Legal and CoSec on the ESG front line
A series of PwC interactive livestream events on the ESG agenda has highlighted key challenges facing the legal and company secretary functions. Now PwC’s latest research reveals the scale of the task lying ahead.
General counsels and company secretaries are in the front line of the environmental, social and governance agenda. As ESG moves centre-stage for their organisations, these leaders and their functions have seized the initiative – they are supporting and often driving the business’s efforts to engage on a broad range of key issues.
Indeed, ESG has become an integral element of the GC and CoSec role, changing the nature of the job at both a strategic level and day-to-day. At the end of last year, when PwC launched its series of ESG livestreams, 95% of participants in the first event thought ESG would have major impacts on how they supported their organisations. And today, new PwC research suggests they were right – but also that many GCs and CoSecs are worried about those impacts and how to steer their organisation through the ESG challenge.
Key findings from our latest survey of legal and CoSec leaders include:
- Only 11% of these leaders believe their teams are fully integrated with other functions in developing the organisation’s ESG strategy, though 30% report moderate levels of integration.
- Less than one in four legal and CoSec leaders (23%) have a high level of confidence in their understanding of the current regulatory landscape that applies to their business.
- Two-thirds of leaders (66%) say their organisation has, at a parent level, put governance committees or decision-making decision forums in place to monitor, assess and manage ESG risks and opportunities. But this figure falls to 41% at subsidiary level.
- While 42% of legal and CoSec leaders say their organisation has a strategy to respond to the new corporate reporting requirements, 40% concede they don’t know and 18% say there is no strategy currently.
- Only 5% of leaders say their organisation provides extensive training in relation to ESG at director level in the parent company and for any subsidiaries; that rises to only 10% below director level.
It is not as if the world is standing still, waiting for GCs and CoSecs to close these gaps. Indeed, more than half of legal and CoSec leaders now expect their role to change significantly as ESG regulation evolves. A third say all three areas of ESG – environment, social and governance – will impact their function’s role and purpose over the next 12-24 months.
The livestreams that PwC has run over recent months, divided into two successive series of events, have generated insights on how to start to get to grips with these challenges. GCs and CoSecs are ready to play their part.
Key environmental issues
In PwC’s first round of livestream events, we highlighted a string of areas where organisations must manage new environmental regulation, from new taxes on plastic to reforms around plastic and waste management – and we warned of the growing concern about greenwashing, where the environmental claims of marketing departments do not stand up to scrutiny.
Expect that regulation to keep on coming. In April, for example, the Taskforce on Climate-Related Financial Disclosures (TCFD) introduced new rules on disclosure of climate-related financial information for around 1,300 large businesses, with more due to fall in-scope in the months and years to come.
Our second round of livestream events looked at how GCs and CoSecs will need to be closely involved with preparations for TCFD, as well as the ongoing work of compliance. Many organisations have started training boards and audit committees; scenario planning is also underway as businesses attempt to model the impacts of various climate change trajectories; there is also a need to step up efforts to account accurately for carbon footprints.
GCs and Co Secs will be well-placed to bring much of this work together, particularly as they consider the group-wide position. And they get it: PwC’s research shows 78% of legal and CoSec leaders believe it is important or extremely important to engage with local subsidiaries when it comes to ESG reporting. Still, question marks remain: only 39% describe engagement with local entities’ boards on ESG and corporate reporting issues as regular.
Key social issues
The social pillar of ESG covers a broad range of issues, from workforce diversity to community engagement. PwC’s first set of livestream events highlighted some of the areas where GCs and CoSecs are most heavily involved – many participants pointed to their key role in building supportive relationships with different groups of stakeholders, and in setting a framework for enhanced diversity and inclusion.
In our second round of livestreams, we considered how a legalistic approach in many of these areas may not get the organisation to where it needs to be. One good example is equal pay, where the law simply requires larger organisations to publish data on average pay for men and women; here, complying with the disclosure requirements may lead to reputational damage if the data revealed suggests women are getting a raw deal.
Similarly, bland statements about compliance with modern slavery laws are unlikely to be received sympathetically if a supply chain scandal subsequently reveals the organisation has paid only lip service to the issue.
GCs and CoSecs will play a key role in working through these difficult issues with their organisation. Compliance is a given, but how does legal and CoSec ensure the business has truly grasped what is at stake and recognised the imperative?
In the new PwC research, 51% of GCs and CoSecs say modern slavery regulation has already had a significant or very significant influence on their function’s approach to ESG – but only 12% say the same of extended producer responsibility rules.
Key governance issues
On governance, PwC’s first round of livestreams focused on the central role that GCs and CoSecs are playing in getting their organisations into shape. Some are creating an ESG governance framework to provide clarity on roles and responsibilities in the organisation around the use of data. Others are focused on regulation that requires boards to re-evaluate how they structure corporate governance at the parent and subsidiary level.
The aim is to build organisations that are governed in a way that is fit for purpose for the years ahead. That is prompting GCs and CoSecs to push for greater influence – to work with the organisation’s most senior leaders on how the new regulatory landscape impacts business strategy.
As we reported in our second set of livestreams, the picture continues to grow more complex. In the UK, May’s Queen Speech unveiled multiple new bills with governance implications; in the EU, the new Corporate Sustainability Reporting Directive includes a range of prescriptive governance requirements. In the US, the Securities and Exchange Commission is moving towards an approach to reporting that mirrors TCFD.
GCs and CoSecs must now map out the approach required in each regime in which their organisation operated – and how they interact. And they can also expect a growing number of anxious questions from the board; the determination of policymakers and regulators to hold business accountable is increasingly being expressed through new rules on personal liability and sanctions for individuals as well as the organisation itself.
What do I do now?
GCs and CoSecs will have to prioritise. Identify the key compliance deadlines growing imminent, set the ball rolling on longer-term targets, and horizon-scan and strategise for additional change as it emerges.
The complication here is that work is required at both the group level and within each business entity. In each case:
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Above all, be prepared to be collegiate – ESG is an enterprise-wide priority that will require cross-function collaboration. In PwC’s new research, 42% of respondents say no single department is taking the lead on ESG, with responsibility spanning multiple departments.
Moreover, while around one in four respondents say responsibility for ESG does sit with either legal or CoSec, the key will be to provide direction rather than take a top-down approach. The functions may be well-placed, for example, to begin work on and ESG governance framework that provides detail on how the business will grip key issues, from board level downwards. They may want to sit on ESG or sustainability committees. But it will be vital to share the workload.
One final thought. While the pace of change and the burden of work in the ESG arena may be daunting, this is also an opportunity for GCs and Co Secs to shine. By taking a lead on this work, they will raise their profiles and set the agenda for their organisations. That may lead to all sorts of new opportunities.
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