Just a few years ago ESG (Environmental, Social and Governance) principles barely registered, even today many people are left asking – “what is ESG?”. In a nutshell ESG is a framework that is used to assess a businesses’ sustainability and ethical performance. ESG principles are very real and an ever-growing part of doing business today. These considerations have moved well beyond government, institutional and corporate spheres, with a burgeoning movement of consumers thinking about these issues when deciding what they purchase, how they invest and even where they live and work.
Anything from greenhouse gas emissions, waste management and the treatment of animals, to money laundering, modern slavery and corporate accountability falls under ESG. To date, ESG has been a grey area due to its broad scope and the fact its parameters vary depending on the industry, company and region. This has led to unclear definitions and an absence of standardised measurements or reporting, making it difficult to assess and compare company performance. But as James Jung, Director International Relations and Development at the College of Law, explains, legislative change is coming and this will impact corporate governance heavily.
“As governments around the world enact laws and regulations to promote ESG principles, lawyers need to be aware of these laws and regulations to ensure their clients are in compliance with them,” James says. “Like laws around disclosing environmental impact or regulations that require companies to reduce their carbon footprint. Risk management is high on the agenda for lawyers and understanding ESG principles can help lawyers identify potential risks and liabilities for their clients and then work towards mitigating those risks.”
The College of Law currently runs a range of ESG training programs within Australia and across Asia and regularly works wth specialists including: Matthew Baird, Director at Asian Research Institute for Environmental Law; Dominique Hogan-Doran KC, Senior Counsel at 5 Wentworth Chambers; Claire Smith, Environment & Planning Partner at Clayton Utz; and Dominic Tayco, Director at Thaddeus Martin.
How ESG will impact your area of practice in law
In March 2023, James Jung along with a number of College Teaching Fellows attended the IPBA Dubai One World: Law & the Environment Beyond Covid conference. The most prevalent topic raised amongst the 800 lawyers from over 40 jurisdictions around the world, was the growing impact of ESG on the law in the areas of International Arbitration, Intellectual Property, Corporate Law, and for Corporate Counsels. As the impact of ESG mandates is set to accelerate, we have outlined the key conference takeaways.
Intellectual Property:
Michael Chu, Partner at McDermott (Chicago) and IPBA Vice-President
For registering and applying for patents, ESG is relevant because many patent offices will fast track a patent applied for if it has potential ESG benefits. Therefore, it's essential that patent attorneys understand the relevance of ESG in their practice. It was important that the IPBA conference sessions focused on ESG-related issues as it’s new and relatively unknown by many practitioners.
Corporate Law:
Raphael Tay, Partner at LAW Partnership (Kuala Lumpur) and Chair of IPBA Legal Development and Training Committee
Amidst the growing prominence of ESG considerations, we are witnessing a surge in corporate initiatives geared towards embracing sustainability and ESG objectives. Nevertheless, while these endeavours are commendable, it is important to note that this emerging terrain is not devoid of its own inherent risks. It is incumbent upon lawyers to assist their clients and organisations in mitigating the legal exposures that may arise from their ESG practices, disclosures, and related undertakings.
International Law:
James Jung, Director International Relations and Development at the College of Law (Sydney), and IPBA Officer
With upcoming deadlines on reporting by regulators in the US, UK, EU and Asia, supply chain diversity and transparency of material issues around ESG is likely to mature. And in line with the growing collective understanding of ESG issues for the legal industry, custom frameworks and benchmarks are likely to evolve. The beginning of this trend started in the last 24 months as numerous outside parties began offering up metrics in the ESG space.
The other two big ESG issues relate back to legal risk and biodiversity. There is a growing trend of clients making ESG demands about corporate values that present a potential risk for multinational law firms. Biodiversity is requiring closer attention as governments around the world agreed to a new set of goals to guide global action though to 2030 to halt and reverse nature loss at the UN Biodiversity Conference in December 2022.
Corporate Counsel:
Matthew Baird, Barrister and Director Asian Research Institute for Environmental Law (Bangkok)
An understanding of ESG practices is fundamental for corporate counsel to navigate the challenges facing boards and companies over the next decade. These are issues that must be addressed now to avoid financial liability in the future.
International Arbitration:
Martin Polaine, Barrister at Brooke Chambers (London) and Vice-Chair of IPBA Legal Development & Training Committee
ESG terms are appearing more and more in cross-border contracts, especially where supply chains are involved. As a result, ESG-related disputes will become more commonplace. An understanding of ESG is therefore vital to any arbitration practitioner, whether practising commercial or state-investor dispute resolution. Moreover, ESG requires a more joined up and cross-cutting approach to regulatory landscapes, especially in relation to anti-corruption and related frameworks.
International Arbitration:
Helen Tung, Barrister at Tung Chambers (Dubai) and Member of the IPBA Dispute Resolution & Arbitration Committee
So far, more cases are fought in principle, but my personal take is critical mass may well move the tide. From an in-house perspective and especially for in-house lawyers this would be very helpful because there is an element of stakeholder engagement. Whereas in the past CEOs, whom could not care less, cannot turn a blind eye if they are seeking investors as investors are interested in sustainable finance.
What is interesting is different jurisdictions have varying rules of obligations and reporting standards. One argument is if any company aspires to be on the international playing field, they need to up their game on international standards, including ESG. I think it would be a great way to inspire lawyers and also for them to add value in the organisations and for clients they work with. A bit like data protection, prevention is better than cure as the potential fines, unknowns and unwanted litigation and media attention is probably far more damaging from a PR perspective.
International Arbitration:
Karen Gough, Barrister at Essex Chambers (London) and Co-Chair of IPBA International Construction Projects
The fact that we, both business and the arbitration and ADR community, have suddenly become acutely aware of the “ESG situation” is as much due to happenstance and recent historical global events… for example, climate change, natural resources; the need for sustainability; and the consequences of the pandemic… than any modern structured corporate initiatives designed to give effect to broad ESG principles.
Arbitration and ADR (including dispute avoidance) are part of the machinery available to manage commercial contracts and are essential tools of business. As such, they must be responsive to the needs of business and the wider community. It is important to drive our own agenda and ensure that when business turns to arbitration as a means to resolve its commercial disputes, practitioners and institutions are able to offer processes to parties which meet the ESG objectives of the parties and other stakeholders.
ESG goals will filter through into the substantive disputes which are referred to arbitration and become the subject matter of claims in their own right, alternatively, they have the possibility to form part of claims. This impact is not new but will be increasingly identified and aligned with the ESG movement.
In construction disputes we are seeing how issues like clean energy/renewables and climate change impacts are transforming construction disputes. Modern states which regulate the construction industry have increasingly imposed obligations on owners and contractors to make provision for the environment impacts of development and improve the sustainability of their structures. These obligations are imposed and transferred to contractors and suppliers within the contracting process and will naturally filter through into disputes. Whether the contracting process will be sufficient to ensure compliance with these regulatory agendas or whether there will need to be provision for the participation and intervention of regulatory authorities in the disputes processes is another factor.
Treaty claims are and will continue to be impacted by ESG-related issues. There are a number of relevant treaties in existence and many more likely to follow addressing the “green” economic agendas of countries. Changes to national laws to give effect to new national or international agendas which come under the ESG umbrella may also spark new claims under existing treaties. There is also the Human Rights agenda which will drive its own disputes which may be amenable to determination by arbitration rather than litigation going forward.
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