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Increasing importance of meeting environmental, social and governance standards

Lynsey Mallon, head of corporate and commercial at Arthur Cox in Northern Ireland

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Lynsey Mallon

Lynsey Mallon

Lynsey Mallon

Organisations of all sizes and across all sectors are more conscious now than ever of their corporate social responsibilities and are increasingly scrutinised on how they are adhering to acceptable environmental, social and governance (ESG) standards.

While acting in a responsible and sustainable manner is something that all companies should strive for, many investors across the globe are now seeking only to make investments in enterprises that meet certain ESG criteria.

As a result, ESG is now regarded as integral to business, influencing an organisation’s overall strategy and in some cases determining its prospects for success.

Environmental concerns, such as energy efficiency, carbon emissions and waste management are particularly significant at present, with a growing awareness of the need to act sustainably in light of recent climate change statistics and as the UK hosts the United Nations Climate Change Conference (COP26).

Companies are being reminded of their responsibility to work towards positive climate action and the creation of a more sustainable future while also harnessing the potential of the green economy.

The social element of ESG examines a company’s culture and people and considers its impact on the wider community, focusing on aspects such as gender equality, employee engagement and community relations.

Strong corporate governance is also a vital piece of the puzzle for investors under ESG as they look for transparency, diverse board composition and independence.

Evidence suggests that ESG is here to stay, and efforts are being made to integrate relevant principles into every day business practices across a variety of sectors and industries.

Since 2012, the number of signatories to the UN supported Principles for Responsible Investment has reached 3,800 funds and service providers – controlling a combined pool of $120tn (£88tn).

Meanwhile, the ‘big four’ accountancy firms have come together to announce a common ESG reporting framework.

However, understanding ESG criteria is important not just for those seeking to sell or attract investment.

It has been demonstrated that businesses performing well in terms of ESG experience higher levels of financial growth, increased employee productivity, reduced vulnerability to regulatory fines and sanctions and decreased operational costs.

It shows to your supply chain and customers that you are a responsible organisation and also plays a key role in attracting talent and motivating and retaining current employees.

Organisations wishing to incorporate ESG into their own business strategies should determine the most critical areas where these principles are needed, conduct an assessment among investors, shareholders, employees and customers and research ESG standards, frameworks and policies.

There are around 40, if not more, issues or factors that can fall within the ESG umbrella and many of them are derived from hard law or may have a contractual element to them or indeed otherwise present risks with the potential for legal sanction.

It is therefore critical that organisations engage legal professionals with the requisite skills and experience in this area in order to assist with risk management and regulatory compliance, drafting ESG policies and reporting procedures, ESG due diligence and other transactional support and advising on ESG disclosures.

With extensive experience operating in this area, the corporate and commercial department at Arthur Cox is well placed to provide expert legal guidance. 

The corporate and commercial department at Arthur Cox provides advice on wide range of legal matters. Please call +44 28 9023 0007 for further information from Lynsey or your regular Arthur Cox contact.


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