What’s gotten into some corporations these days?
Some are reducing their carbon footprint and reducing waste. Some are demanding ethical behavior. Some are even paying attention to wages of frontline workers. In this episode we discuss the role of attorneys and in-house counsel in the courageous new world of Environment, Social, and Governance, or ESG. And, not to disappoint, I mention a beloved cartoon duck who, when you think about it, raises questions about inclusivity and workplace safety. Throw in the fact that he doesn’t always wear pants to work and you have an ESG trifecta.
A few questions addressed in this episode:
And another thing. Ever wonder why corporations set ESG goals, why ratings matter, or how ratings are calculated?
Listen to my interview with Kai Gray, CEO and co-founder of Motive, an ESG advisory and support service firm, as we explore what ESG is, what it is not, what good it can bring to an organization, and where attorneys fit in. Kai generously offers his perspective based on more than two decades of work at some of the most innovative companies in the U.S.
Kai also reveals the secret to the secret sauce behind compelling corporations to the right thing!
I hope you enjoy the episode. If so, give us a rating!
This podcast is the audio companion to the Journal on Emerging Issues in Litigation. The Journal is a collaborative project between HB Litigation Conferences and the vLex Fastcase legal research family, which includes Full Court Press, Law Street Media, and Docket Alarm.
If you have comments, ideas, or wish to participate, please drop me a note at Editor@LitigationConferences.com.
Litigation Enthusiast and
Host of the Emerging Litigation Podcast
Welcome to the Emerging Litigation Podcast, a co-production of HB Litigation and critical legal content, custom content for law firms and litigation service providers, and the newly formed VLAC's Fast Case, your World of Legal Intelligence and our friends at LawStreetMedia. I'm your host, tom Hagee, litigation Content Producer and enthusiast and an average bongo player. Contact me if you have an idea for an episode. In addition to often being polite, I'm always looking for new twists on the law, whether it's a new regulation, legislation or an important new opinion, or it could be a development in the world that will test existing law, or anything you're dying to share with other litigators, organizations or individuals and, if you like what you hear, give us a rating. That always helps. And now here's today's episode. What's gotten into corporations these days? Microsoft's committed to becoming carbon negative by 2030. Costco and I love their pizza, by the way, they've reduced waste by 50% since 2000. That's the year 2000. Mattel I'm talking to you. Barbie, I'm talking to you. Hot Wheels aims to reduce its environmental impact and pledges to promote sustainable practices throughout its supply chain. Walmart requires its suppliers those in its supply chain, to meet ethical and environmental standards. Adidas wants to bring fitness programs to children before school. Starbucks is committed to paying all of its employees a living wage. Let's define living wage. So what's with companies inflicting all this positivity on us? We're talking about ESG, environment, safety and governance. You know this movement with corporations to reduce their environmental impact and mitigate climate risks, improve their social performance and create a more inclusive workplace, strengthen their governance and build trust with stakeholders. We'll talk about who they are. Why do all this? Apparently, doing the right things like this can attract and retain top talent. You can build stronger relationships with customers and suppliers. You can mitigate risks and protect your reputation. Esg is also becoming increasingly important to investors Corporations. How they operate has a huge impact, beyond the products and services they provide and the profits they make. Of course, did I leave that out? The bigger the company, the bigger the impact. Often, a company's impact is greater than that of some nations, but unlike nations, corporations, number one objective is money. We can argue about objectives two through 22, but money is number one. Of course, this raises questions about their impact on things like climate change, greenhouse gas emissions and resource conservation and pollution. Things like safe drinking water and biodiversity. Raises questions about promoting diversity in the workplace, equity and inclusion, providing fair wages and benefits, ensuring safe and healthy working conditions, providing for employee development and well-being and engaging with the community and God forbid addressing social needs. Then what about how companies and their employees and executives conduct themselves? Do they embrace ethical and responsible business practices? Do they protect shareholder rights? Are they being transparent? Are they holding themselves accountable? Do they have a strong board of directors or do members have conflicts of interest? Do they have effective risk management practices? Can they ask an endless list of questions without anyone answering them? When you think about companies, sometimes to take a side trip, you think about old Scrooge McDuck, which reminds me of inclusivity. I looked up Scrooge McDuck on Wikipedia. It says Scrooge is a Scottish-born American anthropomorphic peaking duck. He's portrayed in animation as speaking with a Scottish accent. Isn't that some sort of stereotype? I think it might be. I'm not positive. I think I've heard a thing or two. I think that's probably