A recent report from ³ÉÈËÓ°Òô, Implementing the E of ESG: why in-house lawyers are instrumental, shows that addressing climate change has become a business priority. Local, national, and international initiatives are pushing organisations to address climate change by setting specific targets, alongside a wider cultural and economic shift.
Organisation know they must act. But they are often unsure of the practical steps they need to take. Companies know that ESG not only improves the reputation of their organisation and contributes towards tackling climate change, but it also improves . As Simone Davidson, Head of Lexis®PSL Environment, neatly explains: ‘There is a correlation between how companies score in [ESG] and longer-term financial health, with high-performing companies seeing benefits to brand, reputation, and employee engagement.’
So, successful companies increasingly aspire to . But measuring success is not always simple, particularly because of reporting issues. ESG is a , escaping easy definition, and it seems to mean different things to different people. Companies find it difficult to find the right data to measure and the right benchmarks to set.
In this article, I look at how general counsel can lead organisations by guiding them towards the right ESG data. My aim is to demystify a complex area and offer practical steps that in-house lawyers can take to push their organisation’s ESG agenda forward.
Transparent ESG reporting builds trusts among stakeholders, improves brand reputation, boosts employee engagement, and broadly improves business performance. But inconsistencies around ESG reporting, particular the , can lead to uncertainty and dissatisfaction among consumers, employees, and stakeholders.
The problem is not that there is no way to measure ESG. The problem is that there are too many ways. There are several ESG standards boards, for example, including , , , , all of which define principles and reporting requirements.
International standards face a similar problem. There are myriad groups – including consulting firms, , professional organisations, – all attempting to establish a global ESG standard. It is perhaps unsurprising that, with so many competing forces, no such global standard exists.
On top of all of that, there are also a huge number of third-party providers who actually rank a company’s ESG scores, such as , , , , and so on.
Having so many standards boards and third-party providers . Companies may need to spend time converting data to meet different standards. End users may be unable to meaningfully compare reports across different standards. In addition, certain companies can pick standards and providers that present them in a better light, presenting a biased picture.
Measuring ESG depends on a , with lots of complexity and lots of problems. Companies often find themselves struggling to know which standards to benchmark against and indeed which data to use in the first place.
General counsel can help companies navigate the complexities. First, they should encourage the establishment of basic principles. So, for example, companies should include that consider the various standard boards, establish quantifiable deadlines and benchmarks driven by the best available data, and ensure that a third-party verifies reporting.
Then it’s all about finding the best data. General counsel must push companies to collate, understand, and report on data needed to accurately measure the progress and success of ESG initiatives. General counsel should encourage companies to avoid ‘’. Organisations that indulge in selective reporting will be seen as only paying lip service to sustainability and may be accused of greenwashing, which can lead to reputational damage.
As there is not a , the data companies disclose will differ depending on the size and nature of the business, and internal decision-making.
One option is aligning with two or three ESG frameworks and identifying key metrics from there. If , general counsel should advise them not to simply pick standards that present the company in the best light. Showing stakeholders areas of poor ESG performance can be a positive, as it allows the company to highlight issues they can address in the future.
Another option is to look at the various standard boards and pick relevant data points from each, or identify data points included in the majority. That depends on research, but it’s a tactic . The benefit is that the data is more easily transferable and likely better received by end users and third-party providers.
Ultimately, the challenge of making sustainability measurable depends on navigating complexity and finding the data that best tells a company’s complete story. That story should showcase ESG successes and failures to stakeholders, providing them with all the necessary information and broadly promoting transparency.
General counsel are well positioned to lead the way, ensuring companies not only adopt ESG policies, but report on and measure them.
Our Sustainable Business Toolkit is a great start for in-house counsel looking for practical resources on sustainable business issues. The toolkit includes advice and information on various practice areas such as competition, environment and finance with over 100 practice notes and checklists at your disposal. Using this content, practitioners will be able to advise businesses on what sustainability means for their undertaking, help them to identify what they should be doing and how to measure impact, and explain how they can maximise opportunities and minimise risks.
Not a LexisPSL subscriber? To try LexisPSL for free for 7 days, fill out the sign-up form below.
* denotes a required field
0330 161 1234