How can your law firm help to integrate ESG into your business effectively? Starting with ‘E’

The role of the GC in relation to ESG

Boards increasingly see ESG as a legal issue within the GC’s remit. For this reason, as a GC, in addition to advising on risk and compliance, you can deliver value to your organisation through playing a leadership role on ESG. Yet even when you’re doing the right thing and undertaking ESG activities as seriously as they should be undertaken, there are still a number of pitfalls to be avoided.

Greenwashing: the clamp down has begun

By now almost everyone in the corporate world is familiar with the concept of ‘greenwashing’. While it usually implies a conscious decision to deceive, accidently misrepresenting your ESG credentials can also result in charges of greenwashing. But intentional or not, the end result of greenwashing can severely damage your business.

Here in the UK, the Competition and Markets Authority, Advertising Standards Authority and Financial Conduct Authority are all increasingly focused on enforcement activities relating to greenwashing. Even inadvertently making misleading claims – such as those by Hyundai with their Nexo model car – can lead to prosecutions and significant fines, and enforcement powers are expected to be become only more robust in the future. Under the Digital Markets, Competition and Consumer Bill, which is currently being debated in Parliament, large companies could even face the threat of civil penalties of up to 10% of global turnover for breaches of consumer law.

The UK isn’t alone. In the EU, a new directive has been proposed to address inaccurate green claims, with the aim being to protect both consumers and the environment alike.

Taking hold of your ESG story

No matter how good your intentions, it’s vital you don’t muddy the waters around your organisation’s ESG efforts. This means integrating ESG into your business in a truly holistic way – through policies, procedures, and culture. It means telling the complete story when communicating your ESG credentials to stakeholders. And it also means getting the right support, which is precisely where your law firm can share its expertise and provide added value.

There are, of course, the standard ESG-related offerings that law firms can provide, such as gap analyses, drafting policies and procedures, strategic support, and keeping you abreast of changes in legislation. But there is also much more they can support you with as you embed ESG in the organisation. Below we’ve zeroed in on 3 specific activities where your external legal team can help to ensure your ESG efforts are optimised, rather than leaving you open to criticism or worse.

Contracting your way to net zero

You may already be familiar with the work of the Chancery Lane Project, a global network of lawyers and business leaders who have been working to find ways to help businesses support their net zero goals through the use of ‘climate clauses’ aimed at decarbonising their contracts.

To date they’ve drafted over 100 climate clauses and more than 70 glossary terms – together with creating a suite of tools, with more in the pipeline. While there can be no doubt that it’s a very innovative project with a lot to gain both for business and the world at large, the trick is in understanding when and how these clauses should be used. Simply inserting a climate clause into supplier or other contracts will not necessarily deliver the result you need – a climate objective allied with a commercial or operational outcome. In some instances, it might even preclude an organisation from being able to work with you. Take, for example, a small business that simply doesn’t have the resources to comply with the clause, or perhaps the cost of compliance is prohibitive. This is where your legal adviser can help you to apply the right climate clauses in the right contracts, helping you to deliver climate objectives in sync with the company’s aim of being a responsible, sustainable business.

Carbon offsetting – as simple as it seems?

You’ve probably already been targeted with beautifully photographed marketing campaigns by companies that promise to help you offset your organisation’s carbon emissions through the planting of trees, building of renewable energy projects or supplying clean cooking stoves to villages in developing countries, among other things. However, how credible are they?

Planting a forest, for example, may be a great start, but how has its future carbon offsetting potential been accurately calculated and verified? What assurances have been provided that it will be responsibly managed over its full lifecycle to remove the promised levels of carbon dioxide from the atmosphere? What sounds like a simple fix to get you to net zero may not always be what it seems. What’s more, such schemes are increasingly scrutinised on wider sustainability grounds: Does it adhere to sustainable forestry standards? Has the impact on biodiversity, soil health and agriculture been factored in? Your law firm can help you conduct due diligence and help ensure carbon offset contracts are robust, reliable and effective.

Harnessing the power of PPAs?

An increasingly popular way to make your energy usage more sustainable is to buy ‘green’ energy. Your business may switch to a renewable electricity tariff, purchasing electricity wholly, mainly or partly generated by renewable sources such as solar and wind. Larger businesses with high energy consumption such as manufacturers and data centres may consider a longer-term commitment in the form of a power purchase agreement (PPA) giving a lower-cost source of green electricity.

A PPA is as a contract typically between the power consumer (the buyer) and a renewable energy generator, where the buyer agrees to purchase a certain amount of renewable electricity at a certain price for a specified period of time. The main types of PPA are a ‘private wire’ PPA, in which the renewable power is supplied directly from a nearby generator, and a ‘corporate’ PPA in which the power is ‘sleeved’ to the purchaser by its licensed supplier via the grid. Each model enables an organisation to hedge against future energy price volatility while greening their business. A private wire PPA can additionally offer lower prices through avoiding grid ‘use of system’ charges.

This approach is not, however, without risk. PPAs often require long-term commitment from the purchaser – usually at least 10 or 15 years – and contracts can be complicated as they address risks associated with the generation technology, infrastructure and potential future changes in regulation and law.

Most businesses today are either considering procuring renewable energy, or have already done so, as part of the ‘E’ in their ESG strategy. Given the inherent complications involved, it is advisable to consult specialist lawyers who can help them navigate the options and select the model that best suits their needs, aims and risk appetite.

Delivering on your goals

ESG is constantly evolving and is highly unlikely to drop off the corporate agenda or be removed from the GC’s remit. As businesses devote ever more attention to being responsible and burnish their ESG credentials, the GC will continue to play the role of protector, educator, strategic thinker and leader. By working with law firms who understand the wider scope of ESG and the myriad specialisms it encompasses, GCs can help their organisations focus their ESG efforts intelligently – tackling the challenges and seizing the opportunities that climate, net zero and the ‘E’ in ESG present.