ESG, DEI and CSR: What In-House Counsel Need to Know

Casual observers of business trends can be forgiven for being puzzled by the alphabet soup of acronyms used in the legal space, but in-house counsel don’t have the same luxury when it comes to the areas of ESG, DEI and CSR.

ESG, DEI and CSR—Similar but Different 

These three terms are distinct but related:

• ESG refers to the “environmental, social and governance” conduct of a company
• DEI stands for the company’s “diversity, equity and inclusion” commitments
• CSR is a general term for the “corporate social responsibility” behavior of company

While none of these shorthand labels for evaluating a company’s approach to these core non-financial metrics are new, the scrutiny of companies’ non-financial practices by consumers and investors has intensified recently. Forbes reports:

• 90% of companies now track and report their ESG metrics
• 83% of organizations have implemented DEI programs
• 90% of the companies in the S&P 500 publish a yearly CSR report

In spite of this widespread corporate focus on ESG, DEI and CSR metrics, in-house counsel continue to struggle with how to implement these initiatives while balancing the other high-stakes demands of the job.

Framing the Framework for In-House Counsel in Creating ESG Programs

Of these areas, ESG is the one that tends to attract the most attention from in-house counsel. ESG is crucial because it covers three distinct factors used to measure how sustainable and ethical a company behaves from the perspective of investors, customers and employees.

Navigating the legal and regulatory obligations of ESG can be tricky. In-house counsel plays a vital role, advising in key areas such as:

• Overseeing corporate compliance with environmental regulations (“E”)
• Ensuring the company abides by labor laws and expectations for fair treatment of employees (“S”)
• Strengthening corporate governance and advising the board on potential risks (“G”) and
• Monitoring evolving ESG disclosure rules and corporate requirements (“ESG”)

More than half of in-house counsel listed ESG as a top-five concern in a recent survey, according to Law360®, and although two-thirds said ESG was imperative for their company, 36% felt their organization was minimally prepared or not prepared at all for ESG.

Three Key Areas of Focus for Developing ESG Strategy

“ESG has become a key area for businesses globally,” writes William Morris, deputy general counsel at Rolls Royce, in a LexisNexis® practice note for Practical Guidance. “In a number of countries, reporting on ESG is now either mandatory or under active consideration. The effects of the climate change crisis, the global pandemic, heightened volatility in geopolitics, and the energy crisis have revealed how significantly corporations can impact societies and the natural world.”

Mr. Morris’ practice note, “ESG for In-House Attorneys,” suggests a helpful three-pronged framework for developing an approach that in-house counsel can use to clarify the legal issues for their organization:

1. ESG Laws

Although improving an organization’s ESG position requires much more than compliance with applicable laws, the maturity and breadth of ESG-related statutes is developing and must be carefully monitored. These include laws related to business conduct, relevant environmental laws, supply chain requirements, diversity and inclusion reporting mandates, and anti-bribery provisions enacted in multiple countries.

2. Governance and Risk

Good governance is key. Many companies are required to demonstrate their performance against ESG factors, for example, as a condition to raising capital or trading securities — but it is relevant to all organizations of any size. Governance practices to review might include compliance with applicable codes, enhancing diversity and inclusion at all levels including senior management, transparent reporting on ESG factors such as climate-related risks, reviewing executive incentive plans and linking quantifiable ESG metrics to the company’s overall strategic goals.

3. Ethical and Reputational Management

This is perhaps the most difficult and most important area for ESG issues. Many areas of ESG, particularly where the social impact of the organization is considered, involve finding answers to questions such as: What is the right action to take on this issue for the business? What does being a responsible business mean in dealing with this issue? In-house counsel need to advise their executive teams on internal policies, procedures and codes of conduct that reflect the organization’s values, and then make sure all communications and internal systems are aligned with that vision.

Resources to Help In-House Counsel Set Up ESG Programs

ESG compliance must now be a key focus for legal advisors to their executive teams because it is officially on the radar for investors, consumers and government regulators alike. In addition to staying on top of the latest news regarding ESG requirements, it is important for in-house legal professionals to stay ahead of the curve on ESG issues by having immediate access to information regarding legal trends that are likely to emerge in the future.

The Practical Guidance team for LexisNexis has created a brief informational video, “5 Tips on Getting Started with an ESG Strategy,” that provides some practical insights that in-house counsel can use to gather the information needed to form an ESG strategy that makes sense for their organization.

LexisNexis has also created an Environmental, Social and Governance (ESG) Resource Kit comprising practice notes, articles, checklists and templates to provide guidance to in-house counsel on key ESG issues. This resource kit is available to all subscribers of Lexis+® General Counsel Suite.

Lexis+ General Counsel Suite provides in-house counsel with a vast collection of resources, breaking business and legal news, and practical guidance content — all from one information resource. Learn more and sign up for a free trial today.