The role of the legal function in transforming sustainability risk into business value

Rapid evolution in the sustainability regulatory landscape impacts companies and their suppliers across all sectors, at a global level. In this dynamic environment, where compliance and reporting challenges converge with broader strategic imperatives, General Counsel (GC), Chief Legal Officers, Company Secretaries and their teams have a pivotal role to play.

As well as being responsible for steering their Boards through complex, often interconnected sustainability regulations, they have an opportunity to leverage this focus on compliance to unlock broader business value.

To explore the spectrum of challenges and opportunities that ESG compliance raises for legal and company secretarial teams, PwC Legal Business Solutions (LBS) has collaborated with clients to host a series of international roundtable events throughout 2024 – in Hong Kong, Madrid, New York, London and Amsterdam.

Our aim throughout has been to create a unique forum where legal and company secretarial teams can share their experiences, identify pain points, gain insights, and discuss potential solutions.

These events coincided with the publication of a series of articles by the PwC’s LBS team focused on opportunities to create business value – covering key global regulatory developments including: the Corporate Sustainability Reporting Directive (CSRD); the Corporate Sustainability Due Diligence Directive (CSDDD) and the impacts on shareholder and director liability from initiatives such as the EU Green Deal. The series also explored key developments in sustainability regulation and the impact on environmental performance across the value chain and the role of legal function in ensuring workforce policies and rights.

This is a summary of some of the key themes that have emerged and the actions that we believe legal and company secretarial teams should be taking to manage sustainability risk and become catalysts for innovation, change and value creation.

Zeroing in on key themes

1. Navigating regulatory complexity across the value chain
   
   Regulatory convergence (e.g. CSRD/CSDDD overlap), combined with clients’ demand and intense stakeholder scrutiny, piles pressure on legal teams to ensure sustainability compliance extends across the value chain. The focus on sustainability workforce reporting, for example, can prove challenging, not just because of the need to define who is part of the workforce, but also because extensive data needs to be gathered and, in some cases, multiple local laws and regulations taken into account.
   
2. Leveraging sustainability compliance for business advantage
   
   The focus on enabling (and reporting on) enterprise-wide sustainability means General Counsels and Company Secretaries are becoming much more closely involved in strategic initiatives, particularly regarding sustainability. As well as calling for closer collaboration between business and compliance roles, this means legal teams need a deep understanding of the implications of director liability, aligned at parent and subsidiary board-level. They also need to continuously horizon scan, assessing how evolving sustainability regulations influence their organisations’ deal-making, due diligence and litigation strategies.
   
   PwC's 28th Annual Global CEO Survey reveals that CEOs are more optimistic about global economic growth but increasingly concerned about the long-term viability of their business models because of the continued impacts from climate change. The survey highlights how nearly half of CEOs doubt their company’s viability in a decade, if they continue on their current trajectory.
   
   This underscores how important it is for GCs to help their companies navigate the complex cross-border regulatory sustainability landscape, secure government incentives, and ensure accurate sustainability reporting. The Survey highlights the urgent need for close collaboration across functions like tax, legal, procurement, and sustainability to craft robust governance and compliance programmes. And it emphasises the pivotal role of technology and AI in sustainability, while stressing the need for responsible and ethical AI governance.
   
3. Taking a cross-functional approach to compliance
   The conventional approach to meeting regulatory requirements has been to assign responsibility to legal or compliance functions, which review the fine print and ensure minimum standards are met.
   
   In the context of an expansive programme like the EU Green Deal (encompassing multiple regulations, including the CSRD and CSDDD), an overly legalistic approach can prevent management from seeing the big picture. Regulatory issues are critically important, of course, but leading companies recognise that the Green Deal presents more than a test of compliance capabilities – it creates an imperative to reinvent their business.
   
   By proactively addressing sustainability as a data-driven imperative and incorporating regulatory factors into core business decisions, these organisations are finding new ways to create value.
   
4. Working at the intersection of sustainability and digital transformation
   
   Companies recognise that sustainability is not just about regulatory compliance and/or reporting impacts. It has become such a far-reaching imperative that it directly influences operations and business models.
   
   At the same time, broad-based digital regulation is being introduced by the EU and replicated across non-EU regions – from the Data ActOpens in a new window and Digital Operational Resilience Act (DORA) to the EU Artificial Intelligence (AI) ActOpens in a new window. For legal teams, navigating their organisations through this often overlapping regulation requires an integrated approach to ensure compliance, mitigate risks and identify opportunities for innovation. Steered by a risk committee, bringing together legal, C-suite and other key functions, this should help identify value opportunities and enhance the company’s reputation.
   
5. Embedding sustainability governance in the era of GenAI
   
   Organisations’ adoption of GenAI adds to the sustainability compliance challenge for legal teams. With GenAI deployments being scaled up across the enterprise, GCs need to take steps to make sure their governance and risk frameworks encompass the need for responsible, ethical AI. This requirement should be baked into the development and training of new AI tools.

As legal and company secretarial teams drive to enable ongoing sustainability compliance for their organisations, priorities include establishing integrated governance frameworks, with clearly defined roles and responsibilities and seamless communication enabled between the Board and their Legal, Company Secretarial and Finance / Corporate Reporting teams.

With the regulatory and reporting frameworks continuing to develop at pace, it will become even more essential for teams to monitor all applicable regulations, track compliance timelines and, where possible, leverage synergies. Technology tools and advisors will provide vital support, including implementing pragmatic approaches to balance and prioritise compliance with voluntary and mandated disclosures. 

Crucially, as they look to the future, General Counsels, Chief Legal Officers and Company Secretaries should be alert to every opportunity to leverage sustainability compliance for competitive advantage and value creation. Pragmatic compliance, for example, should help to improve relationships with customers and suppliers, as well as providing a platform for modernising and streamlining the contracting process. 

The emerging panoply of sustainability regulation is a powerful articulation of the way society expects companies to operate. From a legal perspective, it is imperative for companies to obtain an overview of their legal risks and opportunities, as well as how they distribute responsibility across their governance structures. Seamless collaboration with wider business functions such as employment, procurement, human rights and risk management will be mission critical.

While compliance with these existing and new regulations is increasingly a multidisciplinary exercise, legal and company secretarial functions should ensure they can support leadership teams in core areas such as assessing which companies are in scope (across the value chain), reviewing contracts, updating jurisdiction clauses, embedding sustainable ways of working into the core of the company via board knowledge and upskilling, updating policies and procedures, and ensuring effective monitoring.

PwC’s Legal Business Solutions global sustainability teams combine a breadth of legal and commercial capabilities and expertise to help businesses effectively understand their regulatory requirements and develop strategies for compliance that deliver business value. Working with organisations worldwide, we help support approaches to managing compliance across the spectrum of environmental, social and governance regulations and standards. Together with our strategic technology alliance partners, our human-led, technology powered approach enables us to evaluate regulatory risk and compliance, and helps legal and governance teams to develop an ecosystem that integrates legal requirements with leading industry practices.