the last thing that's got to worry about. But also, speaking of workplace safety, mcduck famously dives into a vat or pot of gold coins. According to the publication Mental Floss, they wrote, quoting James, it's either Cacaleos or Cacaleos, I don't know. He's a PhD, he's a professor of physics in Minnesota and he wrote a book called the Physics of Everyday Things. The question really isn't whether someone could swim in a mass of gold, because these are the kind of questions people ask. They make it clear that no, they could not swim in a pot of gold and they go on to say it's more a matter of how badly they'll be injured in the attempt. So you see, we're talking about workplace safety now. So if you learn nothing else today, there's a takeaway for you Maybe a more modern McDuck would be more ESG-friendly, because you'd see the advantages. Like many companies that have focused time, energy and investments on their ESG initiatives, some of them adopted in response to pressure from key stakeholders, including boards, consumers, investors, insurers, the spouse of a board member you know these things can happen. So, to discuss this in a serious way no, it's not Scrooge McDuck. I know that one day we'll get him on. Listen to my interview with Kai Gray. Kai is CEO and co-founder of Motive, an ESG advisory and support services firm. We're going to explore how ESG and legal profession interconnect key issues at the heart of these interconnections. And, yes, there is a place for a focus on ESG in the legal arena. So, legal professionals I'm talking about the usual folks that we talk to law firms and those in corporate legal departments would do themselves and the rest of us a favor to understand how law firms and can adopt ESG practices and encourage their work with their clients to do so, and you know why is this in their best interest and the firms and their clients, the broad and their expertise and, if absolutely nothing else, mitigate potential legal risks associated with ESG programs. And yes, there are legal risks. I'll talk to Kai about what law firms themselves can do to adopt ESG practices. What are some common pitfalls they should avoid when navigating these regulations and standards. How in-house counsel can drive ESG initiatives within their organizations and what's the role of in-house counsel in communicating ESG risks and opportunities to the C-suite boards. Any strategies that in-house counsel can employ to mitigate the legal risks associated with ESG disclosures. And then we will also talk about the supply chain. You want to hear more about Kai. Yeah well, kai has 20, more than 20 years of senior executive experience at some pretty innovative tech companies like Yahoo, carbonite and Western Digital. Kai leads the advisory and support service team at Motive in navigating this rapidly evolving frontier that is ESG. Let's get to it. Oh, I want to also mention, too, that Kai discusses the secret to the secret sauce of compelling corporations to do the right thing. So listen for it and I'm not going to spoil it for you. So here is Kai Gray with Motive. Hope you enjoy it. Kai Gray, thank you very much for talking with me about this today.Speaker 2:
It's my pleasure. Thanks so much for having me on.Speaker 1:
Of course. So I've introduced you in some of your background and some of the subject, but let's dive into it. So one of the goals that you expressed was that you want people to hear something about ESG maybe that they didn't know. And we are going to legal markets, but that also includes in-house counsel and some of the professionals, as we discussed, that also work with ESG, and you listed people like the compliance group and finance and HR and folks like that. But let's talk about attorneys and how they can, and we can talk about law firms specifically too. How do they adopt ESG practices and tell our attorney listeners what they need to know about this?Speaker 2:
Sure, and if it's okay with you, I'd love to start with just a quick sort of what ESG is. Right Just for sort of to level set the conversation, because I think that, especially in today's news, esg is a term that's thrown around without a lot of discussion about what it is actually. It's become sort of a political hot potato and I think that it's important to understand sort of the mechanism behind it. So environmental, social and governance is what's considered a non-financial metric, and so it really encompasses about 180 different individual metrics. Environmental has a set of metrics, social has a set of metrics and governance has a set of metrics. And it's really designed not to measure quote, unquote good companies versus bad companies. It was designed as a level of transparency. It really is about disclosure. It is trying to put forward these metrics to allow investors to make very educated decisions. Now people use this to make investments based on sort of their values or their thesis or things like that. But it was never designed to say this is a bad company, this is a good company. It's certainly, I think, taken on a bit of that role and I think one of the dangers in ESG is sort of the roll up number. So if you go to Yahoo Finance and go to Sustainability, which is synonymous with ESG in today's world, you'll see numbers that this company gets a four, or this company gets an A plus or B plus or things like that, which is, in my opinion, sort of a dangerous thing because it's really trying to roll up 50 or 60 different metrics into one digestible metric and, as we all know, that that's a very sort of difficult thing to do to capture this. And so what ESG