Dive Brief:

• Corporate ESG strategies are increasingly being spearheaded by companies’ legal departments, according to an annual benchmark survey conducted by Corporate Counsel’s research arm ALM and backed by law firm Morrison Foerster. 
• The study gathered views of 97 law department respondents — 68% of which hold senior level titles including general counsel, vice president and chief legal officer — over the course of February to April this year. From the respondents surveyed, 25% said they were leading their organization’s ESG strategies, up from 9% in 2023.
• Morrison Foerster partner Susan Mac Cormac said in-house counsels are focused on ESG because of three drivers: a rising tide of regulation; a result of lawyers’ findings from their materiality assessments; and the pace of change in the environment, technology, the investment climate and business operations.

Dive Insight:

While there has been momentum in legal departments leading corporate ESG strategies, C-Suite leaders — including CEOs and CFOs — still made up the largest group steering their organization’s ESG strategy. Nearly a third of C-suite representatives said they were leading their organization’s ESG strategy, per the survey. However, this figure has gone down from 56% in 2023 as general counsel teams have stepped in amid a backdrop of increased regulatory and litigation pressure. The study also found a quarter of general counsels are taking leadership roles, up from 9% in 2023.

“There will be an even greater need for ESG strategies that are tied to operations, including strategies to navigate the energy transition, accurately address risk and identify business opportunities,” Mac Cormac wrote. “In-house counsel will continue to focus on the elements of ESG — from cybersecurity to privacy to human rights to climate change — for tactical as well as compliance reasons.”

Regarding ESG compliance specifically, 47% of legal department representatives surveyed said they had above average involvement in ESG compliance (scoring 4 or 5 on a scale where the latter is considered “extremely involved”). However, this figure declined from 66% last year, a shift study authors attributed to some compliance leadership being delegated to other departments, and a stronger focus on including ESG data in financial reports.

“In the wake of recent regulatory developments, some compliance leadership has moved to other departments, given the need to include ESG data in financial reports and to increase assurance levels. Consequently, fewer legal departments are responsible for leading ESG [compliance] in 2024 than during the year before,” the survey stated.

In a question asking respondents to describe the status of their organization’s environmental performance goals beyond compliance with environmental laws, a smaller number said their organizations were identifying and adopting environmental performance goals compared to the prior year. Just over a third (34%) said they had taken those actions, compared to 44% in 2023.

Among ESG-related priorities for legal departments, diversity, equity and inclusion topped the list at 56%, down from 64% last year. Meanwhile, 45% climate change said climate change was a top priority, up from 29% last year.

Enhanced scrutiny of ESG strategies

Just over half of respondents (56%) said they have not experienced or been impacted by an ESG backlash, up 9% from the prior year. A majority (59%) said improving brand image and reputation among customers was a motivational factor for their firm adopting environmental goals, up 2% from the prior year. 

Still, respondents appeared wary of the risks of regulation scrutiny and the rise of greenwashing litigation associated with the public disclosure of ESG strategies: 63% of respondents viewed touting a public ESG strategy as a risk.

Implementation hurdles

The top challenge to implementing ESG is understanding its materiality and scope, which was noted by 15% of respondents, followed by data collection and verification, identified by 14% of respondents.

Just 55% of those surveyed said internal stakeholders understand how to effectively own ESG as part of the company culture, down from 78% in 2023.

“Avoiding a siloed approach, each team and function should take ownership of ESG as it impacts their business or operational area while communicating with other functions in the organization,” Mac Cormac wrote.