Imagine if you’re the CEO of a company that prides itself on innovation and sustainability, only to find your company dropped from a major ESG index while an oil giant remains on the list.
This happened to Tesla in 2022 when the S&P 500 ESG Index removed it due to concerns over workplace conditions and corporate governance. Meanwhile, ExxonMobil, notorious for its high greenhouse gas emissions, stayed on the list.
This decision sparked heated debates over what ESG ratings really measure and whether companies are genuinely committed to ethical practices or simply gaming the system.
At the same time, investors are no longer willing to turn a blind eye to companies that fail to take ESG seriously.
A 2021 PwC survey found that nearly half of investors would divest from companies not making meaningful ESG progress, and 82% want ESG to be a core part of corporate strategy.
For in-house lawyers, this shift means your role is evolving. You’re a critical player in ensuring the company meets its ESG commitments. It’s your job to help navigate these complex expectations, manage risks, and keep the company on the right side of both regulations and public opinion.
This article will explore why ESG is becoming a cornerstone of modern business strategy and how legal professionals can lead the charge in making it more than just a corporate buzzword.
What is ESG (Environmental, Social, and Governance)?
Environmental, Social, and Governance (ESG) is like a report card for how a company treats the world around it. It doesn’t just focus on profits; it looks at whether a business is being a good neighbor, a fair employer, and a responsible global citizen.
ESG digs into how a company is handling things like its impact on the environment, its relationship with people, and whether it's doing business ethically and transparently. In other words, it’s a way to see if a company is not just doing well, but also doing good.
The Three pillars of ESG
- The “Environmental” aspect focuses on a company’s interaction with the natural world, such as its carbon footprint, resource usage, and waste management. It’s about how businesses can minimize their negative impact on the environment and contribute to global sustainability efforts
- The “Social” component examines how a company manages its relationships with people. This includes the treatment of employees, diversity and inclusion practices, community engagement, and respect for human rights throughout its supply chain. It’s a reflection of a company’s role in building a fairer and more equitable society
- “Governance” refers to the internal systems, controls, and procedures that ensure a company operates transparently and ethically. It covers everything from executive pay and board diversity to shareholder rights and anti-corruption measures. Strong governance is critical for maintaining the trust and confidence of investors and the public
Also read: Product Counseling at Nest, Apple, and a Climate Change Startup: Vineet Shahani, GC, Mill
Why is ESG Crucial for in-house lawyers?
"Sustainability has clearly become a boardroom topic, and regardless of whether your company places ESG at the center of everything it does or not, sustainability has moved from being seen as 'going the extra mile' to being the norm."
~ Aleksandra Schellenberg, Global Head Of Legal, Sustainable Finance, UBS
The In-House View
For in-house lawyers, ESG is like the ultimate checklist to make sure your company isn’t just playing by the rules but actually doing the right thing.
Why does this matter? Because when it comes to ESG, you’re the one who has to navigate the legal maze, protect the company’s reputation, and meet the ever-growing expectations of clients and stakeholders.
Here’s a closer look at why ESG should be at the top of your priority list:
#1 Legal risks & compliance
Imagine ESG regulations as a growing mountain of paperwork and disclosure requirements that you’ve got to stay on top of. Whether it’s keeping up with new climate regulations or making sure the supply chain is transparent, it’s the legal team’s job to keep things in line.
If something falls through the cracks—like missing a reporting deadline or ignoring a new rule—it will lead to hefty fines, potential lawsuits, or even regulators asking you questions. So, it’s your job to make sure the company is actually staying out of hot water.
And it’s not just about compliance. It’s about weaving ESG into the company’s DNA. You’ve got to be the advisor who helps the business think ahead: How will this decision impact our environmental footprint? Are we treating workers in our supply chain fairly? In short, your role is to make sure the company isn’t just following the letter of the law but embracing the spirit of it, too.
Also read: Legal Risk Management: From the Playbook of 11 GCs & Leaders
#2 Reputational risk
Think of your company’s reputation as a fragile vase. A big ESG mistake—like a pollution scandal or poor labor practices—can shatter it into a million pieces.
Remember when companies faced backlash when they pretended to be eco-friendly while cutting corners on ethics? People—and investors—have long memories for that kind of stuff, and it can really stick. As an in-house lawyer, you’re the one who needs to see these issues coming a mile away. It’s your job to make sure the company doesn’t end up in trouble by giving the green light only to genuine practices—whether it’s being honest in marketing or making sure the products are sourced responsibly.
A good reputation is like gold: it takes years to build but can be lost in a second. Your legal expertise can help ensure that one misstep doesn’t lead to a PR nightmare or a stock plunge.
#3 Client expectations
Clients today aren’t just interested in what you’re selling—they want to know things like, “Are you actually trying to cut down your carbon footprint?” or “What are you doing to promote diversity and inclusion?” In other words, they care about ESG, and if your company isn’t on board, it could be a total dealbreaker.
And that’s where you step in. As an in-house lawyer, you have to ensure that your company’s contracts and policies reflect its ESG values. It’s about making promises you can keep, whether it’s reducing emissions or ensuring ethical labor practices. When clients see that you’re not just talking the talk but walking the walk, it builds trust and loyalty. And that’s good for business.
Also read: In-House Counsel’s Role in Corporate Sustainability
5 Challenges of ESG in legal
Being an in-house lawyer dealing with ESG can be exhausting. Just when you think you’ve got things under control, a new regulation comes out, and you have to start all over again. It’s like you can never catch a break.