data really looks at is you have things on the environmental side, such as the obvious ones are like greenhouse gas emissions or your scope one, scope two, scope three. On the social side, it really has to do with workplace safety, the right to unionize, the amount of training that you provide employees and, in the government side, which is probably the one that that is most understood by, by companies at least, are how well is the company being governed from a process perspective? Is there oversight? Is there, you know? Are there independent board members? Are there minutes published or do you have to restate your earnings Frequently? You know the things like that. I often talk about ESG and sort of reverse it and talk about governance environmental and social because when you talk about governance, it's very hard to argue about that. When you look at sort of the metrics that make up governance, you think, well, yeah, of course, like that's non controversial, of course you want that in a company. And you know I always argue sort of and Ron went through an ESG process. No one would ever buy their stock right. So you know all insiders, and so I think what's really important is that ESG is made up of a wide array of metrics and when it comes to companies, whether it's law firms or the companies that law firms represent, it really has to do with materiality. When you look at 180 or 200 metrics, they're not all applicable to every company. They are very much sort of dependent on the industry, dependent on the company. When people look at ESG scores, it's really important to put it into some sort of context, whether it's against their peers or sort of the broader industry, because you really can't compare sort of, let's say, a mining company with a tech company right, or a service business like a law firm or an accounting firm. They're very different businesses and you would expect different things from each one of them. When you're talking to companies, you know very common things and I imagine sort of some of the people listening if they're advising their companies have seen this where a company will come and say, okay, we did a materiality assessment and so we talked to our stakeholders and we talked to customers and we talked to sort of everyone we could and we've come up with these 25 priority projects that we're going to work on and they're all top priorities. And my suggestion to people is to throw that away and say, okay, you know you can't possibly address 25 things.Speaker 1:
Right, you do have to make some decisions, Some. They're not all weighted the same.Speaker 2:
They're not all weighted the same, right. And it's sort of what are the things that move the needle for your company? What are the four or five things that you can actually do that have that make a difference? And I'll give you a sort of a concrete example for a company that we were advising, where I went through this exact sort of process. They said, okay, here, you know, here's this sort of laundry list of things and you know, because everyone you ask will have a very different perspective on it they said we're going to, you know, number one, we're going to replace our fleet of vehicles with electric vehicles, which is a very admirable thing, it's great. And we said, right, how many vehicles are you replacing? They said we have 25. That's a huge capital expense and it's not actually going to make a huge difference because it's not sort of long-haul Vehicles. This is, you know, very much. You know they're actually not using a lot of fuel to begin with, but if you took that capital and put it into employee training, it'd make a huge difference. That was an example of a company that really had Argonin on this idea that, like, everything needs to be electrified because that's that is right, sort of sort of current popular view of things. But the reality is like in their business they're not talking about. You know, they're not an air transport company. It was a service business that had a small fleet of vehicles. They were about to make a very large capital commitment To something that wasn't really gonna. Yeah, that's their business and if they just put that into like more training or more you know, better benefits or things like that, they they would both enhance their business quite a bit, which they've ended up doing, which was great, and make a better impact on ESG rating.Speaker 1:
Yeah, now that makes total sense. You know the, the urge to do the right thing, yeah, that's a fine, that's a fine urge, but then you also, like you said, you want to look at the impact and what's it gonna cost you and you know, would the money in fact be better spent somewhere else? That makes total sense, but I could see, you know, you can definitely see the, you know somebody Feeling the pressure or wanting to do the right thing. You know, let's do the right thing for the environment, but that's right. But but, like you said, you know there's just ways that you can have a bigger impact. When you look at other Other places to put that, those resources. So you know, that's that seems like a pitfall. So my next question is around what? What are the most common pitfalls that Attorneys and the companies should avoid when navigating ESG regulations and standards?Speaker 2:
