March 09, 2023

Legal, ESG, and Compliance Collaboration

Posted by Naseeha Machingal

Environmental, Social, and Governance strategies – known as ESG – have recently become key talking points in corporate conversations. On March 4, 2021, the US Securities and Exchange Commission (SEC) announced that they would be evaluating organizations on their environmental, social, and governance issues in a bid to identify public companies and investment funds that mislead the public about their climate risks and false ESG claims. A Deloitte article states that the SEC derives their information from anonymous tips and referrals through their whistleblower hotline. It is crucial that legal departments work with their compliance and ESG departments to mitigate any risks and to provide value to their companies. In many cases, compliance and ESG teams may work as silos, while some may be one department. 

Gartner notes that ESG campaigns used to be a set of goals to strive towards, but have quickly crossed over to become an important business need. Internal and external stakeholders are realizing the substantial value that ESG offers their organizations and legal departments. ESG can measure investments in organizations, evaluate the company‚Äôs sustainability, and track goals based on ESG rubrics and guidelines. 

Compliance and/or ESG and the Legal Department

The role of ESG at organizations is growing at a phenomenal pace. Compliance and ESG departments are no longer standalone silos, but may overlap or be one single department that works in sync with the legal function. Collaboration among the departments is key to making legal and business teams the value center of their organizations, and mitigate environmental, social, or governance issues and risk along the way. 

An ACC initiative called the ESG Working Group helps in-house counsel learn about ESG campaigns and offers them a platform to connect with colleagues, other corporate functions and the in-house community legal matters in ESG. This ACC initiative shares “practical and relevant information” by hosting training programs, providing the opportunity to network with peers and experts and encouraging advocacy initiatives.

Collaboration Among ESG/Compliance and Legal

Legal departments have to take the lead in forming an ESG strategy that is in sync with the organization’s legal and compliance needs. According to Lexology, legal departments can lay the rules by 

  • sharing the risks and opportunities of the ESG strategy 
  • creating ESG reporting and disclosure 
  • “influencing the regulatory environment” which may be done by talking to regulators to develop successful ESG regulatory structures

The Future of ESG, Legal, and Compliance 

JD Supra states that the future of ESG, Legal, and Compliance lies in ESG becoming part of rules and regulations nationwide. What started out as a way to highlight social and environmental causes and campaigns and hit targets has been picked up by the government to regulate and even the ESG landscape. From goals to rules, ESG strategies require a tight-knit team of legal personnel who work alongside compliance teams to monitor, evaluate and keep ESG strategies in check for the betterment of the society and Earth, and also for their own organizations.

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