Poonam Puri on the role of in-house counsel in navigating ESG

Poonam Puri is a corporate director and professor at Osgoode Hall Law School. She holds the York Research Chair in Corporate Governance, Investor Protection and Financial Markets.

For our CL Talk podcast, Puri discussed the role of in-house counsel in navigating ESG in a high-stakes environment. She will deliver the opening address on this topic at Canadian Lawyer’s ESG summit on October 30 in Toronto.

Listen to our full podcast episode here:

This episode can also be found on our CL Talk podcast homepage, which includes links to follow CL Talk on all the major podcast providers.

Below is a summary of the conversation, edited for length and clarity:

Tell me about your background and research, specifically as it relates to ESG

My research focuses on corporate law, governance, investor protection, and capital markets regulation. ESG intersects with all these areas, which I've spent the last 28 years studying and working on. As a result, I have incorporated ESG concepts into many of my projects. For example, I am currently researching the rise of ESG shareholder proposals, where shareholders and activist groups push companies to act, or not act, on environmental, social, or governance issues. This area is dynamic, as we have shifted from predominantly progressive ESG proposals to seeing a backlash, with an increase in anti-ESG proposals and a decline in support for pro-ESG ones. There's a lot of interesting activity in this space.

What is the role of in-house counsel in shaping ESG and how is that evolving?

Before diving into that, let me explain how my work aligns with these topics. I approach ESG not only from a scholarly perspective but also from an advisory one. Having spent time at Davies, I worked closely with general counsel and in-house teams, helping them navigate various issues, including ESG. Reflecting on the role of general counsel, they are critical to the organizations they serve. As the highest legal officers, they play an essential administrative role, contributing to the business's overall success. Therefore, it's not enough for general counsel to be excellent lawyers – they must also be strong business leaders. The best ones excel at both.

Now, regarding ESG, in-house counsel are playing an increasingly pivotal role in shaping a company’s ESG strategies. More attention is being given to ESG factors in decision-making, including investor expectations, regulatory requirements, and societal pressures. The role of in-house counsel has expanded beyond traditional legal advice to include supporting the development of an ESG framework and integrating ESG principles into company strategy, operations, and corporate governance. Additionally, they play a key role in creating a reliable framework for reporting ESG metrics and performance to stakeholders, ensuring that the underlying data has integrity.

What unique challenges do in-house counsel face when navigating ESG issues in a highly polarized environment with increased geopolitical risk?

When in-house counsel lead ESG initiatives within organizations, they must balance legal responsibilities with broader business considerations. As part of the senior leadership team, general counsel or chief legal officers provide legal analysis and assess risks, but they also contribute to business decisions. This role involves navigating competing priorities, especially when ESG standards or expectations aren't legally required but are emerging practices in certain areas.

The role of general counsel is challenging for several reasons. Polarization around ESG issues, high levels of risk, and the sheer breadth and dynamism of ESG itself all contribute to this complexity. From a legal and regulatory standpoint, ESG spans multiple areas: securities, employment, contract, corporate, Indigenous, privacy, competition law, and more. In addition to mandatory legal and regulatory standards, there are non-mandatory best practices to consider. The scope includes federal and provincial regulations and, for organizations operating internationally, the laws and practices of other jurisdictions as well.

ESG also involves diverse stakeholders, such as shareholders, employees, customers, local communities, and governments, each with different expectations. This creates additional complexity for in-house counsel, especially when these expectations shift over time. As you've mentioned, many ESG topics are controversial and can spark heated debates, touching on some of the most pressing societal issues today. General counsel must be adaptable, not only as skilled lawyers but as savvy business leaders who understand the local, social, economic, and political contexts in which they operate, as well as where these may be headed.

One key point to emphasize is that in-house counsel must be transparent in their communication about the company’s ESG commitments, progress, and plans. This transparency can be achieved through regular reporting and disclosure channels, such as quarterly or annual reports, as well as through social platforms to keep stakeholders updated on developments. Companies need to be open not only about their successes but also about their challenges and setbacks. Building trust with stakeholders is crucial, and this requires acknowledging that it won’t always be possible to meet everyone's expectations, especially on politically charged or divisive topics with diverse viewpoints.

In-house counsel, along with other senior management, play a vital role in ensuring that ESG strategies, decisions, and approaches are aligned with the company’s core values and objectives. This alignment is critical to fostering trust, even when outcomes don't align with the preferences of certain stakeholders.

How does governance – the "G" in ESG – fit with the discussion?

