ESG Agenda and the Legal Profession

The contemporary ESG agenda in companies, projects, and investments presents significant challenges and opportunities for the practice of law.

With the impacts of the climate emergency and social crises on the economy and the planet, the model once established and celebrated by markets, policies, and, above all, by business practices, is undergoing profound transformation.

A set of environmental, social, economic, and governance factors has drawn the attention of strategic sectors within the market, politics, and the corporate environment. The ESG (Environmental, Social and Governance) agenda has increasingly become a concrete reality, present in numerous debates across both the public and private spheres.

It was over the past decade—and, more markedly, in the post–COVID-19 pandemic period—that the functioning of markets and companies came under deep influence, pointing to new directions for the model of economic development and the ways in which business execution, control, and performance are conducted.

Despite the ongoing debates for and against the ESG agenda, national and international initiatives have revived commitments and concerns related to environmental, social, and governance factors in companies, projects, and investments. These initiatives have also encouraged governments to pursue a sustainable transition in their economies.

Several economic sectors are experiencing significant regulatory changes, including banks and financial institutions, insurance companies, and pension funds, as well as major transnational corporations and their global and regional value and supply chains. Consequently, ESG management, control, and performance standards have been consolidated as decisive mechanisms for business operations, access to credit, and market participation.

Thus, not only multinational and large corporations but also medium-sized and small enterprises are reorienting themselves toward developing ESG-oriented initiatives and strategies for their activities, products, contracts, and relationships with suppliers and business partners.

According to the Brazilian Institute of Corporate Governance (IBGC)¹, corporate ESG strategies represent a set of practices and tools designed to assess corporate sustainability and provide guidance to help leaders integrate environmental, social, and governance aspects into management and operational processes.

Similarly, the Brazilian Association of Technical Standards (ABNT), in its Recommended Practice ABNT PR 2023:2022 – ESG², defines an ESG strategy as the set of environmental (E), social (S), and governance (G) criteria considered by organizations when managing their operations and by investors when making decisions regarding the impacts—both risks and opportunities—of businesses and their processes.

Within this strategic context, the role of the legal profession and other law-related professionals becomes particularly relevant. It is a function directly connected to the stages of conception, planning, development, implementation, assessment, and publication of corporate ESG strategies. The legal perspective is fundamental to ensuring the effectiveness of these initiatives within companies and organizations.

Although many companies still keep their legal departments relatively distant from ESG initiatives, when considering the structures, stages, and objectives of these strategies, the presence of lawyers and legal professionals is indispensable.

The legal profession in general—and particularly that which operates in the fields of corporate, commercial, environmental, labor, human rights, integrity and compliance, consumer, criminal, and international law, among others—has been and will continue to be profoundly influenced by the ESG agenda and its corresponding market and corporate demands. This influence will bring both great challenges and significant opportunities for lawyers and legal practitioners.

The ESG agenda is currently in a stage of progressive regulation. A growing trend toward normative and mandatory frameworks is visible across several sectors, requiring mechanisms such as materiality assessments (single, double, or dynamic), ESG risk management, performance indicators, ESG due diligence in contracts, operations, and third-party relationships, and the publication of integrated, sustainability, and non-financial reports, among other standards. These structures rely on multidisciplinary teams—but they must necessarily include legally trained professionals and lawyers.

This is because, for any ESG strategy to be properly assessed, developed, and implemented in an effective and efficient manner for a company’s business and objectives, robust and technically sound legal and regulatory counsel is essential. Communication, media, organizational management, or applied sciences alone are insufficient.

Otherwise, companies may face significant risks of greenwashing and, above all, legal and regulatory consequences.

Among the various key actors involved in developing a corporate ESG strategy, the lawyer has the specific role of advising and analyzing—considering the structure and profile of the organization—which standards, regulations, and legal frameworks should be adopted and applied to the company’s business, its sector of activity, and its relationship with stakeholders.

Through the ESG lens, the “E” dimension (Environmental) encompasses, among other aspects, the environmental and climate impacts caused by the business; the “S” dimension (Social) highlights people, services, and the company’s value and production chains; and the “G” dimension (Governance) involves aligning corporate and management structures with measures of transparency, integrity, risk management, and compliance.

For these and other reasons, the legal profession is undergoing a redefinition of its role, becoming less centered on judicial, contentious, and litigation activities, and increasingly focused on advisory, extrajudicial, and strategic work—both in Brazil and worldwide—particularly in line with corporate ESG initiatives and strategies.

Recent international publications³ even point toward the emergence of “ESG Law”, a potential new legal field capable of substantially reorienting the paradigm of legal practice and service provision in law firms. These firms are now challenged to respond to the ESG demands of companies, economic sectors, and both national and international markets.

Indeed, as companies and economic sectors—pressured by markets, consumers, partners, and regulatory authorities—are compelled to develop and internalize complex, systemic, and multidisciplinary ESG strategies, the legal profession, law firms, and practitioners must adapt to this new reality. Ultimately, every lawyer will need to become, to some degree, an ESG lawyer⁴.

A reciprocal relationship is thus emerging: corporate ESG strategies will increasingly depend on lawyers, while lawyers themselves will need to integrate into this new, diverse, and multidisciplinary field of practice, which continues to expand in scope and depth both in Brazil and around the world.

Undoubtedly, the success of the ESG agenda—with its ambitious, complex, and multidisciplinary character—will depend on how effectively its initiatives and actions are integrated and implemented across markets, politics, and, above all, within corporate and business environments. For that to occur, the redefined role of the legal profession and related professionals will be indispensable.

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Adapted from the original article published on July 20, 2023, on the Cabanellos Advocacia website. Also published on LinkedIn.

Author: Bruno Teixeira Peixoto