It is essential that companies avoid overpromising and underdelivering on sustainability. We explore how commercial lawyers can help with that task and examine some of the major risks involved.
Businesses are the main drivers of environmental, social, and governance (ESG) initiatives. Customers pressure businesses to engage meaningfully with sustainability. Directors and boards – and, in some cases, potential investors – demand that businesses demonstrate a strong ESG record. And forward-thinking business leaders, aware of the many benefits, encourage the shift towards sustainability.
It has become abundantly clear to that ESG policies are not just the right ethical choice, but the right commercial choice, too. Robust and positive ESG policies, among other things, improve operational efficiency, encourage employee retention, enhance company reputation, attract new and keep existing customers, deliver relief from , and so much more.
The is clear. But companies run risks during the process of ESG implementation. One such risk is overpromising and underdelivering. In this article, we look at the recent ½Û×ÓÊÓƵ Global Legal Product Index and explore how commercial lawyers can help businesses overcome that risk.
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The challenge for commercial lawyers is finding the right ESG path for the business they are supporting. There is no one-size-fits-all approach to ESG, as companies are on different stages of their journey. Some businesses have sustainability embedded in everything they do, while larger companies with hefty resources can usually add an effective ESG ‘layer’. But SMEs and mid-market businesses tend to have less resources – and they are most at risk of overpromising and underdelivering.
Commercial lawyers need to provide support. They occupy a unique position in businesses when it comes to implementing ESG policies. As external advisors or in-house counsel, commercial lawyers deal with teams across the organisation – sales, operations, procurement, and so on – which affords them a wider perspective and one that includes all the different stakeholders. They have a 360-view of a company’s supply chain, with the opportunity to develop end-to-end internal ESG compliance.
Commercial lawyers are thus in a prime position to define and drive ESG policies. Among other things, commercial lawyers should ensure ESG is embedded in strategy, hold suppliers accountable to ESG initiatives, ensure compliance is built into contract management systems, spot potential problems on the horizon, and re-wire all internal contracts to ensure they support and even further ESG initiatives.
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To avoid overpromising and underdelivering, in-house lawyers should champion clarity, transparency, honesty, and accountability. We look at two examples of area where businesses have overpromised and undelivered, and we show how commercial lawyers can help businesses avoid such issues.
Businesses are increasingly adopting open-source sustainability-focused contract clauses. The clauses provide a brilliant starting position for businesses, especially ones lacking broad experience with contracts, but template clauses come with risk. One risk is failing to understand the obligations.
Sustainability template clauses can contain highly technical and detailed net zero obligations. That means that businesses signing up to conditions may not be prepared to fulfil obligations, running the obvious risk of breach of contract. need to help businesses understand the scope of the contractual obligation and justify how businesses can satisfy the obligations.
Commercial lawyers need to preach caution. Compliance is important, and the templates are often helpful, but gaps between expectations and practice can create potential for disputes. The role of a commercial lawyer in that instance is scrutiny, ensuring suppliers and businesses can meet the demands of the clauses and stripping back any elements that make the business vulnerable to liability.
Here is the definition of greenwashing, according to the recently publishing ½Û×ÓÊÓƵ Implementing the E of ESG report: ‘The practice of making people believe through marketing and PR that a company and/or its products is more environmentally friendly or sustainable than it really is.’
Greenwashing has hit headlines with the , which saw police raid the bank’s headquarters after the bank allegedly sold investment products worth $1tn, overstating the environmental friendliness of the product. Other organisations have , ranging from to Keurig’s misleading recycling claims.
The are many. Greenwashing is harmful, misleading to customers, and can lead to huge reputational and financial damage. And, perhaps worse of all, greenwashing is unhelpful and even damaging in the fight against climate change: it adds to the existing mass of misinformation, gives weight to arguments against climate action, and misleads people into acting unsustainably.
with some simple steps. They can substantiate all sustainability and environmental claims, make sure all comparisons with other organisations are fair and just, ensure that all claims are easy to understand, avoid the use of misleading visual claims on advertisements, and never omit important information in order to paint a selective picture.
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