General counsel and lawyers: Influencers and leaders in sustainability

IN recent years, we have seen extensive changes in the corporate landscape, not just to the commercial, legal and societal aspects but also how these changes have intertwined in increasingly complex ways. The simplistic Friedman doctrine - where business only had a single focus of growing profits, with sole responsibility to its shareholders, and none to the public or society - has followed the dinosaurs into extinction. These days, companies place a greater emphasis on governance, accountability and transparency, in order to earn the "social licence to operate".

Today, expectations imposed on companies transcend their shareholders and come from groups who often hold no equity interest in the company but are, arguably, more powerful than the owners. Collectively referred to as "stakeholders", these include governments, regulators, consumers, employees and other parties who can establish a connection with or impact from the activities of the company, financial or otherwise.

In the 2021 Association of Corporate Counsel Report, in-house lawyers highlighted the significant increase in their time spent and attention paid to sustainability matters in the companies they work for.

This fast-changing environmental, social and governance (ESG) landscape results in key issues impacting strategic decision-making in companies, often landing within the purview of their general counsels (GCs). How did this come to be? ESG and sustainability issues often relate to risk identification, management and mitigation - areas that naturally fall on the shoulders of GCs.

As lawyers, GCs are experts in identifying and dealing with risks, and spotting trends in the evolution of policies and regulations that can have a material impact on a company's business. In response, they can take appropriate steps to pre-empt risks, as well as prepare for impending changes.

The United Nations (UN) Global Compact defines corporate sustainability as a company's ability to deliver "long-term value in financial, social, environmental and ethical terms". This requires corporates to build businesses that are capable of delivering value to a whole array of stakeholders over the long term, in a manner that is sustainable.

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Given the relative novelty of sustainability, company boards are looking to be educated on the intricacies of this new area - from understanding the "alphabet soup" of acronyms, to issues that range from the environmental impact of its operations, in terms of carbon footprint and greenhouse gas emissions, to the price of carbon and how this tax attaches to its cost base - the "E" in ESG.

ASSUMING THE LEAD ROLE

GCs' proximity to and familiarity in dealing with their boards, provide them a unique opportunity to assume the lead role in sustainability matters. As they are accustomed to giving counsel on matters of governance (the "G" in ESG), GCs are well-positioned to provide their directors and C-suite colleagues with informed sustainability advice that is balanced and based on sound commercial judgement - highly important to help them navigate the often uncharted ESG waters.

Companies have increasingly involved their GCs in formulating the entity's strategic sustainability direction: Key issues include the embedding of sustainability considerations into corporate governance, to having an ESG lens in matters like capital allocation, investment decision-making, transactions and supply chain sourcing.

For companies to stand out in the competitive landscape, it is crucial to identify the ESG risks and exposures early and make plans to mitigate them with carefully formulated steps, rather than kicking the proverbial can down the road and dealing with them later. The latter option will likely cost more and be potentially harmful to a company's reputation, being perceived as sustainability "laggards" in the marketplace.

Progressively, companies are expected to articulate their sustainability commitments and targets - be it carbon reduction by a certain date or a net-zero position by a particular decade. In this respect, GCs play a critical role in reviewing these commitments to ensure they stack up - before they are launched. Such commitments will need to pass scrutiny by investors, financial analysts and other external stakeholders.

Momentum has intensified for organisations to publicly report their ESG agenda and initiatives, in part as a response to investor expectations. For those who are listed on stock exchanges, such disclosures are dictated by the evolving listing requirements being placed on them - often by way of annual sustainability reports with disclosures. Enlightened GCs encourage their companies to view this as more than mere compliance - rather, it is an opportunity for the company to build a compelling narrative of its ESG story and journey.