When considering the governance pillar of ESG, it’s clear that governance is central to building trust through good corporate conduct. Governance is about setting up decision-making processes and structures that promote accountability, ensuring that when environmental or social goals are set, they are the result of thorough consultation and a robust stakeholder engagement process. This process must align with the company’s needs and objectives.

Effective governance begins with a strong, independent board that brings diverse perspectives to the table. This board should oversee the company's strategic direction and ensure alignment between its mission, vision, and ESG strategy. For ESG to be successful, it has to be fully integrated into the organization's overall strategy.

Good governance also involves clear lines of accountability and transparency, which are crucial for building trust with stakeholders. Transparency shows a commitment to ESG principles, even if outcomes don't meet every stakeholder's desires. Governance frameworks should facilitate genuine engagement, ensuring that stakeholders feel heard and their input is considered in decision-making.

There are several ways companies can build trust through governance practices, including codes of conduct for employees and suppliers, privacy risk management, whistleblower programs, information security protocols, and even frameworks for AI governance. A company’s policies on employee engagement, diversity, and community involvement – both local and international – are also key to this trust.

Another critical role of governance is managing risk. Effective governance helps identify, assess, and mitigate risks related to environmental and social factors. Anticipating risks, such as regulatory changes, environmental liabilities, and geopolitical issues, can prevent costly disruptions and enhance long-term sustainability.

How can in-house counsel help their organizations avoid "greenwashing" and ensure authentic ESG commitments?

In-house counsel plays a vital role in helping organizations avoid greenwashing by ensuring that all ESG claims – whether in formal reports, on websites, or social media – are truthful, specific, accurate, and verifiable. This requires high-quality, reliable data on ESG performance, allowing the company to back up its statements. A proper data management system is essential, and in some cases, external firms can assist by verifying data and ensuring that controls, procedures, and frameworks for ESG disclosures are robust and accurate.

In-house counsel also contributes by developing internal systems and compliance programs that ensure the organization meets regulatory and societal expectations for authentic ESG commitments. Clear internal ESG policies that align with regulatory standards help ensure that employees understand the importance of avoiding greenwashing and maintaining integrity in their ESG efforts.

Additionally, implementing feedback mechanisms for stakeholders can help verify that the company’s ESG initiatives are being perceived as authentic. By listening to and incorporating stakeholder input, companies can further ensure that their ESG commitments are both genuine and effective. In-house counsel is instrumental in creating this trust by ensuring transparency and compliance with regulations, ultimately strengthening the company’s credibility on ESG issues.

What practical steps can legal teams take to ensure they are actively contributing to ESG initiatives rather than reacting to external pressures, and what are the key skills and knowledge areas in-house counsel should develop?

First, in-house counsel must be proactive about regulatory changes. It's not just about understanding current legal requirements but anticipating future regulations, such as the new SEC rules, proposals from the Canadian Securities Administrators on climate disclosure, and diversity initiatives. There's also growing attention on AI governance. Even if some of these rules don't take effect until 2025, in-house legal teams should begin preparing now. They need to plan how to gather the right data and ensure that they can confidently report it to the public and regulators when the time comes. This forward-thinking approach is essential to ensure organizational readiness.

Another important responsibility for in-house counsel is helping to articulate a clear set of organizational values around ESG. Everyone within the organization must be aligned on ESG commitments, and counsel can play a crucial role in ensuring that ESG decision-making is authentic and integrated with the company's broader business strategy. ESG cannot exist in a silo; it must be woven into the fabric of overall business approaches.

Regularly reviewing and updating internal policies with an ESG lens is another practical action point. In-house counsel should ensure that policies address relevant environmental, social, and governance issues. They should also examine contracts with suppliers, employees, partners, and clients to identify where ESG-related clauses might be necessary. This could include provisions on sustainable practices, human rights protections, or ethical sourcing, ensuring that ESG expectations are clearly communicated and enforced throughout the supply chain.

As for key skills, in-house counsel must, of course, be excellent lawyers, continually refining their legal analysis. But beyond that, they need a deep understanding of their business, industry, geopolitical and macroeconomic environments. This knowledge helps navigate the grey areas where laws may not provide explicit direction on ESG issues.

Managing internal relationships with senior leadership and external relationships with diverse stakeholders is also critical. ESG is a cross-functional issue, so in-house counsel must build strong connections across the organization and engage with external stakeholders to understand their perspectives. As professionals in constant learning mode, in-house counsel need to develop these skills to be effective in their role.