I would say the number one pitfall that we see companies fall into and those advising companies, is that there are, there are a number of standards. Getting back a little bit to sort of the you know the ESG mechanisms. There's no governing body that says this is what you have to report on ESG, so there's no one standard. There are there, actually, multiple standards and they're called this is a Various groups called standard setters. There's a lot of acronyms but TCFD and and Sazby, and these different organizations that have come up with what they think is Relevant for your, for your industry, and they're they're all slightly different. There are these standards and I would say Sazby, tcfd and and GRI are sort of the three big ones. On the other side, you have the ESG rating agencies, folks like MSCI, standard and pours. There's a number of of rating agencies there. Best, because it is another big one they're the ones that actually create the, the score for a company. So you have these two groups that were the standard setters and the rating agencies. What's very interesting is they don't talk to each other. They're, in fact they're. They're not connected in any way. So Just because you followed a standard to the to the letter, does not mean that it's going to help your ESG score, because it's a different body that's doing it, and I would. I think that the pitfall we see companies Fall into is just that where they say we, you know, we have followed GRI, the GRI standard, you know perfectly. Why are we still getting a low score? Or ISS is another big one that your listeners may be more familiar with. They are a rating agency Mm-hmm, and so a lot of people, in fact, will come to us and say you know, we follow this standard exactly. We did everything they said and ISS is still giving us a bad score in this. What's that happen? That be because ISS actually doesn't care what GRI Sets. They have their own internal standard, and so all the rating agencies maintain their own standard of what's material to a company. They don't publish that. This is their sort of proprietary algorithm. This is what make. This is why companies would buy their services and so on and so forth, and so I think that the there's a huge disconnect in the market between these two things. Right, it's almost sort of like I'll make bad legal analogies here because they am not a lawyer, but you know, if you had laws that said one thing and then, and then the courts Applied their own, their own laws, but didn't tell you what those laws were. Right, there were just sort of a close approximation. That's kind of what happens in the ESG world, and so it leads to a massive amount of frustration. And so one thing that you know, we advise companies these standards are good, they're they're not bad, but go into it in this sort of a wise, wide open Perspective where you understand that just because I'm following this does not guarantee me a great score. And I think for companies it's important to when they begin their sort of ESG journey, so to speak, is that they have that they, they have a goal in mind. This is this is something that I think is another big pitfall is that companies go into it saying we're just going to do all these things right without first Establishing what it is that they want to accomplish. Do they want high scores? Is that because they want to get into An, an ETF or a fund? Maybe that's the goal, that's fine. Maybe it's because they're trying to be more attractive to certain customers. That's why they want their scores or the ESG profile to be good. But whatever the case is, it always starts with that sort of that main Objective and from there you can start to build your ESG program. And I think a lot of companies you know pitfall number one again is that people get very frustrated because there's this disconnect between the standards and the rating agencies. And and the other big pitfall is Companies basically kind of start in the middle, unlike every other project in a company where you set up the goal ESG. For some reason, a lot of people forget that and they say no, no, no, we're just going to start doing a bunch of good things recycling bins in every office, we're going to electrify all the cars and you know, so, on and so forth without Establishing what it is that they're trying to accomplish with their ESG program. For your listeners, if you're advising companies, that's my advice to pass on step one Articulate the objective the same with the same with any business, project or program.Speaker 1:
Yeah, you know it's like. Yeah, you rarely start off with saying, maybe you have a lofty mission for your company, that you're going to do good in the world, but but behind that, when you're an organization, sure you got to know okay, what, what is it we want to accomplish? It's going to be good for the business and to fall in line here with the frustration with the different Agency. So what do you? First of all, what does it matter? That you get good ratings.Speaker 2:
So the rating agencies Are really designed around investors, right? They, you know so. The rating agencies are selling their data to state street, bank and Fidelity and the big financial folks, and so a lot, of, a lot of ETFs or different funds are crafted using that data and, and you know, fund and ETF, for instance, will be built on. You know, the, the top percentile of folks in a particular you know so, if you go to this is a black rock eye shares, for instance. They use a lot of MSCI, so you'll see MSCI something, something fund, which means that basically it's an eye shares ETF, that is, the top 20% of a given category, whether it's environmental or whatever, whatever it is. For a lot of companies, they say no, no, no, we want to be included in in these funds because there's an instant stock Value increase when you get, when you get included in those funds, it's really driven by a financial Goal in mind. I think