February 7, 2023

Volume XIII, Number 38


February 06, 2023

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Creating a Sustainability Policy

ESG and the sustainable economy are about more than talk. They are also about action. To begin the journey of acting on ESG and sustainable economy principles, many organizations first create an internal policy in support of ESG and the sustainable economy, i.e., a sustainability policy.

There are many approaches to creating a sustainability policy, and each policy is likely to be different because of variations in the business and operations of different organizations, as well as in its reasons for creating a policy. Moreover, in some cases, the same organization may have different policies, for example, one for gauging investments and one for managing its own operations. In addition, depending on how a business is structured and its size, it could have separate policies for each of the main topical categories in the realm of ESG and the sustainable economy. For example, a large corporation with extensive supply chain operations may have a robust policy around social criteria that is used within its logistics department and a completely separate approach and policy around its carbon footprint, each of which are managed by different personnel. Much of this variation is driven by historic functions within a business, as well as historic practice and regulation in a particular industry.

Whatever the reason for, or focus of, a sustainability policy, there are broad commonalities in the process of formulating it. The suggested processes that follow are based on the guidelines published by the Principles for Responsible Investing, which has been widely adopted by organizations all over the world, as well as our experience working with organizations that have formulated and implemented sustainability policies.

Suggested First Steps

  1. Learn more about the concepts behind ESG and the sustainable economy and how thought leaders view them. Consider the extensive academic and popular literature on the topic.

  2. Gather intelligence about what other organizations in the same and related industries are doing.

  3. Review any core beliefs, principles statements, or internal initiatives that your organization is already using.

  4. Review laws and regulations relating to ESG and the sustainable economy that apply to your organization, such as environmental regulations, labor standards, or contracting requirements.

  5. Consider ESG- and sustainable economyrelated standards that are available in your country or region and that pertain to your organization’s business. Also consider any standards that are more broadly available and that pertain to your organization. For example, Leading Harvest’s Farmland Management Standard pertains to an array of ESG and sustainable economy criteria and can apply to many geographies and crops. On the other hand, the Fair Wear Code of Labour Standards relates to labor standards in the apparel industry. For investment management companies, the United Nations’ Principles for Responsible Investment represent a consensus view—of over 3,500 asset owners, asset managers, and service providers—on how to integrate concepts relating to ESG and the sustainable economy into investment decisions and portfolio manager selection decisions.

  6. Discuss the topic with stakeholders in your organization, assemble a diverse working group, and formulate a timetable for creating a policy and goals.

Brainstorming Your Organization’s Sustainability Policy

  1. Consider your goals. What impact do you want the policy to have? Is one aspect of sustainability more important in this policy than the others? What activities in your organization do you want the policy to impact? What activities do you not want the policy to impact?

  2. Consider your audience. Will the policy apply to specific groups or everyone in your organization? Will it apply to your organization’s goods and services providers? What role do the users of the policy play in your organization, and how will their daily activities be shaped by the policy?

  3. Consider how the policy will be implemented. How should the policy impact the daily activities of your organization’s workforce? What about your organization’s contracting standards and procurement guidelines? Will derivatives or other financial instruments be used to synthetically offset negative exposures relating to ESG or sustainable economy principles? How will implementation affect your organization’s risk profile and profitability?

  4. Consider how the policy should be discussed. Will your organization discuss its initiative or policy publicly? With shareholders? As a recruiting tactic? In the context of business negotiations? Will those discussions have regulatory implications, e.g., under securities or consumer protection laws?

  5. For investors, consider how the policy should be reflected in proxy voting decisions.

  6. Consider how you will know when you have achieved your goals. How will you measure progress? Will you use a standards accreditation process, or will you develop a measurement tool and process internally? Who will measure progress?

  7. Consider what should be the consequence of noncompliance with the policy. Will executive compensation be impacted? Should compliance be considered in employee evaluations?

