Maria Pia Sacco
Pillar Two, Modena
mariapia.sacco@pillar-two.com

Edie Hofmeister
Independent Director, Berkeley
ediehof1@gmail.com

In February 2024, the IBA hosted an Environment, Social and Governance (ESG) conference, presented by the IBA North American Regional Forum and the IBA Energy, Environment, Natural Resources and Infrastructure Law Section (SEERIL), which took place in New York City. The conference featured a variety of cutting-edge panel discussions on ESG, including a panel session on ‘Due diligence and ESG – identifying new requirements and key risks for clients’, chaired by Edie M Hofmeister (Co-Chair of the IBA Business Human Rights Committee) and featuring Maria Pia Sacco (Advisory Board Liaison Officer of the IBA Business Human Rights Committee); SEERIL Chair Florencia Heredia; David Kraut, the General Counsel of Lafayette Square; and Counsel at King & Spalding, Douglass Cassel. The panel focused on recent legislative developments on mandatory human rights and environmental due diligence, as well as practical insights on how to plan and carry out a due diligence review from an ESG perspective, including the associated risks and key issues lawyers must understand.

The evolving role of lawyers in sustainability due diligence

Edie M Hofmeister highlighted the evolution of the role played by lawyers in supporting the different steps in sustainability due diligence processes, including risk prioritisation and salient human rights issues assessments. As underscored by the Updated IBA Guidance Note on Business and Human Rights ('Updated IBA Guidance on BHRs') published in 2023, the growing relevance of the UN Guiding Principles on Business and Human Rights (UNGPs) to the legal profession is being driven by multiple factors, namely the enactment of legislation on mandatory human rights due diligence and reporting obligations, the assertion of a duty of care, corporate liability and responsibility, and the proliferation of legal claims based on the UNGPs and the related standards.

Salient human rights assessments and prioritisation

Maria Pia Sacco described the concept of salient human rights issues assessments for corporate human rights reporting and due diligence purposes. Defined in the Interpretative Guide to the United Nations Guiding Principles on Business and Human Rights (UNGPs Interpretative Guide), salient human rights are those that are most severe and likely to occur to an individual or community. Key to this analysis is the scale, scope and remediability of actual or potential adverse human rights impacts (UNGP 14, Commentary).

The concept of saliency has increasingly appeared in global legislative and policy initiatives, such as the EU Corporate Sustainability Reporting Directive (CSRD) and the EU Corporate Sustainability Due Diligence Directive (CS3D). Sacco emphasised that, in keeping with the UNGPs, this form of prioritisation should be regarded as a way of 'sequencing responses in the event that not all impacts can be addressed at once.' Still, businesses should address all of their human rights impacts (actual and potential), as less severe impacts can evolve into more serious abuses if they are not properly addressed.

How should lawyers tackle business and human rights issues?

The panel emphasised that both in-house counsel and external advisers must work with multi-disciplinary teams on these issues. In-house legal teams need to break down silos and collaborate with cross-functional teams in regard to due diligence efforts, including risk assessments, mitigation actions, policy and process development, communication and impact remediation.

Lawyers are key to the sustainability team in assisting to identify human rights and environmental risks in company ‘value chains’ and then leveraging their understanding of the legal context in the countries where the business operates. This can help inform risk assessments and identify potential violations of laws, such as health and safety and labour standards, as well as risks that while not illegal may still be relevant from a sustainability perspective.

The panel concluded that as hard and soft laws evolve in the business and human rights context, lawyers must act not only as technical legal experts, but also as strategic advisers in identifying and managing sustainability impacts. Advice grounded solely on technical compliance with existing law is no longer sufficient to manage a company’s broader sustainability-related risks. These risks include reputational harm, reduced access to capital markets, value chain disruption and challenges in hiring and retaining talent, as well as risks arising from complaints to non-judicial grievance mechanisms.

The IBA ESG conference was a clarion call for corporate lawyers to understand the inextricable links between sustainability and business success. Lawyers who embrace this evolution will be the next leaders of the profession.