ESG policy and the role of the modern in-house lawyer

In our recent Counsel+ event, guests, Jonathan Lipman (Group General Counsel, Mercedes-Benz UK), James Dickinson (General Counsel, Secretariat and Corporate Services Legal, Centrica PLC) and Glyn Richards (Group Director of Sustainability, Bupa), hosted by Blake Morgan Chair, Kath Shimmin, and Commercial Real Estate Partner, George Panteli, discussed the approach taken by leading businesses in embedding ESG policy and the role of the in-house lawyer.

The role of the in-house lawyer in embedding ESG policy

It is becoming increasingly fundamental for businesses to stay on top of ESG. Kath Shimmin set the scene when she said: “Businesses now are finding that it is something their shareholders, investors and staff increasingly want to see them providing for in the way they go about business. If you don’t have a [ESG] strategy to move towards you are going to find it increasingly difficult to persuade your business environment that you are a suitable partner.”

ESG is not legally driven, and isn’t yet a body of law, yet in-house lawyers are playing a key leadership role. So how does legal expertise lead into that? James Dickinson noted that in legal:

Leaders first and lawyers second

Glyn Richards was also once part of an in-house legal team and brought an interesting perspective to the panel. “When you sit around an executive table you are part of the executive team and therefore part of the business leadership.

The 'what'

At a more granular level, Jonathan Lipman broke down the E, S and the G, opening up discussion as to the legal teams’ potential role in each:

• E – Environmental is not legally driven but many organisations don’t have a separate environmental department as such, so it’s all hands to the pump.
• S – Social isn’t purely HR but it has an HR feel to it. That’s not to say that legal doesn’t take a lead or participate, but it is largely driven by the HR department.
• G – Governance to a large degree is about compliance. Nowadays most big companies have a compliance department, sometimes the lawyer leads that but not always. There is still plenty to do on the legal side.

It’s the ‘E’ or the Environmental side where Jonathan feels there is a bulk of work to be done.

From a practical stand point, the panel agreed they were looking to include formal clauses around sustainability and wider ESG in various contracts and supplier agreements and as part of the procurement process. Jonathan pointed out that contract metrics and firming up measurability are two areas to consider in the future.

The dollars and the sense of ESG policy

At the start of the webinar Jonathan had referred to a quote from Larry Fink that was particularly relevant to a discussion that transpired around costs. Larry Fink is the chief executive of BlackRock, the world’s biggest investment fund manager, and in his most recent annual letter to CEOs he wrote; “we focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.”

There is often tension between profit and the perception that ESG is expensive and doesn’t help the bottom line. The panel agreed that the cost of inaction far outweighs the cost of action. A long-term view is sometimes needed on costs and that having a growth mindset to ESG is of prime importance.

The road to Net Zero

The expectation that businesses shoulder a great deal of responsibility in reaching the climate targets set at COP26 is clear. Businesses are setting big bold targets to demonstrate their intended action. However, targets are long term and there are many unknown factors over the years to come that will influence the ability for organisations to reach those targets.

Bupa, as a global healthcare company, is focusing on climate because it understands that people’s health and the health of the planet are intrinsically linked. Delivering healthcare has an environmental impact, which is why they have committed to be a net zero business by 2040. Glyn said:

Mercedes-Benz prior strategy of ‘electric first’ has evolved to what the business now refers to as ‘electric only’. The Group is committed to sustainability globally and now wants all vehicles to be electric by 2030 where the market allows. At COP26 Mercedes-Benz was one of 11 vehicle manufacturers to commit to acceleration to net zero. From 2022, all Mercedes-Benz plants worldwide should only be buying electricity from renewable sources and, as of 2039, Mercedes-Benz should have a totally carbon neutral fleet.

Centrica has set out a People and Planet Plan aimed at creating a more inclusive and sustainable future to support communities, the planet and its people. It has committed to becoming a net zero business by 2045 and helping its customers (who represent around 90% of the company’s scope 3 emissions) be net zero by 2050. The plan is anchored on the company’s purpose of seeking to help its customers live sustainably, simply and affordably. Centrica’s climate strategy is therefore about sustainability and affordability together. James commented:

The future and innovation

The panel discussed the opportunity for businesses to streamline and challenge the status quo through innovation. Glyn championed the mindset of: “nothing is sacred – true transformation and innovation means looking at what exists and understanding what needs to change and what doesn’t to achieve your sustainability goal. There is a huge opportunity to design for the future.”

James echoed that, he said: “We don’t know how technologies are going to evolve so we need to be quite flexible and partner with people to make that happen.”

Jonathan added:

The panel left us with three key words to wrap up the webinar:

• Transformation: recognising that tangible action requires business transformation
• Education: upskilling people on the issues and the role we have to play
• Involvement: get involved, put your hand up and see what you can add

Find out more and sign up to receive our Counsel+ mailings here and listen to a recording of the webinar which looked at ESG policy and in-house lawyers here.