There is a growing focus on environmental, social, and governance (ESG) issues in today’s boardrooms. As companies grapple with developing ESG programs, legal operations have an important role. From preparing ESG disclosures and managing risks to collecting, validating, and reporting data, firms can leverage core legal operations functions to build an ESG program that drives improvement over time.
WHAT IS ESG?
ESG is a broad taxonomy that categorizes non-financial factors that affect a company’s long-term performance and value. Companies may need to manage, measure and disclose their performance with respect to more than a dozen topics between their environmental, social, and governance activities,
Investor demand plays a significant role in driving ESG program implementation and disclosure, with leading asset owners and managers requesting that their portfolio companies establish ESG governance and oversight and disclose such efforts. Investors and other stakeholders also encourage companies to disclose ESG data on topics that are financially relevant to their business.
WHY IS ESG DATA IMPORTANT?
The importance of ESG data depends on who uses it.
- Companies use ESG data to communicate performance on and track the efficacy of initiatives that factor into their business strategy and operations.
- Investors and lenders use ESG data to inform investment and voting decisions.
- Ratings organizations and proxy advisors use ESG data to inform ratings and voting recommendations.
- Governments may establish laws or regulations requiring businesses to disclose ESG data.
- Industry bodies and standard-setters use ESG data to inform new standards.
- NGOs, local communities, and the public use ESG data to hold businesses accountable and inform decision-making.
THE ROLE OF LEGAL OPERATIONS
With core competencies such as business intelligence and information management, the legal operations function can jump-start or improve an internal ESG program. Legal operations can play a central role in:
- Collecting & Validating ESG Data
ESG data is located across the business and must be consolidated and validated prior to reporting, and this can be a significant undertaking. Given the use of ESG data by investors and other stakeholders in decision-making, such data must be accurate, and appropriate disclosure controls and procedures must be used in collecting, validating, and reporting it.
Legal operations can establish clear and centralized ownership of the data collection, validation, and reporting process. Core functions within the legal operations team, including data management and dashboarding, can help integrate systems across the organization to streamline data collection and prepare it for legal review and validation.
- ESG Information Management
ESG data comes with legal risks that companies need to manage. ESG data is often confidential and sensitive, including information on diversity or cybersecurity. Some data may also be material, nonpublic information, especially where it is relevant for investing decisions.
Leveraging core competencies in information management, legal operations can help set clear guidelines on sharing and retaining ESG data. This can include training to ensure employees are aware of the company’s policies and procedures on ESG data collection and managing access to all sensitive, confidential, and restricted data.
- ESG Knowledge Management
There is a steep learning curve for ESG. Companies must navigate multiple reporting standards, requiring them to disclose sensitive data, stay on top of shifting market and regulatory expectations, and educate senior members of management on new or unfamiliar sustainability topics and metrics.
Legal operations can implement a framework and best-practices approach to ESG knowledge management. This can include owning a centralized ESG data-and-disclosure hub to drive internal and external messaging consistency and facilitate legal review. Legal operations can also drive efforts around building templates for standardized data collection and reporting.
- Effective ESG Program Development
Building an effective ESG program requires engaging with stakeholders across and outside the company. Where the legal team may lack the bandwidth to develop a new ESG program, legal operations can help build and execute.
A comprehensive ESG program can include setting timelines and budgeting for ESG programming, coordinating ESG with management from across the business, and staffing the legal ESG function with professionals trained in data collection and analysis.
As companies increase their commitment to sustainable and responsible practices, opportunities will continue to grow for legal operations to support ESG programs. Data, information management, and process disciplines in legal operations can help launch and ensure the success of ESG programs.
About the Authors
Vedika Mehera, Innovation Advisor, Orrick
Vedika Mehera has devoted her career to improving the delivery of legal services. She is trained and skilled in legal operations and technology and applies Six Sigma principles to each project. She uses her legal background to understand the business of law, and her technical and process skills to enhance client value. Working closely with clients and matter teams, Mehera’s engagements range from consulting on quick-wins using low fidelity solutions, to in-depth and ongoing collaboration with multiple stakeholders and tools across the firm, to solve complex challenges.
She also works closely with the firm's IT department to assist in researching and advising on technologies for firm-wide adoption that increase the productivity, quality, and efficiency of service delivery.
Hayden Goudy, ESG Business Intelligence Advisor, Orrick
Hayden Goudy provides non-legal strategic advice to clients on building the right ESG policies and getting to the bottom of their most pressing ESG issues. His area of expertise includes identification and assessment of priority ESG key performance indicators, giving investors, corporates, and other stakeholder insight and clarity into the alphabet soup of ESG.
Prior to Orrick, Goudy worked in the Business Intelligence and Investigations practice in the London office of Kroll, a global leader in governance, risk and transparency, where he founded a taskforce to help clients address ESG issues, including in emerging and frontier markets. He has provided business intelligence research for market entry; counseling on reputational risk, including integrity due diligence and social media assessments; guidance on regulatory and compliance risks; and intelligence and analytical support in litigation and disputes.