Drafting Your Organization’s Sustainability Policy

Like other organizational policies, a sustainability policy should be drafted with some specificity but broadly enough to capture the range of activities that the organization intends to impact and efficiently adapt to changing circumstances. For example, organizations that set net-zero emissions goals pursuant to an environmental or comprehensive sustainability policy typically set a date by which they plan to achieve net-zero emissions and how they will measure emissions. In the investment context, investors that use an ESG scoring tool, such as MSCI’s ESG Ratings, may create a policy that they will only invest in companies with a particular minimum rating or will never invest in certain asset classes.

While sustainability policies can follow any format that you and your colleagues can imagine, in addition to the policy statement itself, many organizations include some combination of the following:

  1. A description of what ESG and sustainable economy principles mean to the organization and in its primary industry.

  2. An explanation of why the organization has created a policy. This may discuss the organization’s beliefs, goals, and desired outcomes.

  3. A description of how the policy was developed, what was considered during the process, who was consulted during the process, how widely supported is the policy by stakeholders, and who approved it.

  4. How the policy fits into your organization’s other policies, for example, for financial transactions, investment, hiring, or procurement.

  5. The scope of the policy, including who and what activities it applies to with as much specificity as possible.

  6. The risks associated with the policy and when those risks may outweigh compliance with the policy.

  7. How progress under the policy will be measured and by whom. Describe any external accreditation process that will be utilized.

  8. The consequences to applicable personnel for failing to adhere to the policy.

  9. When and how the policy will be reviewed and by whom.

  10. Personnel who are responsible for the policy and its implementation.

Ancillary Documents

Like so many things in the organizational context, a sustainability policy is only as good as its implementation. Thus, organizations that create such policies typically also craft a variety of ancillary documents, including:

  1. Guidelines for evaluating investment or business opportunities.

  2. Reporting methodologies so that business units can track and compare their progress.

  3. Decision-making guidelines. These are likely to vary significantly based on the type of operation and how its policy is intended to impact the organization’s activities. For example:

    a. An investor may need additional guidelines for personnel voting the investor’s board seats or shares. b. An operating business may benefit from guidelines for energy sourcing or scoring suppliers to account for fair labor practices, how inclusive and diverse a supplier’s workforce is, or a supplier’s environmental impact.

  4. Guidelines for public communication about the organization’s policy and its implementation. As discussed elsewhere in this handbook, these communications will vary based on whether the organization is publicly or privately held, is part of a government, the legal jurisdictions in which it operates, and other criteria.

  5. Budgeting requirements.

Copyright 2023 K & L GatesNational Law Review, Volume XI, Number 182

About this Author

Elizabeth Crouse Tax Lawyer K&L Gates Law Firm

Elizabeth Crouse is a partner in the tax group of the Seattle office. She provides business-focused solutions for U.S. federal, state, and international tax matters pertinent to mergers and acquisitions, corporate divestitures, internal reorganizations, cross-border transactions, private equity and venture capital fund creation and investments, and start-up companies.

Ms. Crouse is also experienced with U.S. federal and state alternative energy tax incentive programs (including the investment tax credit, production tax credit, and 1603 cash...

Elisabeth McNeil Seattle International Energy Attorney K&L Gates LLP

Elisabeth Yandell McNeil represents a variety of U.S. and international clients. Her practice focuses on energy and infrastructure transactions, including mergers and acquisitions, joint ventures, and investments in wind, solar, biomass, and other energy projects and services. She also advises clients in transactions involving clean energy and energy efficiency technologies.

Elisabeth is recognized in The Best Lawyers in America© 2021 for Corporate Law and the Washington Rising Stars list (2016-20).

Molly K. Barker Environment, Land and Natural Resources K&L Gates Seattle, WA

Molly Barker is an associate at the firm’s Seattle office. She is a member of the environment, land and natural resources practice group.

Professional Background

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Daniel Cohen, KL Gates Law Firm, Washington DC, Finance Law Attorney

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