A GC's close connection with the board (who has the ultimate oversight of the company's ESG strategy), places him/her in a pivotal role to coordinate with directors in developing relevant ESG measurement metrics, reporting and disclosure protocols. In this position, GCs are challenged to obtain the requisite (accurate) data from the operations to give their boards an informed and meaningful overview of the company's ESG landscape. Some have gone further to obtain external assurance on ESG information that is reported, the same way a company's financials are subjected to third party audit - all part of the objective to provide veracity to the disclosures.

Clearly, sustainability is going mainstream. According to data from the New York-based Governance & Accountability Institute, the number of S&P 500 companies publishing some form of sustainability disclosure increased from 20 per cent in 2011 to 90 per cent in 2020.

Similarly, the Investor Responsibility Research Center Institute found that 40 per cent of the S&P 500 now voluntarily address some aspect of sustainability in their financial filings. One can postulate that this percentage can only increase with the recommendations of the Taskforce for Climate-Related Financial Disclosures (TCFD) taking hold. More on this later.

Apart from the obvious benefits of gaining favour with investors and the accompanying competitive advantage, such ESG transparency and disclosures have an additional (though seldom realised) advantage, of attracting and retaining customers and employees, particularly with the millennials and Gen Z.

A VOICE OF INFLUENCE

In approaching the reporting challenge, GCs can provide strategic advice on the level of disclosure and, more importantly, the risks associated with "greenwashing". In this regard, it is better not to disclose embellished information that is subsequently found to be conveying a false impression or providing misleading information about a company's products and services being more environmentally sound than they actually are. Discerning stakeholders will not hesitate in calling out such bad behaviour.

GCs already champion the values and purpose of an organisation - from leading on ethics, to encouraging employees to uphold responsible business practices and compliance with prevailing laws. In the same vein, they can further leverage the partnership with the board, C-suite and human resources, to ensure employees are appropriately incentivised to align with and achieve the company's sustainability goals.

The regulatory and standard-setting landscape is also evolving rapidly, with stock exchanges setting ESG-related goals and listing requirements.

The London Stock Exchange has launched its Climate Transition Offering for London-listed companies. It is the first stock exchange to publish climate reporting guidance based on the UN Sustainable Stock Exchanges (SSE)'s Model Guidance on Climate Disclosure, which is in line with the TCFD recommendations.

At home, the Singapore Exchange Regulation (SGX RegCo) is proposing a road map for TCFD to be made mandatory for listed companies' sustainability reports, in response to urgent demand for such information from lenders, investors and other key stakeholders.

A 2021 survey by the Association of Corporate Counsel reported that 15 per cent of GCs indicated that the ESG function reports to them, and another 8 per cent felt that it should - representing almost a quarter of GCs who are aligned on this organisational oversight for ESG matters. There is merit for the ESG function to come under the GC. Let me elaborate.

GCs can play a leadership role in supporting - if not driving - a company's ESG objectives: From developing the ESG reporting and disclosure as described above, to effectively communicating the ESG risks and opportunities to the board and C-suite, to being the corporate voice and lobbyist in influencing the ESG regulatory environment - all roles that GCs are uniquely equipped and skilled in doing.

GCs and lawyers are no strangers to change. Most have embraced the mantra of lifelong learning - leveraging existing skill sets and expanding into new, interesting career dimensions: from being digitally savvy to integrating artificial intelligence into the practice of law - and now, sustainability.

One of the highest validation for lawyers to lead and have a voice of influence in the sustainability space (which includes climate matters), comes from Senator John Kerry, the US Special Presidential Envoy for Climate.

Speaking at the recent general assembly of the 2021 American Bar Association's Annual Meeting, Kerry resolutely declared: "You are all climate lawyers now."

In response, GCs and lawyers must boldly seize this opportunity, and rise to the challenge.

• The writer is the group general counsel and chief sustainability officer of Jardine Cycle & Carriage, a member of the Jardine Matheson Group. He also serves on the boards of the Singapore International Chamber of Commerce, City Mental Health Alliance Singapore and the Global Guiding Council of One Mind At Work.