ESG is an increasing strategic and regulatory concern for private companies. A successful ESG strategy can help maximise value and strengthen relationships with a company’s stakeholders including consumers, employees, existing shareholders and potential investors. While “ESG” covers environmental, social and governance considerations, good governance provides the foundation. Integral to good governance is having internal controls that promote transparency, accountability and the monitoring of risks to avoid mismanagement and regulatory sanctions. This article explores how company secretaries and in-house legal teams can effectively support a company’s ESG strategy.
The roles of company secretaries and in-house legal teams
Although it is not necessary for a private company in the UK to have a company secretary, many still choose to do so. It is often the case that the role of company secretary is combined with the role of general counsel or across an in-house legal team, and both roles fulfil an important function in advising and supporting directors. Typical responsibilities include:
- Guiding the board on their responsibilities.
- Sharing information within the board and between senior management and non-executive directors and shareholders’ views.
- Developing and overseeing internal systems to ensure compliance with a company’s legal requirements.
- Monitoring changes in legislation and relevant regulations.
- Overseeing the day-to-day administration of the company to allow directors to focus on overseeing business strategy and operations.
Awareness of trends and best practices
As the custodians of corporate governance within a company, company secretaries and in-house legal teams must educate the board on governance developments and advise on their impact on a company’s business strategy, such as the risks arising from climate change, energy sustainability and wider stakeholder management with customers and suppliers. While private companies are not currently subject to the mandatory ESG reporting requirements, companies should start to focus on building the good governance foundations to be prepared for future regulation. A company secretary or in-house lawyer should therefore look to build their knowledge of ESG, regularly monitor regulatory and legal changes and research how other (and particularly similar) organisations are approaching the subject. Given the many different parts of a business company secretaries and in-house lawyers regularly interact with, they can enable an internal joined-up approach to ESG.
Relationship with the board
A company secretary or in-house lawyer should ensure that ESG is a standing item on board agendas and that ESG-related responsibilities are integrated into a board’s decision making. This could include the introduction of director development programmes such as sustainability-related training and keeping the board informed on shareholders’ and other stakeholders’ views on ESG.
The company secretary and in-house lawyer should also play a lead role in the implementation of ESG governance, an example of this being the establishment of a dedicated committee of the board to manage a company’s ESG objectives, and we can help on setting the terms of reference for the ESG committee.
Disclosure and reporting requirements
Company secretaries and in-house legal teams will assist with preparing a company’s annual report, including the director’s report. As internal and external stakeholders such as investors and consumers are increasingly looking towards annual reports to gain an understanding of a company’s ESG strategy, small and medium-sized businesses are focussing on sustainability and energy consumption reporting, alongside how they engage with their employees, business partners and suppliers as part of the directors’ report. Those supporting the board can can play an important role in monitoring business performance and key events over the course of a financial year to ensure the directors’ report reflects the steps the company has taken to engage with its stakeholders.
The business strategy
Company secretaries and in-house legal teams should consider how ESG is incorporated into their company’s long-term strategy. This could include creating an ESG roadmap to set out planned ESG initiatives to be employed by the company. This roadmap would include the governance structures, policies and procedures to monitor and respond to the ESG related risks and opportunities.
While not all company secretaries or in-house lawyers will currently regard their role as being strategic within their company, the traditional image of company secretaries as the “Guardians of Governance” or the general counsel as the “Conscience of the Business”, has never been more important. Such individuals are perfectly placed to support and encourage good governance practices, through which a company’s ESG objectives can ultimately be promoted.
With thanks to Siobhan Murray, a trainee solicitor, for her contribution to producing this briefing.
If you require further information about anything covered in this briefing, please contact Beth Balkham or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, November 2022