Why In-House Counsel Should Focus on Governance (the “G” in ESG)

The governance component of environmental, social, and governance frameworks (the “G” in ESG) is especially crucial for in-house counsel and legal departments, as Thomson Reuters’ Sterling Miller writes in a blog post. Governance focuses on internal company processes — how companies are controlled and managed with respect to compliance, accountability, and transparency.

In-house counsel play a critical role in ensuring that governance aligns with legal standards and best practices. They ensure compliance with regulations such as the Sarbanes-Oxley Act mandating financial transparency, the EU’s Corporate Sustainability Reporting Directive, and anti-bribery laws. In addition, they uphold ethical standards, maintain robust corporate governance frameworks, and ensure that boards of directors manage risk and support ESG objectives.

One of the responsibilities of in-house counsel is to create and oversee the company’s code of conduct, outlining essential governance policies. Anti-corruption, whistleblower, and conflict-of-interest policies are also vital to good governance, with clear procedures to reduce legal and reputational risks. In-house counsel plays a central role in communicating and enforcing these policies, ensuring that employees and leadership receive training on ethical standards and the procedures for reporting misconduct.

As part of ESG reporting obligations, some companies must disclose their governance structures and practices. These disclosures should be legally compliant and reflect the company’s governance policy. They are published in annual reports, proxy statements, and sustainability reports for publicly traded companies.

Investors are increasingly focused on transparency, particularly regarding ESG metrics, such as board diversity, audit processes, executive accountability, and shareholder rights. In-house counsel needs to ensure these metrics are tracked and reported accurately.

Poor governance can lead to legal risks including shareholder litigation and regulatory investigations. In-house counsel must be proactive regarding the “G” in ESG, ensuring that governance practices not only comply with legal standards but support the company’s ethical and long-term goals, contributing to a sustainable and resilient organization.