Companies must guard against over-promoting their ESG credentials, GCs warn
Punchy claims around ESG can lead to 'massive' reputational risks if not delivered upon, web seminar hears
The focus on environmental, social and governance (ESG) issues has never been greater for in-house legal teams. A flash survey of Luxury Law Alliance members showed that ESG will be their biggest priority this year. And while ESG issues are not new – in the past often bundled up under the guise of corporate social responsibility or sustainability – the spotlight has grown more intense, particularly amid heightened concerns around climate change.
That increased focus is not just being driven by investors, says Kate Anthony Wilkinson, group general counsel and company secretary at Mulberry Group, but also by employees, customers and society at large. “Businesses can no longer ignore these elements if they want to grow and prosper,” she told a recent Luxury Law Alliance web seminar.
She was chairing State of Luxury Law – the ESG Imperative, an online event last month hosted by the Luxury Law Alliance that also featured Carole Madjo, head of European luxury goods research at Barclays Equities Research, and a roster of senior in-house lawyers with a special interest in ESG.
The web seminar heard how companies have been responding to a shift in public mood by publishing their ESG-related strategies and goals. While that is a positive step in the right direction, they must be cautious about over-promising or inflating their claims, risking accusations of greenwashing.
“We have to be very careful as lawyers how we advise our brands to communicate around sustainability claims – and if we are making those claims, we also need to be very serious about tracking the progress of the claims and then reporting on it,” said Mezzano, general counsel for operations and sustainability at Nestle. “You can have a very short-term competitive advantage if you go with a nice and punchy claim, but the reputational risk that you can create for your brands and company if that claim is not truly substantiated could be massive.”
That is especially pertinent in the US, where there is already an increase in litigation around false claims.
“When you do put out what your goals and aspirations are in a report, investors will hold you to that,” said David Chameli, vice president, general counsel and corporate secretary of environmental services company Crystal Clean.
Measuring ESG performance
Another challenge for investors is that there is a lack of data consistency when it comes to how companies measure their ESG performance, making it difficult to compare companies or factor it into valuations, said Madjo.
What tends to have more of an impact on a company’s share price is the ‘G’ part of ESG, for instance through controversies arising from culturally insensitive ad campaigns. Companies could avoid this potential risk by improving the diversity of their decision-makers, she added.
That underscores a potential risk companies face with ESG if they focus too heavily on the environmental part at the expense of the social and governance aspects.
“We don’t focus on one over the other, we see them all as important,” said Michael Ellis, general counsel of luxury travel company Abercrombie & Kent. “Having an ESG policy and a focus on ESG really assists the business in ensuring that it creates and maintains the environment in which all employees want to work, so the business can meet social, governance and environmental goals in order that everyone can profit, not just financially but socially as well.”
Ellis said that while Abercrombie & Kent was historically strong on the environmental and social side of the business, when he joined the company the governance side “wasn’t quite as good”. To address this, Ellis set up a corporate governance committee, which he convenes and chairs every two weeks.
“We go through an agenda of corporate governance matters and we review those initiatives that we’re working on and we discuss any new initiatives which the committee needs to address,” he said, adding that he also sits on the company’s executive committee where he gives a monthly update on corporate governance issues.
“Having the corporate governance committee in place really helps the focus on what you need to do and how you need to do it, and then having that agenda on the executive committee as well, it allows issues to be heard and acted on,” Ellis said.
ESG will feature in this June's Luxury Law Summit Europe at the British Museum. Keynote speakers include Sophie Healy-Thow, global youth campaign coordinator for Act4Food Act4Change, Bremont Watches co-founders Nick and Giles English, and award-winning jewellery designer Stephen Webster. Book your place here
Other companies are also embracing a holistic approach to ESG. Take luxury hotel chain Kempinski Hotels. It has put in place a robust ESG programme not only because business partners are demanding it and conditioning their relationship on certain ESG standards being met, but also because customers are expecting it, said Hadrian Beltrametti-Walker, general counsel at Kempinski.
“Hotel guests are increasingly aware of sustainability issues and they expect hoteliers to really assume responsibility and conduct their business sustainably and they won’t hesitate to publicly call out any misgivings, so it also becomes a reputational matter for us and really imperative from a business perspective,” he said.
Some of the steps Kempinski is taking to ensure it has a robust programme include environmental aspects such as energy efficiency, waste and water management and social considerations such as the well-being of employees and supporting the local communities where they operate. It has also taken initiatives such as banning single-use plastics in its hotel rooms and participating in charity programmes to repurpose old linens and donate partially used soaps and shampoos to communities in need.
There is also another commercial factor that is pushing companies to maintain higher ESG standards.
“It’s a competitive market place, our major competitors have or are quickly adopting programmes so in order to get market share we have to be in line with what they are doing,” said Karim Adatia, deputy general counsel of IT services company Insight.
Being on the front foot with ESG issues, therefore, can potentially give companies a competitive advantage.
“The companies that take action on their own, provide public disclosure and have goals, are going to have an easier time complying with future laws regarding ESG than those who wait for legislation before taking any action,” said Jeffrey Hellman, senior vice president and assistant general counsel of PVH Corp.
Yet while there may be a competitive edge to adopting higher ESG standards, companies also need to collaborate with each other and lawmakers to ensure ESG regulations are effective and can deliver meaningful change.
“One of the biggest challenges and opportunities for legal on ESG is how to help shape the right regulation on these topics – given the magnitude of the issues, there is no way one company can do this on their own, we need to work together on a global scale and be proactive actors in these solutions to help create the appropriate policy and regulatory environment,” said Mezzano.
Another area where companies need to collaborate is through their supply chains. If companies establish certain ESG standards, they also need to ensure the businesses they work with also subscribe to those same ideals.
“We’re in the middle of a modern industrial revolution,” said Chameli. “Supply chains are becoming more complex. They are becoming broader and so we need accountability and we need sustainability in those supply chains. It’s incumbent upon companies to make sure that every aspect of the supply chain is properly reviewed.”
That means in-house legal teams have a critical role to play in ensuring their companies are not only ESG-compliant but also leading by example and inspiring change across all aspects of their business.
“The pace of change is really fast, so we, as general counsel, need to be able to scan the horizon, see what’s coming over the hills and be ready to seek the necessary specialist internal or external advice to help us,” concluded Wilkinson.
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