Why should you care about ESG Legal Risk?
Confusion as to what ESG means, coupled with a lack of consistent and comparable verifiable data, a patchwork of laws and standards, and an increasing trend to use litigation as a strategy to change corporate behaviour/expedite transition to Net Zero, has exposed businesses to significant ESG legal risk.
Sustainable transformation constitutes, along with digital transformation, one of the main challenges that companies must face, which requires integrating ESG issues into business models and legal operations. In this sense, the legal function of companies, as a manager of legal risks, including sustainability risks, has an increasingly important role in detecting and preventing sustainability risks.
Legal functions need to understand their role in the deployment of the ESG strategy and how to manage ESG legal risks in order to benefit from anticipating the opportunities of the coming regulation and trends and manage the risks of exponential increase in greenwashing claims and climate-change litigation.
Therefore, there are several reasons for why you should embed ESG in the legal function and management of legal risks:
Complex regulation and standards
It is becoming increasingly difficult for international companies to have a clear picture of the complex regulatory framework that applies to their businesses. This is due to differences between jurisdictions and sectors, together with shifting authorities' criteria.
Stakeholders' scrutiny over greenwashing
ESG factors are crucial in the risk analysis of any company or activity. There is an increasing trend to use litigation as a strategy to change corporate behavior. Stakeholders are introducing ESG analysis in M&A, restructuring for decarbonization purposes, financing, and investments.
Anticipation will enable differentiation
The ability to anticipate ESG trends and regulatory changes with adequate analysis of the opportunities, challenges and risks is key for the sustainable transformation of businesses. Mistakes or being left behind may have a long term impact in reputation and positioning.
How can we help mitigate your legal ESG risk?
We can help your company's legal functions to understand their role in the design and implementation of the ESG strategy and in the navigation of ESG legal risks. We can support you in the identification and management of ESG legal risks, in order to prevent and mitigate them. Our service can include all of the following:
Role of the legal function
The head and legal function play a key role in relation to ESG strategies and have the opportunity to assume the leadership in this area. They have the capabilities and competencies in terms of knowledge and regulatory risk control that impacts the organizations:
Advice in the definition of functions, leadership and liability of the legal function in ESG strategies.
Drafting of policies identifying risks, procedures, and appropriate legal operational framework
Supporting clients to define their internal process, controls & structures to gain confidence over their ESG activities, that will enable to understand how stakeholders are evaluating ESG.
ESG Regulation and standards
Companies in all the industries are demanding legal advice to identify applicable ESG legal framework, criteria of authorities and social awareness in the countries where they have presence:
Advice in the mapping and applicability of obligations taking into account sector, country legislation and authorities' criteria.
Supporting clients to define the what and how they report on their ESG activities, aligned to regulatory requirements.
ESG Litigation and claims
The increase in litigious claims together with the rapid development and growth of ESG disclosure obligations and practices, means that companies that mitigate the risk of, and manage any ongoing, ESG litigation will be more resilient:
Implementing measures to understand the components of greenwashing, improves the ability to avoid greenwashing accusations.
Implement an ESG Policy as a long-term, detailed document which addresses the processes, procedures, and policies of a business’ end-to-end ESG investment strategy which, in turn, contributes to the achievement of the business’ ESG ambition..
Contact our experts and read more insights here
If you or your company are interested in hearing more about ESG risk and legality, you are welcome to reach out to our ESG experts below.
Michael B. Jensen
Partner, Head of Products & ESG
KPMG in Denmark