and this is something we see, we see frequently is that you know, sometimes the, the, the rating is just, it becomes almost a prideful thing for companies, right, if they get a low rating, it almost doesn't matter what, what the goal is. It's like no, no, no, we don't want to be low on anything. We don't want to see minus in anything. A lot of the times, what? What we find is that when we ask companies who engage with us you know why are you calling us? It's like, well, a board member brought this up with our CEO in the last board meeting that you know Our, our rating was low in this area. And it's like, okay, well, you know what? Why do you want to fix that? Because a board member brought it up and our CEO does not want to go back into the next you know Board meeting without a plan. There's a lot of positive reasons that people come to us and in financial reasons, but there's also a fair amount of just that sort of almost prideful Sure.Speaker 1:
You know that that's I scores across the board. Yeah, and you know, on a board member. No, I'm questioning you the right, so I guess to, just to, just before we jump to the next one. Yeah, it sounds like the there was so many rating agencies. Would you say then that certain, if you're in certain industries you should go to, you should try to Get good ratings with certain rating agencies, or?Speaker 2:
it's not as industry specific. I think that you know you. You basically have three big ones the ISS, msci and S&P global. Right has a rating agency. Those three dominate the conversation. There are there are eight in total and there's I mean there was probably 25 different rating agencies. I mean even my. My company maintains its own internal rating of of companies, but I would say, for practical purposes, there are eight, eight big ones and among those there's those three MSCI, s&p global and ISS are the ones that if, if you were to focus on any three, those are the three and for each, each one it's. You know they're each distinct and so there takes there's a little bit of research and trying to figure out, like Understanding how they rate, ends up being important next one how do attorneys and and then executives inside companies, how do they stay ahead of the curve and understanding these regulations?Speaker 1:
they they are evolving, so how do they stay ahead of the curve and understanding ESG regulations and investor Expectations?Speaker 2:
there are a number of sources that you can go to Without plugging ourselves too much. You can go to ESG motive comm, like. We have a newsletter. We put out sort of a client advisory that does a wrap-up of sort of monthly regulatory changes, and those are happening frequently. It's very dynamic right now. Like I said, there's not a governing body that that regulates this, so that's not. There's no one-stop shop for for all of your ESG updates. There is a radio agency called arabesque and they published something called the ESG book. We we highly recommend it there. We like them as a company and their ESG book does put out also a sort of a regulatory Update. We're going into an era where Trying to stay current is very important. What's happening right now is that government bodies are starting to get very interested in ESG, and so we're starting to see whether it's the SEC, the, the EU has taken the lead on this and and it's probably a few years ahead of the US in terms of Oversight and regulation. So the EU has crafted their taxonomy Taxonomy to to define things, which is very important and they're starting to sort of level fines for misuse of terms, and I think that that's coming to the US. I think the SEC is now starting to get very Involved in in things and in what's being called what's known as greenwashing, and where you have companies that sort of are saying you know, we do this and this and this, because right now there's there's literally no, no liability in that. But that's quickly changing because California has has just passed through their legislature two bills concerning Climate disclosures Governor Newsom is has already said he's going to sign and and these put in place actual definitions and punitive Measures for companies that don't abide by them. There's two separate bills, one addressing companies that that Earn over a billion dollars and the other is concerning companies that own over 500 million, and what's interesting is sort of California as we know, sort of what happens in California by and large affects the rest of the country, because it's basically if you do business in California, you're subject to these right. So if you're if you're a 500 million dollar company, which is a large company, but in our estimation it's going to cover something like 50000 companies globally, so it's quite, quite a large swath you don't have to be doing siled in in California, just you have to do business in California. This means that you have to disclose quite a bit of climate information.Speaker 1:
Well, let's, let's move to in-house counsel and their role. So there, the first thing is how would you propose that in-house counsel drive ESG initiatives within their companies?Speaker 2:
