Chief Legal Officer (CLO)
New laws, regulations and changes in the way investors, regulators, customers, employees and the public view ESG issues have broad implications for organizations. “We are seeing a major pivot from a world in which sustainability was about messaging and voluntary commitments, to a world in which implementation is key and reputational risks are becoming more acute,” says Cornelius Grossmann, EY Global Law Leader. While this shift will affect most business functions, law departments are likely to play a key role, given their focus on compliance and risk management and their involvement in a broad range of issues that connect into sustainability.¹
What are the top 3 things the CLO should activate immediately?
What are the CLO’s key considerations with respect to ESG risk?
Assess stakeholder pressure and risks to the organization
In the EY 2022 General Counsel Sustainability Study, law department leaders reported the pressure they feel from customers and employees on sustainability concerns is only slightly behind that of investors and regulators. In the past several years, these customer and employee stakeholders have grown significantly more active in voicing their concerns on organizations’ environmental and social practices. Interestingly, law departments report that the top risks for their organizations around sustainability are loss of customers due to reputational harm and damage to the brand. As a result, while managing risks around compliance, litigation and transactions remains a critical focus, CLOs should consider whether to expand their focus on other reputational or non-legal risks.
Develop a decision-making framework
Working across the business to develop a framework for decision-making around complex sustainability questions will be critical, as many of the most pressing issues are not clearly addressed by regulations. Law departments are well-placed to undertake or even lead this work. Their role, at the center of a mass of interconnected sustainability issues, gives them unique insight into these topics. A clear framework will bring structure to how these issues are addressed, as well as help the team confront its increased workload.
Define the law department’s role
While some organizations may structure themselves so that the law department plays a leading role across sustainability issues, others will choose a different path. In these organizations, the law department may end up partnering with other functions, either as an equal or as an ad hoc advisor. The optimal level of involvement will depend on the industry the organization operates in, the risks it faces in each area and the mitigation strategies that are required to manage those risks. Although the level of involvement may vary by organization, nearly all law departments in the study – 99% – reported that they expect significant increases in workload due to the rising importance of sustainability, and many require additional expertise and budget to keep pace. As a result, it will be important for CLOs to make sure the law department’s operating model provides the capacity, talent and resources required to meet evolving expectations.