Sustainability not yet a priority for business, lawyers reveal

Sustainability risks – including around environmental and social issues – are poorly understood by Australian businesses, their in-house lawyers say.

Lawyers plan to collaborate with other parts of the business to strengthen their ability to handle environmental, social and governance risks, a new survey says.

Sustainability risks – including around environmental and social issues – are poorly understood by Australian businesses, their in-house lawyers say.

General counsels and chief legal officers surveyed about environmental, social and governance risks also said that while they were most concerned about maintaining reputation and brand, the bulk of their time in this area was devoted to compliance and litigation risk.

Data from the 2022 general counsel sustainability study of 1000 company lawyers from 12 industries and 20 countries by EY Law and Harvard Law School shows these concerns are reflected globally. The lawyers included 200 from the Asia-Pacific region, including 35 from Australia and all worked for companies with revenue in excess of $1m.

Only 9 per cent of Australians thought their bosses fully appreciated the corporate risks relating to environmental issues, including climate change and carbon emissions, compared to 15 per cent of all respondents, while only 20 per cent of Australians said the environmental goals of the organisations they worked for were well defined, compared to 22 per cent of the total.

Regarding social issues such as diversity, wellbeing and employee safety, 29 per cent of the Australians said companies ­appreciated the risks, compared to 39 per cent of the total.

“When asked about the most acute risks faced by their organisations, 81 per cent of general counsel pointed to worries about losing customers or brand damage resulting from poor labour or environmental practices,” the report said of the Australian responses. This compared to much lower proportions of 64 per cent who were concerned about barriers to investment and 65 per cent concerned about compliance with new regulations. The mismatch in risk assessment – that lawyers thought the biggest risks to their companies were to reputation and brand, but spent most time on compliance and litigation issues – was partly explained by 76 per cent reporting that they felt more pressure from investors and regulators than any other stakeholders.

However, EY tax vice-chair Kate Barton said sustainability was “one of the defining issues of our time” and that organisations around the world would face mounting pressure to change due to “changing consumer attitudes, more aggressive regulatory authorities, shifting investor priorities and emboldened employees”.

Ms Barton also said many law departments were “at the vanguard” of business efforts to become more sustainable and facing challenges that included a lack of skilled resources.

Almost all lawyers surveyed expected a sharp increase in workloads as the range of ESG risks expanded. Of the Australians, 32 per cent said they would meet that demand by hiring new people or reallocating existing staff, 14 per cent intended to augment that strategy with improved technology and the remainder said they would also use outside providers.

The study also showed company law departments were taking steps to strengthen their ability to handle ESG risks by working more closely with other parts of the business. Of the Australians, 57 per cent planned to increase collaboration with areas including finance, human resources and operations in the next three years. This compared with 61 per cent of total respondents.

David Wilkins, of Harvard’s Centre on the Legal Profession, said lawyers were well placed to lead strategy in this area.

“(They are) are already deeply involved in the many business ­issues impacted by sustainability … and they are well connected to the various business areas that need to be involved,” he said.