A brief overview of ESG and COP26 including the legal framework

ESG (Environmental, Social and Government) has recognised the urgency for all organisations in the private sector, including the legal industry to align their business
strategy with sustainability goals. Due to the fast-changing stakeholder and investor interactions, it is now the corporate purpose and social responsibility of investors,
consumers, and legislators to address the connection between sustainability and the return on investment. ESG is recognised to be within a broad category that
informs a company’s value and incentives. A business’ commitment to its strategies must be communicated internally and to external agencies to achieve
tangible targets.

In the legislative framework, Task Force on Climate-related Financial Disclosures (TCFD) is responsible for disclosing climate risks and their potential effects on a business. The EU Taxonomy and the Low Carbon Benchmark Regulation have come into effect to introduce a common framework that describes and reports on environmentally sustainable activities. The Non-Financial Reporting directive is still in the process of review.

A brief overview of COP26 and the legal framework

Why is it important and its potential impact on the Legal Industry?

COP26 (The 26th conference of the parties to the United Nations) ran from the 31st of October to the 12th of November 2021 bringing together decision-making delegated bodies from over 200 countries in Glasgow to coordinate legal action to combat climate change.

New and amended legal frameworks now aim to achieve carbon targets. The legislation aims to phase out coal power, halt fossil fuel subsidies, ban new international
combustion engines, increase investment in technology and address the loss of nature and biodiversity.

The conference was significant in reducing global warming and limiting the potential impact of climate catastrophe to 1.5 degrees Celsius.

The Law on Climate Change _ Section 172 Companies Act 2006

Section 172 of the Companies Act 2006 requires a director of a company to:

a) consider the long-term consequences of decisions

b) act in the interests of employees

c) foster relations with suppliers, customers, and others

d) consider the impact on the community and the environment

e) maintain high standards of business conduct,

f) act fairly between members of the company. This legal framework applies in the context of climate change and the shift that is taking place regarding holding businesses accountable by playing their part in climate responsibility, particularly in reaching the net-zero target which can be achieved through cooperation with peers, customers, and supply chains.

The Changes Businesses might look to considering the potential legal impact

Businesses should consider implementing strategies to become sustainable considering the scrutiny of ESG, which is driving a change for greater transparency
and disclosure regarding the sustainability of business activities. Furthermore, as COP26 will hold businesses accountable to the law, it is important businesses set high
standards regarding climate responsibility. Businesses should consider joining the Race To Zero networks and sign up to meet carbon targets. With 3,067 businesses
involved and 173 investors, the Race To Zero initiative forms ‘the largest ever alliance committed to achieving net-zero carbon emissions by 2050’. Businesses are
invited to join one of the Race with Zero’s partners including Business Ambition for 1.5 C: Our Only Future, The Climate Pledge, and The Exponential Roadmap Initiative.

Businesses would also be required to meet procedural legal criteria. They would be required to pledge at the head of the organisational level to ‘reach (net) zero greenhouse gases (GHGs) as soon as possible, and by mid-century at the latest. This is to be in line with global efforts to reduce global warming to 1.5 degrees Celsius. It would be recommended for businesses to set an interim target to meet in the next decade, striving towards a ‘maximum effort toward or beyond a fair share of the 50% global reduction in CO2 by 2030’.

Secondly, businesses will need to execute a legal plan of action within 12 months of joining, outlining what actions ‘will be taken toward achieving both interim and
longer-term pledges, especially in the short-to-medium term.

Thirdly, businesses would proceed to ‘take immediate action toward achieving (net) zero, consistent with delivering interim targets specified’.

Finally, they will be required ‘to report publicly both progress against interim and long-term targets, as well as the actions being taken, at least annually’.

Conclusion

Businesses must demonstrate the strategies they will take to ensure their business is more sustainable. Businesses should also work towards developing a legal plan of
action to address climate change issues. This will strengthen their goals towards sustainability and will require continuous consultation, close coordination and
partnership with business strategies, investment decisions, policy development and key stakeholders, all of which can help strengthen the private sector’s role in
achieving national and international targets.