Organisations need to use environmental, social and governance (ESG) tools to combat racial inequality, according to a group of partners at Wachtell Lipton Rosen & Katz.

The lawyers – Adam Emmerich, David Silk and Sabastian Niles – argue in a post on Harvard Law School’s Forum on Corporate Governance that implementing a strong ESG oversight and governance framework can help boards and management decide when and how to speak out on racial injustice and inequity to meet expectations of investors and stakeholders.

The trio note that an increase in racial justice awareness last summer sparked by the police killing of George Floyd encouraged corporate America to step up its efforts to combat racial inequity. Over the past year, organisations have sought to improve diversity through various initiatives and targets. That has included an uptick in hiring for diversity, equity and inclusion (DEI) roles, the expansion of the internal DEI function and commitments such as periodic anti-bias training and audits of progress on DEI targets.

Companies are also increasingly disclosing data around diversity, in part to due to investor demand. The Wachtell partners note that activist shareholders have taken the opportunity to use DEI to support their campaigns.

The lawyers also note that companies that don’t speak out on issues such as racial injustice – a strategy some companies may have adopted in the past to avoid weighing in on public debate – may now be interpreted as taking a tacit position on the matter.

In a LinkedIn post, Emmerich wrote: 'Calls for greater disclosure, transparency, effort and accountability to address racial inequity will continue to inform proxy voting policies, shareholder proposals and investor engagement priorities. Being an active participant in that evolving dialogue, and keeping attuned and informed, will be critical to corporate success, value creation and longterm sustainability for enterprises of every sort.'

A number of large corporates are putting diversity measures in place for their panel law firms, with penalties if they are not met. Swiss pharmaceutical giant Novartis agreed diversity and inclusion targets with its roster of preferred law firm advisers last year, including US giants Latham & Watkins and Kirkland & Ellis, saying it would withhold 15% of their fees if they were not met.

In April, Vodafone unveiled its refreshed global legal advice panel, selecting firms based on a shared commitment to promoting diversity targets and ESG best practice, while a month later Nokia announced an equity, inclusion and diversity scorecard system to assess its six panel firms.