I recently chatted with an in-house lawyer with a long history in working with internal sustainability/ESG departments. She told me about her experiences at PLI’s 55th Annual Institute on Securities Regulation in early November. One comment to her from an in-house ESG manager was that “legal is always the ‘Department of No’ at our company.” The same thing was discussed quite a bit at last week’s Legal ESG conference I attended in NYC. I’ve heard this before but it has been awhile. ESG/sustainability professionals who think this way should recalibrate that thinking.
You need your lawyers – and other corporate functions – more than you know. They reduce your company (and personal) legal liability. They keep your zeal and aspirations in the bounds of operational reality. They help you keep customers, suppliers and investors. Here are just a few examples of departments that typically interact with ESG activities/staff and how they help – rather than hinder:
- Legal: Knowledge of regulatory requirements (including international legal mandates) and contractual mandates with customers and others – such as bond/loan covenants; avoiding illegal marketing and advertising claims. Like it or not, your legal advisors (in-house and external) are there to manage/prevent third party and litigation risks that ESG staff may inadvertently create. They are naturally risk-averse – if they push back against something, there is a reason for that. Getting to “yes” involves give and take on the part of ESG staff, but just remember that your legal advisors are protecting you and your company – ESG teams need to embrace their counsel.
- Internal Audit: Knowledge of internal reporting and data controls; fraud detection and prevention; understanding of external assurance engagement processes and providers. This department can help ESG staff ensure data is investor- or disclosure-quality and audit-ready.
- EHS: Technical responsibility for environmental aspects; knowledge of permit limitations and permitting requirements; safety program implementation and statistics. This department helps ESG staff understand potential impacts of environmental compliance boundaries with regard to process changes, new materials usage and emissions compliance.
- Supply Chain/Procurement: Coordination with suppliers; responsibility for supplier codes of conduct; identification and vetting of alternative suppliers. This department is generally responsible for interactions with your company’s supply chain actors. They understand how to communicate to suppliers, execute supplier standards including the termination of supplier relationships and screening replacements.
- R&D: Product design requirements and limitations; viability of new materials/manufacturing processes; supplier vetting (quality). This department helps ESG understand the impact and feasibility of future technical product changes or new products.
- Risk Management: Understanding of risk controls; development and management of risk tolerance benchmarks; knowledge of insurability/coverage. Working with Risk Management will prevent ESG staff from making irrational claims about risk reduction values stemming from ESG initiatives. If you haven’t read this study from the World Business Council of Sustainable Development (WBCSD) about differences in how ESG staff and Risk Management departments value risk, you need to (I consider this a must-read.)
- Investor Relations: Knowing investor trends and demands. This department is on the front line in hearing from investors on ESG matters and communicating back to them. ESG staff shouldn’t make claims about investor trends without input from their investor relations staff.
- Operations: Knowledge of operational limitations; materials changes; energy needs; logistics, transportation and packaging needs. These folks function as a reality check to ESG for assessing whether potential aspirations and commitments can actually be implemented in the company’s operating environment and market.
- Boards and Executive Management: Set and are ultimately responsible for strategy, public commitments and shareholder activism response. ESG statements or commitments from staff should not conflict with the company’s strategy, and sometimes it is best to obtain board and/or C-suite approval in advance of publicly committing the company to an ESG target, goal or commitment.
Instead of feeling that other functions/departments are against you or ESG progress, consider that they are positioning you/the company to make credible commitments, disclose tangible and supportable progress with respect to those commitments, and build or maintain credibility going forward. You might want to send a thank you note to the departments/functions you work with in your ESG function. They help you from being fired – even if you don’t realize it.
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