This is something that comes up frequently because a number of our clients are in-house counsel. That is largely because ESG data is derived from public disclosure, so that the rating agencies are are basically just sort of web scrapers they're. They're looking for data on your company and mostly they're looking at your public public disclosure, and that's why companies issue ESG reports or sustainability reports for in-house counsel. A lot of times public disclosure Sort of flows through them because now they're they're making public statements about things, and this is where the sort of the, the merger of compliance and in-house counsel, you see this really come together right, because you cannot. You know, if you're a public company, you cannot be issuing disclosures that are not factual or that violates some some internal compliance. And so I think that for in-house counsel, we often see in-house counsel leading the ESG charge within a company, really because it has to do with public disclosure and they want to make sure that what's being disclosed is is not exposing them, you know, in unforeseen ways. And I think that it's an opportunity for in-house counsel, because ESG is something that that really cuts across companies in every division and this is why you know that there's a very healthy debate about within companies who quote unquote owns ESG. Marketing says no, no, no, this is you know, these are. We produce these reports. This is really a marketing effort. Compliance is no, no, these are. This is disclosure. This goes through us. Ir and and and finance is no, no, no, this is for investors. This goes through us, you know. Counsel says no, this is you know, we need to. We need to check everything that that leaves this building, and so People always ask well, who should own it? The reality is, it depends on your company, but Everyone, oh, and a huge, another huge component is HR right, because a lot, of, a lot of ESG is run through HR, because that was sort of for a lot of companies, the very beginning of this idea of sustainability is started with, with diversity and inclusion, and so HR people Kind of we're leading the charge there. So I think what's interesting about ESG is one of it's one of a few Things that touches almost every part of a business. For in-house counsel, I think the opportunity is to be able to sort of champion this within a company and Sort of instantly be able to impact your entire company, not not just the legal part of your company. But, but the the sort of the business side of your company.Speaker 1:
Yeah, and you mentioned earlier the Example where a board member asked about a low rating. Which, which brings me to the next question, is what talk about the role of in-house counsel and communicating ESG risks and opportunities to the C suite into into members of the board?Speaker 2:
I mean, I think that there's a lot of opportunity there. I think it's an opportunity, you know. The opportunity is really that the C suite and the CEO and CFO in particular, may not be well versed in ESG. Right, it may be. You know, just like we talked about the beginning, they they hear about it only in sort of new snippets and the occasional investor We'll bring, bring it up if you're a public company and instead of an investor call. And I think that an area that that in-house counsel can can really help with is Understanding ESG and really educating the C suite on on what it means and, in particular, what it means for their business and how to drive business with it. What makes people come to you guys? What's very positive is that you have, like, a number of our clients Come to us because they have received a request for ESG data from their their customers. They make widgets for a tier one customer and that customer has an ESG plan and is now pushing that down through their supply chain. It's a very, very common scenario. A lot of Our clients are somewhat blindsided by this. They come to us and say, hey, our very large customer who accounts for 30% of our revenue. This is we can't bid on new business unless we give them an ESG report. My advice to in-house counsel is try to want to educate yourself on ESG and sort of what it means and what your customers care about, and make sure that the CSU understands this. So it's not a situation where you're caught off guard and it's like, hey, we got to respond to an RFP in two weeks, so we need an ESG report today. That's a very, very, very tall, unachievable task. I think that this is an opportunity for in-house counsel to get on the business side of the company and sort of understand who their big customers are. It's very easy. I mean you say, okay, we sell to Ford and GM and Salantis and all these other companies. Let's go look at their ESG reports and see what they care about, because they're going to be coming to us, if not today, tomorrow, the next day, asking for data to support these initiatives. Get in front of this, be able to educate your team, your C-suite, on this and know that your customers very likely will drive this for you.Speaker 1:
So let's talk about legal risks. What strategies would you offer in-house counsel to lower the legal risks associated with ESG disclosures?Speaker 2:
ESG disclosures have to be consistent with your business. We talk about ESG as a business driver for companies. We do not see it as an isolated activity. It's within the context of your business and ultimately ESG is, like we talked about at the beginning, sort of a transparency metric. The way I personally look at ESG and for companies from an investment standpoint and I'm not giving investment advice here, but is if a company can produce a good ESG report with meaningful data and it's comprehensive, my take on that company is that they have a good sense of how they're run. It's that old sort of you know the green M&M's story from Van Halen from years ago. Right, you know, if you can produce these kind of numbers, it means you understand your business Talk about the risk of being open and sharing all of this kind of information. Transparency is always