Evangelos Apostolou of the EMEA and Asia-Pacific In-House Counsel group at Major, Lindsey & Africa discusses why demand for ESG-ready in-house talent will continue to grow.
For many, the environmental, social and governance (ESG) movement, which is estimated to move past $50trn of assets globally by 2025, represents a generational opportunity to use the power of capital markets to transform the world. Perhaps even to save it. However, for others, ESG proponents naively confuse philanthropy with the fiduciary duty to maximise return on investment.
Whatever your view, the growing public expectation that corporations play a bigger role in tackling the world’s challenges is translating into investor demand for ESG data that is reshaping traditional investment decision-making. In turn, policy makers are driving a steady rise in ESG-related regulations and reporting obligations. As the ESG agenda makes itself increasingly felt, and corporations look more and more to their GCs for guidance and leadership, a natural question to ask is whether GCs are ready for this change.
Even if not entirely new, there is no simple definition of ESG. Climate change has emerged as the key focus and reportedly attracts one in three sustainable investment dollars. Resource scarcity, supply chain, diversity and inclusion, and human rights have established distinct categories among a number of others. The resulting impact on board accountability and executive compensation is palpable and the traditional functions aligned to legal, such as compliance, ethics and corporate governance are all being challenged to revaluate their scope of activity.
Similarly, many ESG outcomes are not straightforward to report on and despite creditable efforts, the availability of consistent and reliable measurement data remains a work in progress. Taking one simplified example: if electric car manufacturers reduce dependency on fossil fuels and this in turn reduces damaging carbon emissions, are electric cars manufactured in a way that creates a net positive impact in energy consumption? Are the electric batteries used in the cars charged with renewable energy? When the batteries reach end of life, will they be safely disposed without disproportionally harmful consequences to the environment?
Acknowledging these challenges and complexities, are there GC skillsets that are exclusive to ESG practice? Probably not at this point. But neither are ESG-relevant skills in abundant supply and their scarcity signals a potential war for talent as corporates look to GCs for proactive support of ESG agendas and specific ESG experience becomes portable. Relevant skills include the ability to:
- Define, reshape and articulate organisational ESG focus.
- Set a tone for engagement that moves beyond doing what is necessary to strictly comply to doing what is right in the delivery of ESG outcomes.
- Assess ESG commitments and targets before external communication to ensure positive market scrutiny and to avoid the pitfalls of greenwashing.
- Build and maintain credible data-driven ESG narratives for communication with external stakeholders and third-party advisers.
- Manage ESG-related regulatory interventions and litigation as well as activist targeting by interest groups.
- Operationalise the integration of ESG risks and opportunities into corporate decision making.
- Create and lead cross-functional teams to deliver enterprise-wide ESG outcomes.
While law firms have been busy reinventing traditional practice groups to align with client ESG needs, the in-house community has been a little slower to respond. Notable exceptions include the groundbreaking 2019 General Counsel for Diversity & Inclusion initiative led by the global GCs for Shell, Unilever, Vodafone, BHP and Anglo American, which aims to work with law firms to improve D&I in the legal industry.
One thing is clear, employers are actively in the market for ESG talent. Earlier this year, PwC announced that ESG will be a key focus in its plans to invest $12bn over the next five years and to create 100,000 new jobs. The numbers alone that anticipate ESG-related growth in the trillions indicate the scale of the changes underway.
Alongside efforts to rebrand and repurpose existing roles, in a few cases GCs are being entrusted outright with their organisation’s ESG portfolio as a natural extension of their responsibilities. In most cases, GCs are still finding their bearings. The opportunities for the ESG-capable GC beckon and they are little short of profound.