MoFo ESG Survey in Partnership with Corporate Counsel: In-House Legal Teams Overwhelmingly Lead Company ESG Strategy

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Morrison Foerster, a leading global law firm, today announced the results of its inaugural “GCs and ESG” survey in partnership with Corporate Counsel. The results of the survey are an encouraging sign that companies of all sizes are focusing on ESG. Eighty-six percent of respondents report that their companies provide ESG disclosures, half of them voluntarily. Further, the survey reveals that in-house counsel overwhelmingly take a leadership role in driving their companies’ ESG strategy. Nine in 10 legal departments surveyed lead a material portion of ESG initiatives in their organizations. However, approximately one in five respondents relies on compliance officers—who do not always report to the legal department—to implement their companies’ ESG goals, pointing to a possible disconnect between strategy and execution.

“This is a time of enormous opportunity for the role of in-house counsel to lead the ESG transformation and reshape their role beyond compliance and disclosure,” said Suz Mac Cormac, chair of Morrison Foerster’s Energy and Social Enterprise + Impact investing practices. “This survey is showing us that companies across all industries are focusing on getting ESG disclosures and compliance right. However, as the benefits of ESG continue to grow for partners, investors, employees, and consumers, in-house counsel should lead the change in thinking about ESG, less as a box-checking exercise and more as an analytical and strategic tool for managing risk throughout their organization and driving value creation.”

Increasing ESG interest from all sides by regulators, competitors, and shareholders has spurred 64% of respondents to make changes in their strategic business decisions. For instance, nearly half of respondents acknowledged that their companies changed their approach to environmental action in the last year by increasing public transparency (49%), making emissions changes (44%), or increasing their environmental regulatory compliance budget (41%). Asked to identify their legal departments’ top three ESG-related priorities, three-fourths (72%) pointed to Diversity, Equity and Inclusion (DEI) as the top priority. Climate change (61%) and board oversight of environmental issues (52%) also topped the list of priorities. Just as in-house counsel report that data and consistency are their greatest ESG challenges in this timely survey, the Securities and Exchange Commission (SEC) has extended the comment period for climate disclosures.

Survey Highlights

  • In-house legal teams are the keepers of their organizations’ ESG initiatives, with 90% of respondents reporting that the legal department leads a material portion of ESG initiatives.
  • Sixty-four percent of respondents report making changes in their strategic business decisions due to increasing demand for more meaningful action and transparency around ESG.
  • According to respondents, companies are more likely to put a higher emphasis on ESG’s “G” pillar (governance), followed closely by the social/human capital aspects (“S” pillar).
  • Changes in the workplace and shifting social and cultural expectations about businesses have broadened the legal teams’ ESG priorities to include social/human capital management in more forms. After governance (84%), 78% ranked social (examples include human rights and racial justice) and 77% ranked human capital (examples include executive compensation, DEI initiatives, and talent management) as their companies’ biggest areas of focus. Further, DEI was identified by legal departments as their top departmental ESG priority (72%).
  • Looking at the environmental pillar specifically, according to respondents, improving a company’s brand image and reputation is the top motivator for organizations to adopt environmental goals beyond required compliance with environmental laws (85%), while staying competitive in the market (73%) and increasing pressure from investors and shareholder (54%) rounded out the top three responses.

Corporate Governance As an Effective ESG Tool for Change

When asked to rate their companies’ focus on individual ESG elements—environmental, social, and governance—as well as human capital (including DEI), U.S.-based legal departments said they were most firmly focused on ESG’s “G” pillar (governance), followed closely by the social/human capital aspects. For now, ESG’s “E” appears to be less of a priority for companies/boards, owing at least partly to confusion around measuring and reporting achievements.

