In-house lawyers grapple with ESG demands

As sustainability regulations proliferate, Moderna’s legal team is turning to generative AI to keep on top of the changes. Shannon Thyme Klinger, chief legal officer at the US biotechnology company, explains: “Instead of reading 20 advisories from a dozen different law firms, we can use generative AI to summarise all that information, highlight consistencies and inconsistencies, and identify gaps.”

But while these new tech tools can help lawyers stay up to date on the rules, legal leaders are also playing more of a strategic role in shaping the sustainability agenda. As Lyndon Arnall, group general counsel at Australian mining group BHP, puts it: “In-house teams increasingly have a key seat at the table in business decision-making relating to sustainability,”

Yet in-house lawyers face competing objectives and rising workloads. Responding to a 2022 survey by professional services firm EY, some 95 per cent of law departments said reconciling the trade-offs between financial and sustainability goals presented a challenge. And 99 per cent said their workloads would increase over the next three years because of environmental and social concerns.

Technological advances and environmental, social and governance (ESG) requirements are already keeping in-house lawyers busy. “Regulations, rulings and technologies are continually evolving, and new policies and procedures are regularly introduced,” points out Maria Varsellona, chief legal officer at Unilever, the global consumer goods company.

Everyone wants to pat everyone on the back. But this is where the GC can come in as a comparatively independent arbiter

As a result, all legal teams face the challenge of dealing with the volume of, and variation in, rules across different jurisdictions. To combat modern slavery, for instance, the US approach is to detain suspect goods until the importer proves forced labour was not used in their production; the UK, however, requires businesses to report publicly on efforts to eradicate forced labour from supply chains.

Legal teams must also mitigate new ESG risks, such as suppliers’ labour practices breaching ethical standards or public statements on emissions reduction that fail to match the company’s actual performance — “greenwashing”.

“The important thing is to make sure you’re not greenwashing and that you have the data to back up the statements being made,” advises Scott Offer, general counsel at Flex, a US diversified manufacturing business.

When it comes to mitigating greenwashing risk, legal leaders can often take a more objective view than others in a business, argues Adam Woodhall, founder and chief executive of Lawyers for Net Zero, a non-profit organisation supporting general counsel and their teams.

“Everyone wants to pat everyone on the back,” he explains. “But this is where the GC can come in as a comparatively independent arbiter. They’re not the sustainability team or sales and marketing. They’re there to say what risks could come from greenwashing.”

As well as mitigating risk and managing compliance, lawyers can also become strategic advisers on questions such as setting appropriate sustainability targets, suggests Offer. “It’s being something of a guide,” he says.

For example, at board meetings, legal leaders can weigh in on whether the company is making the right investments to meet its ESG goals, says Woodhall. “And, because it’s the lawyer, everyone sits up and takes notice.”

That highlights the importance of collaboration with other parts of the business. At Moderna, says Klinger, this includes working with teams in manufacturing, research and development, and health and safety. “We must ensure we’re building relationships with the key cross-functional teams that are responsible for delivering our sustainability strategy,” she stresses.

At Unilever, Varsellona cites the example of developing a new cleaning product, called Domestos Power Foam. In-house lawyers worked with teams such as safety and sustainability science, and research and development. The task was to ensure that the messaging and claims about the foam’s germ-killing ability, biodegradability, and recycled plastic in packaging were all accurate.

BHP’s Arnall says: “The better we understand the business, the more effective we are as a legal team in identifying opportunities and risks in sustainability areas.” That includes emerging challenges “such as business risks from the growing global threat to nature and biodiversity”.

Legal teams need to automatically reference sustainability risk and value in everything they do

Even so, many in-house teams still view sustainability through the narrow lens of compliance, says Michelle Davies, global sustainability legal services leader at EY, the professional services firm. In such cases, the business’s response is often to appoint a “sustainability champion” or create a dedicated ESG department. “And it becomes predominantly about compliance.”

But, whether the goal is simply to manage compliance workloads or to become strategic sustainability advisers, in-house lawyers have been beefing up their resources. BHP, for example, has legal teams specialising in areas such as climate change, indigenous community engagement, and diversity and inclusion.

According the 2022 EY survey, however, the resources employed to tackle the growing ESG workload can differ. Some 24 per cent of respondents said they would be making new hires or reallocating existing employees linked to sustainability efforts, while 46 per cent planned to increase use of technology and process management. And 34 per cent planned to combine internal resources, external legal advisers and alternative legal service providers.

But, says Davies, the most important step for in-house teams navigating sustainability is to change mindsets.

“What’s critical is that legal teams begin to operationalise sustainability into the work they’re doing,” she says. “They need to automatically reference sustainability risk and value in everything they do.”