntary goals and a governance framework to achieve them.
  • Educate leaders on the risks faced by the organization. (See our new Guidebook: Increasing Board ESG Competence)
  • Establish your department as a leading voice within the organization on complex sustainability issues. (See our Guidebook: Communicating ESG Value)
  • Develop a shared understanding of the risks the organization faces and the goals it is working toward and create a decision-making framework for managing complex sustainability challenges, particularly in areas where there are no clear regulations.
  • Define the operational strategy going forward with a model matching tasks with appropriate resources.

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile