ESG: What in-house solicitors need to know and do

Boards are increasingly looking to their in-house legal team for advice on ESG matters. This places a new onus on in-house solicitors who already face the difficult challenge of balancing an organisation’s legal obligation with its strategic goals.

Expectations 

The Law Society has published guidelines to support solicitors, both in-house and those in private practice, in advising companies and directors on ESG matters, specifically climate risk governance and the pitfalls of greenwashing.

In practice, the Law Society expects in-house solicitors to be “proactive in raising questions about the sustainability of business models and alignment to any climate pledges made”. Furthermore, it is expected that in-house solicitors be vigilant about climate-related legal issues and risks in their organisation’s strategy, incorporate climate considerations into their legal advice and be mindful of their “duty to warn” be it about climate related legal issues, greenwashing risk or potential risks arising out of your organisation’s climate strategy.

Key risks 

The guidance issued by the Law Society highlights three key risk areas that in-house legal counsel should be cognizant of:

• Compliance with Director Duties 
  Under the Companies Act 2006, directors are required to consider the long-term impacts of their decisions on the environment and the community. In the notable ClientEarth vs Shell case, the claim alleged that Shell’s directors failed in their duties by not adopting a rigorous net-zero strategy, potentially harming Shell’s long-term value. Although ClientEarth’s claim was unsuccessful, it signifies a potential rise in legal activism regarding climate issues.
• Climate related disclosures and preventing greenwashing
  Claims about an organisation’s climate credentials, such as being “carbon neutral”, “net-zero”, “green” or “environmentally friendly” must be substantiated to avoid accusations of greenwashing and potential legal ramifications under the Consumer Protection from Unfair Trading Regulations 2008, the Competition and Markets Authority (CMA) Green Claims Code, or the Advertising Standards Authority’s CAP Code (found here). In-house solicitors ought to highlight the risks to reputation associated with allegations of greenwashing.
• Transparent climate related financial disclosures 
  The Companies Act 2006 requires companies to ensure that their accounts offer a true and fair view of all assets and liabilities. Climate risks can affect an organisation’s asset values, making it crucial for in-house solicitors to be aware of these risks before approving accounts. Large companies and LLPs have additional mandatory climate-related financial disclosure requirements.

Practical steps 

The Law Society has developed a “Questions Framework” for use by in-house and private practice solicitors. The framework presents a series of questions on topics such as business strategy formulation, people, future planning and risk management, to help in-house lawyers raise climate-related issues for discussion within their organisations. A different or more detailed approach may be required in industries with specific regulatory or legal requirements.

The Questions Framework should be read in conjunction with the Law Society’s guidance on the impact of climate change on solicitors in the context of solicitors’ professional duties and in-house solicitors should always consider whether they have the competency to advise on these risks or whether they need to seek support from external legal counsel. Moreover, in-house teams might consider seeking additional training to ensure they fulfill their competency obligations under the SRA Code of Conduct for Solicitors and the duty of care they owe to their client.

Authors:

Judith Houston, Associate

Surjit Deuer, Senior ESG Engagement Manager

Joshua Wooller, Trainee Solicitor