#1 Keeping up with constantly changing rules
ESG rules are always shifting. One day, you’re focused on reporting your company’s carbon emissions, and before you’ve even finished that, there’s a new rule telling you to check on your suppliers’ practices. It’s a lot to keep up with, and it feels like the goalposts are always moving.
#2 Getting everyone to actually care about ESG
You can’t do ESG all by yourself. It’s not just a legal issue; it’s something that affects the whole company. But trying to get everyone on board can be a real challenge.
Some people just don’t see the point—they think ESG is just a bunch of extra hoops to jump through or something the legal team will handle. It’s like trying to get everyone in the office to care as much about recycling as you do; you can’t just put up a poster and expect everyone to suddenly become eco-warriors. You’ve got to keep explaining why it matters and hope it eventually clicks for them.
#3 Keeping the company out of trouble
One slip-up, and your company could be in the headlines for all the wrong reasons. Maybe a supplier isn’t treating workers fairly, or someone didn’t follow the environmental rules. When that happens, it’s your job to clean up the mess. And the stakes are high—once a company’s reputation takes a hit, it can take forever to recover.
#4 Balancing ESG with the bottom line
Sometimes doing the right thing for ESG and doing what’s best for business don’t exactly match up. Maybe there’s a supplier that’s cheaper but doesn’t have great labor practices, or using sustainable materials will cost a lot more. You’re the one stuck in the middle, trying to figure out how to keep everyone happy—protecting the company’s values without breaking the bank.
#5 Figuring out what the rules actually mean
Sometimes, ESG rules are just plain confusing. You’re sitting there, trying to make sense of them, and you’re thinking, “What does this even mean for us?”
You want to do things the right way, but it’s hard when you’re not sure what the right way is. You can spend hours trying to figure out what these guidelines actually mean, and still walk away unsure about what you’re supposed to do. It’s frustrating because you’re doing your best to follow the rules, but the instructions just don’t make sense.
Also read: Top Challenges for Enterprise Legal Departments
3 Essential ESG tips for in-house lawyers
"At many companies, ESG issues have the full attention of the C-Suite and the board of directors. Anything that has that level of attention should automatically have the attention of the general counsel and the legal department."
~ Sterling Miller, CEO and Senior Counsel, Hilgers Graben PLLC
Ten Things: Essential Issues For In-House Counsel
If you’re an in-house lawyer, handling ESG is like being the company’s compass, helping everyone steer in the right direction. Here are some practical tips to keep you on track:
#1 Keep learning
ESG rules and expectations are always changing, and it’s easy to feel like you’re playing catch-up. So what can you do? Simple. Keep learning.
This could mean attending webinars, subscribing to ESG newsletters, or joining industry groups. The more you know, the better you can anticipate what’s coming and help your company stay ahead of the curve.
Think of it as your professional homework—only it’s less about getting a good grade and more about avoiding legal headaches.
#2 Get your policies in shape
Your company’s ESG policies shouldn’t just be a bunch of nice-sounding promises on a website. They need to be real, practical, and something everyone in the company actually follows.
If the current policies are outdated or too vague, it’s time to roll up your sleeves and update them. Work with different teams to create clear, actionable guidelines that reflect your company’s values and meet the expectations of regulators, investors, and customers. And remember, these policies shouldn’t just sit on a shelf gathering dust—they need to be part of everyday business decisions.
Also read: Company Cybersecurity Policy: Best Practices - SpotDraft
#3 Do your due diligence
When your company is eyeing a merger or acquisition, don’t just look at the financials—dig into the ESG side of things too. Are they meeting environmental standards? Do they have any hidden labor issues?
A bad ESG track record can be like a skeleton in the closet that comes back to haunt you later. Make sure you’re asking the right questions and getting the full picture before you sign on the dotted line. It’s about protecting your company from nasty surprises down the road.
Also read: AI in Due Diligence: Benefits + Best Practices - SpotDraft
How SpotDraft can help in-house legal teams manage ESG
Managing corporate social responsibilities and ESG can feel overwhelming, especially when you’re juggling a million other things. While SpotDraft isn’t an ESG tool, it can still make a huge difference by helping you handle one of the biggest pieces of the puzzle: contracts. Here’s how:
#1 Streamline contract management to reduce complexity
Contracts are at the heart of many ESG obligations, whether it’s ensuring your suppliers are adhering to ethical standards or including clauses around environmental compliance. With SpotDraft, you can automate the contract drafting, review, and approval processes, which means fewer manual tasks and less room for error.
Instead of getting buried in paperwork, you can ensure that all your contracts include the necessary ESG requirements without missing a beat.
#2 Keep track of ESG clauses with ease
SpotDraft’s powerful search and tagging features make it simple to track and manage specific ESG clauses across all your contracts. This way, you can quickly find out which contracts include important ESG commitments, such as sustainability goals or diversity requirements.
#3 Focus on strategic ESG initiatives
By taking care of the heavy lifting around contract management, SpotDraft frees up your time to focus on the bigger picture. Instead of getting bogged down in administrative tasks, you can spend more time on strategic initiatives, like working with other departments to improve the company’s overall ESG strategy or engaging with stakeholders on these important issues.
#4 Easily monitor and report on ESG contract obligations
SpotDraft’s reporting capabilities let you generate detailed reports on your contracts’ ESG obligations quickly and easily. This is particularly useful when you need to provide updates to the board or external stakeholders on how your company is meeting its ESG commitments.
All in all, while SpotDraft isn’t a direct ESG solution, it can play a crucial role in reducing the workload for in-house legal teams by streamlining contract management and ensuring that all your ESG-related commitments are properly documented and tracked.
It’s one less thing to worry about, so you can focus on what really matters: making sure your company is doing the right thing.