Companies are considering various levers to meet ESG objectives, and corporate governance is an important tool. However, with the increasing focus on ESG, it is inevitable that some companies will tout their association with ESG policies and operations without effecting real change. This phenomenon is known in the industry as “greenwashing.” The survey respondents are aware that, for ESG to be successful, its effects must be measurable and meaningful, and greenwashing or the appearance of greenwashing is to be avoided. An important mechanism for aligning ESG priorities with a company’s operations is through executive pay, and 54% of respondents note that their companies’ executive compensation includes incentives or mandates for ESG metrics. This is an evolution of say-on-pay executive compensation proxy proposals as more boards and shareholders see executive compensation as a way to meet ESG targets. Further, both internal ESG review and external ESG review are popular according to the survey, as 61% of respondents listed board oversight of environmental and sustainability as a top ESG priority for their legal departments, and 67% of respondents report using a third-party assurance service or verification for ESG reporting.

Social/Human Capital Aspects Top of Mind for Legal Teams

The pandemic created seismic changes in the modern workplace, as employees now have more options over where and how they work. On top of a tight labor market, employees are looking for companies that respect their personal priorities and align with their values. The survey reflects this new perspective, as the top ESG priority identified by legal departments, out of seven, is DEI initiatives (72%). Other social/human priorities were rated as follows: human rights issues (42%), supply chain management (28%), and community involvement or charitable giving (16%). By contrast, more than half (54%) of the in-house leaders reported that they are not authorized to speak on social issues, such as racial justice and human rights. The percentages remained consistent, regardless of senior titles or size of legal department.

Climate Concerns and Disclosures at the Forefront

The lower rating for the environment pillar (63% compared to governance at 84%) may point to its more generally accepted reporting requirements, easier metrics to measure, and wider acceptance, rather than a lack of focus by businesses. In fact, when asked to identify their legal departments’ top priorities, in-house counsel ranked two environment-related priorities in their top three, climate change (61%) and board oversight of environmental issues (52%), while 18% also ranked other environmental matters among their top three ESG related departmental priorities. Environment concerns also include upstream and downstream partners, which are known as “Scope 3 emissions” and soon to be required disclosure once the SEC’s climate disclosure proposal is finalized. Fifty-six percent of respondents are already considering the environmental policies and records of vendors and including those in their departmental decision-making processes.

To download the full survey results, visit our ESG + GCs resource website, which includes additional insights, podcasts, and videos by the Morrison Foerster ESG team.

Methodology
In Q1 2022, Corporate Counsel, in partnership with Morrison Foerster, surveyed legal department leaders with titles including general counsel, chief legal officer, or vice president of legal to study the extent to which ESG policy and compliance development, implementation, and reporting falls to corporate legal departments. The 20-question survey of U.S.-based in-house counsel covered organizational, departmental, and individual approaches to ESG. Responses were collected by invitation via vetted telephone interviews and online from January 26 to March 11, 2022. The survey was completed by 79 respondents. The size of the respondents’ legal departments ranged from a single lawyer to those exceeding 60 lawyers.

About Morrison Foerster
Morrison Foerster is a leading global law firm that transforms complexity into advantage for its clients. Our clients include some of the largest financial institutions, banks, consulting and accounting firms, and Fortune 100, technology, and life sciences companies. Highlighting the firm’s commitment to client service, leadership in market-changing deals and impact litigation, and values-based culture, Morrison Foerster was recognized as one of the top 10 firms on The American Lawyer’s 2021 A-List. Year after year, the firm receives significant recognition from Chambers and The Legal 500 across their various guides, including Global, USA, Asia-Pacific, Europe, UK, Latin America, and FinTech Legal. Our lawyers passionately care about delivering legal excellence while living our values. Morrison Foerster has a long-standing commitment to creating a culture that respects and celebrates differences, while providing an inclusive environment. The firm has achieved Mansfield Certification Plus since 2018 as a result of successfully reaching at least 30 percent women, communities of color, and LGBTQ+ lawyer representation in a notable number of current leadership roles and committees. The firm also has a long history of commitment to the community and society through providing pro bono legal services, including litigating for civil rights and civil liberties, improving public education and fostering the wellbeing of children, advocating for veterans, promoting international human rights, enforcing the right to asylum, and safeguarding the environment.