something that comes with a bit of risk for a company, and so you have to evaluate these on sort of a case-by-case scenario, especially when you get into a lot of the social metrics which have to do with workplace safety and incident reporting and cybersecurity and things like that. You know companies by and large hate disclosing that kind of data. It's, you know, fraught with all sorts of, you know, landmines and I think that it's important to ESG. You got to balance it. If you're in-house counsel about sort of the competitive aspect of your business, we, you know it is definitely something that comes up with. Companies say, hey, we do all these things but we don't want to talk about them, right? We, you know we tend to be more secretive about everything and you know there's somewhat of an impasse. It's like, well, the radio agencies are not going to take into account. You know, your desire to be secret about these things. So if you don't disclose them it's going to go down as a not disclosed, which is ultimately a negative on your ESG report. So I think for in-house counsel you just have to sort of understand that and it may be either prep people for that idea that hey, we don't have to disclose this but just know that it's not going to be a positive in our rating and we should be okay with that. Or lean into it and say, hey, we do a very good job with this stuff. Let's let's disclose it and evaluate the liability.Speaker 1:
So let's talk, finally, about how in-house counsel, how they should approach external partnerships and contracts from an ESG perspective.Speaker 2:
So assume your company has established an ESG program. They've established objectives for that program. They understand sort of the materiality issues. Now is a company's opportunity to start to bake those into their contracts with their partners. Communicate that upfront, say this is our ESG program. These are the things that we're trying to achieve. Here's our five things that we've narrowed it down to. We're asking our partners in our supply chain to comply with these. The wrong time to do that is after you sign the contract and you're way down the road with these folks and and which is kind of what's happening right now there's a lot of retrofitting going on, meaning like a lot of folks are now going back to their supply chains. They know, by the way, we need you to start doing this. The business person who me says that's great because it's it drives a lot of business from a customer supplier relationship, it's not great, and I think that companies need to start publicizing this and and bake it into the contract that you are going to. You know these are milestones or these are sort of deliverables, the same as the other, the other things that that you're calling out in the contract. It's not usually what the contract's about, but I think you want. You want your suppliers to maintain good human rights policy. It's going to reflect on you who you work with, who your suppliers and partners are. I'm in coastal Alabama, so Alabama has a lot of auto manufacturing and recently Hyundai, who has a plant in Alabama one of their subcontractors, a very large subcontractor was caught using underage labor. This was a huge, huge deal, and the news articles don't say subcontractor caught doing this, it says Hyundai right, subcontractor right. And so Hyundai is now on a sort of a crusade to rid their supply chain of this Right. That is the last thing that they want to be associated with. I always joke that they've canceled all. Bring your kids to work days for Hyundai for forever.Speaker 1:
Anybody under five feet can't work here anymore. That's right, that's right.Speaker 2:
If you look young, you may not come here. These are very real world things and I don't know what Hyundai's contracts with their subcontractors are, but I can imagine that going forward there's going to be a fairly hefty clause in there about what happens and the audits that have to be done and things like that.Speaker 1:
Right, there's a reason sometimes that overseas labor is less expensive, you know, because they may not have all the same rules and norms that we have. But yeah, this came up earlier this year in the Midwest in the meatpacking industry where they had underage workers working with hazardous chemicals and hazardous machinery and they were fine it's interesting.Speaker 2:
There's a whole sort of probably another topic on this because I think you know a number of states are starting to lower age restrictions on workers. So I think like but it definitely gets into where in-house council is surely involved, because I guarantee in-house council for Hyundai is working overtime. Oh, but they are the better way to approach. This is at the front end. You don't want to be on the cleanup crew.Speaker 1:
That's a good button at the end of it. So, hi Gray, Thank you very much for talking with me about this today. It was interesting.Speaker 2:
It's my pleasure. Thank you very much for having me on.Speaker 1:
That concludes this episode of the emerging litigation podcast, the co-production of HB litigation, critical legal content, vlacs Fast Case and our friends at LostG Media. I'm Tom Hagey, your host, which would explain why I'm talking. Please feel free to reach out to me if you have ideas for a future episode and don't hesitate to share this with clients, colleagues, friends, animals you may have left at home, teenagers you've irresponsibly left unsupervised, and certain classifications of fruits and vegetables. And if you feel so moved, please give us a rating. Those always help. Thank you for listening.