The legal profession can't afford to skip AI

Next-gen technology is key to maintaining ESG compliance

In the legal profession, AI is no longer a 'nice to have', but a 'must have', writes Luminance CEO Eleanor Lightbody

The Council of the EU recently gave final approval for the Corporate Sustainability Reporting Directive (CSDR), increasing reporting obligations for companies operating across Europe. These new regulations, which require organisations to publish detailed information on how their business model affects their sustainability, are intended to increase accountability, improve transparency and prevent greenwashing in businesses across the continent.

ESG reporting already represents an incredibly large compliance responsibility for businesses today, and this latest regulatory development presents a fresh challenge for legal teams as they prepare to review enterprise data on an unprecedented scale. The evolving nature and multitude of ESG frameworks, as well as the sheer volume of information, creates an intersectional test on the capacity of legal teams.

This challenge is made even more difficult by the way data is so often siloed across an organisation, whether in different cloud storage environments, on emails or on personal computers. Running the risk of missing key information during the reporting process is simply not an option, as accusations of greenwashing and the severe reputational and financial damage this cause become increasingly pervasive.

Against this backdrop, the key to maintaining compliance and completing effective ESG reviews lies in next-generation technology such as AI. AI can read and understand vast quantities of legal documentation in seconds, flagging key information for lawyers to analyse and incorporate into ESG reports.

Let's imagine, for example, an in-house legal team at a UK-based retailer is conducting an ESG review according to the newly implemented CSDR guidelines. Their supply chain spans the entire globe, from China to Germany and the United States. Using AI would enable this company to improve its overall approach to evaluating its ESG credentials in a few key ways:

1. Understanding and Accountability

Using AI, the company's legal team can have an all-encompassing view of the organisation's entire contractual landscape, irrespective of the volume, complexity or language contracts are written in. This is critical given that multinationals often have agreements written in multiple languages, and the risk of missing something is thus greater. AI can automatically extract key information - perhaps, in this case, governing laws - present within their documents, allowing lawyers to easily gauge operations and exposure to any volatile regions or countries.

Going one step further, with its close understanding of human language and the actual meaning and context behind legal terminology, AI could instantly flag all examples of, say, anti-bribery clauses present across the business's contractual landscape. Perhaps even more crucially, it could highlight where those key provisions are not included, giving lawyers an opportunity for redrafting immediately or, at least, when the contract finishes its agreed term.

Understanding what is contained across one's own contracts is crucial if accountability is to be maintained, since it is becoming increasingly clear that it is no longer enough to simply report on ESG data; legal teams must be prepared to act when it comes to adapting to changing regulations. In fact, COP27 made it clear that lawyers must remain responsive to taking on a strategic role in guiding ESG efforts. With this call to arms in mind, AI provides legal teams with complete visibility into their company's ESG standing, ensuring lawyers can provide informed, strategic counsel on their current ESG profile and relevant forward-looking initiatives to its C-suite.

2. Positioning

Perhaps most importantly in the current uncertain economic climate is the ability of AI to adapt to ongoing regulatory changes, and to inform decision-makers on how to best prepare for future changes in rules or regulations. Indeed, sophisticated AI can be updated simply by being shown an example of how a written 'concept', such as a contractual clause, should look. In this way, AI and lawyers alike can keep up to date with rapidly evolving ESG regulations on-the-fly, ensuring they are integrated throughout incoming contracts that are still under negotiation, for example.

When investing in technology that can help legal teams - and indeed, businesses more generally - alleviate the regulatory burdens facing them, AI's ability to learn and adapt in light of newer data, as well as form an understanding of legal meaning, results in it being the only method to ensure future-proofing. We only have to look at the sanctions recently imposed on Russia, which have required legal teams to take immediate action to assess their level of exposure to sanctioned entities, to appreciate the value of AI as opposed to older, rules-based technologies. In this case, AI would not only surface documents in the Russian language, but also any reference to Russian places or legal structures within English or other language documents.

Much of this insight is achieved through AI's conceptual understanding of language. So, if a lawyer searched for mentions of ‘Russia' within their documents, AI could, for example, recognise that words such as 'Russian Federation' or 'Moscow' would likely also be relevant to the search, and thus should be included. Most importantly, an organisation could proactively define its own geographical risk parameters to include documents relating to other nations that may be jeopardised by conflict.

The remit of in-house legal teams continues to expand, with enhanced ESG reporting marking the latest addition to an ever-growing list of legal and compliance responsibilities. In a year that has seen countless regulatory and policy shifts, AI is no longer a 'nice to have,' but rather a 'must have'. Empowering legal teams with AI will prepare them to lead during such uncertain times and will free up lawyers to deal with the legal and commercial implications that regulatory upheaval may carry.

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