Riding the wave: how engaging with corporate sustainability can help GCs to demonstrate value

GC: Can you tell me about the UN Global Compact and what ‘sustainability’ means for businesses?

Ursula Wynhoven (UW): The Global Compact is the UN’s corporate sustainability initiative. ‘Corporate sustainability’ in this context means the creation of long-term value by businesses in four dimensions: in economic, social, environmental, and ethical or governance terms.

We’re promoting responsible business practices as well as encouraging companies to take action in support of global issues. We work with companies on issues like human rights, labour, environment and anti-corruption, with a particular focus on why these issues are important as business concerns and, specifically, what companies can do to address them in their strategies and operations.

GC: Is there a barrier to selling sustainability as a strategic objective for companies?

UW: It’s definitely growing as an interest for companies. We have, in the initiative, more than 8000 signatories that are companies. Corporate sustainability is not a fad; it is definitely here to stay. In recent years there have been many studies that have shown sustainability rising on the corporate agenda. More and more CEOs and boards are talking about these issues.

There has also been more of an emphasis on compliance: boards are asking more questions and regulators are using more oversight. In the UK, one recent example is the Modern Slavery Act. We’re seeing different kinds of legislative actions in many countries and regulation around issues of reporting and transparency as well. More and more governments are calling for companies to disclose how they’re doing on social, environmental and ethical governance issues. The trajectory is clear and a key question for companies is: do they want to adapt and be leading this effort or wait around for it to be done to them by governments, customers and other businesses? An inspiring message for business leaders comes from Leonardo da Vinci, who famously said that: ‘It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things.’

GC: How does the Global Compact apply to in-house legal departments?

UW: On one end of the spectrum, we have noticed a growing number of general counsel coming to our events, and we started having chats with them about how they are working on sustainability. We were really pleased to see that they were not only seeing the value of sustainability to help them achieve their own in-house department objectives, such as managing risk, but also they were creating value by leading some of the sustainability work in their departments − on issues of diversity, or rule of law for instance.

But then at the other end of the spectrum, we found sustainability personnel sometimes complaining about the in-house counsel, and referring to them as ‘the department of no’. Best practices for advancing corporate responsibility and sustainability would get pushed back, or documents would have a lot of redaction if they went via legal. One area where legal departments really picked up the red pen would be in drafting a human rights policy, or other corporate policies that were making explicit their commitment or intention. Another was around undertaking impact assessments: in-house counsel would worry what might come out, and be concerned about publishing them. In sustainability, it is encouraged to engage with constructive critics – often you might get the most valuable information about how to manage risk and address an issue while it’s a molehill, before it becomes a mountain. But in-house counsel might be concerned about what they might say, and what information might get out. Similarly, corporate annual and sustainability reports would often be marked up substantially. Some of them might have hesitation about the company actually joining voluntary corporate sustainability initiatives issues like the UN Global Compact.

GC: Are some in-house legal departments genuinely more innovative in this area than others, or is it there a perception gap between how people think they’re doing and how they are actually doing?

UW: I think there’s a bit of both. There are definitely some amazing general counsel who really see how sustainability can help them and how they can add value to their company’s own corporate sustainability objectives. For the others, it’s often because no one has really engaged them yet on why these issues are important.

There is some evolution, and in-house counsel are being increasingly called upon to advise not just on what the law is, but on what is acceptable, which is increasingly informed by principles such as human rights, labour, environment and anti-corruption. There’s also the notion of sustainability being about long-term relationships, and sometimes legal actions can shorten or destroy relationships.

GC: Do you think that corporate counsel are well-placed to be able to influence ethical and sustainable behaviour compared to other functions?

UW: I think it really depends on the company, and sometimes the particular country and sector context. There are some in-house counsel who are treated in a technical way, who are wheeled out to advise on something very specific and then wheeled away. If you don’t have the bigger picture, maybe your advice may not have the full context. But in many other companies, the legal counsel is increasingly seen as trusted adviser, many of them are secretary of the board, and they are one of the key guardians of the company’s reputation. In a context where regulation is fast-changing and there is more regulatory oversight, their role is becoming more and more key. In some companies, we’re even seeing that the function of sustainability reports through the legal counsel. In some other companies, they are bringing new expertise into their legal department or embedding their lawyers into different teams, so that from the get-go they may be able to engineer out some areas of risk.

We do think that sustainability can be a way to build more of those relationships, so that in-house counsel can have an additional, concrete way to show the value that they bring to their company on these issues, as well as the way they manage risk, and therefore costs that they may save the company.

Classic examples of where we see in-house counsel leading on sustainability issues are around diversity and rule of law. We have an initiative called Business for the Rule of Law, which we think is a natural corporate sustainability issue for in-house counsel to lead on. As lawyers, we have duties to our clients, but also to the law and society at large, and what many companies are increasingly seeing, particularly in developing countries and emerging markets, is that where the rule of law is weak it’s a lot harder to do business, particularly in a responsible way. So we’ve gathered over 120 examples from around the world of what companies are doing to help support the strengthening of the rule of law. They are motivated to do it for business reasons, so they are willing to work with other companies, civil society and law firms.

GC: Do you think that focusing on ethics and sustainability can bring strategic benefits for in-house counsel?

UW: Absolutely. With ethics and sustainability rising on the agenda of the CEO and of boards, there is an opportunity for in-house counsel to connect with the broader issues that their company is grappling with. And there’s some really interesting research that’s been done about how volatile the list of the largest top companies is these days. Something like half the companies on the Fortune 500 today may not be there in 50 years. Sustainability is really about long-term viability, including in economic terms. Issues like Ebola, Zika, climate change, the scale of the refugee crisis, the youth unemployment crisis, widening inequality, an ageing population – all these issues mean that companies are not islands. All these things are relevant for companies because they affect things like the stability of the supply chain and customer base. So increasingly we see that companies are aware of these kinds of issues and sustainability is really growing in their list of business concerns.

GC: How can GCs design and manage sustainability policies and practices in their businesses?

UW: Reading our guide is the first step [the UN Global Compact has worked with Linklaters to produce guidance for in-house lawyers on corporate sustainability]. I would also say that just reaching out and connecting to a deeper extent with those who are working on these issues at their company is a great way to build partnerships across the business, so they can be alerted earlier to issues and engineer out some of the risks that might otherwise be there. In so doing, they can also wrap their minds around good sustainability practices, and think through whether there is a way in which they can be more supportive of some of these actions and see how they could actually help them to manage risk relating to these areas.

GC: Are there any challenges for in-house lawyers in embedding corporate sustainability?

UW: One of the challenges we hear a lot from in-house counsel is the pressure to reduce costs. Actually, corporate sustainability may be a way, through the kinds of linkages it can make with others in the company, that you can be more effective and cost-effective, by getting engaged with issues earlier. Practices across areas like human rights, anti-corruption, labour and environment can reduce reputational and legal risk.

GC: Do in-house lawyers have a role outside their businesses in this area?

UW: Definitely. There is the opportunity to partner more with external law firms around some of these rule of law challenges, particularly in developing countries and emerging markets. Through entities like bar associations, Global Compact country networks and industry associations, lawyers can actually help to build the legal framework in the countries where they operate. In-house counsel are the ones that see these challenges day in, day out; they see what’s broken and are motivated to take action to help fix it. We like to talk about ‘lawyers as leaders’, because we think there are certain things about being a lawyer, legal training and the experience of practising law, including issue-spotting, which means that lawyers are well-suited to play these expanded roles.