Why intellectual property should be a key component of your ESG agenda

Pitfalls to avoid and opportunities to grasp 6 min read

A strong intellectual property (IP) strategy is critical to safeguarding innovation, enhancing brand equity, mitigating risk, promoting collaboration and creating social value. As such, organisations must prioritise robust IP governance and practices that align with, and support, their environmental, social and governance (ESG) goals.

In this Insight, we unpack a number of IP considerations that should be integrated into a comprehensive ESG approach.

Key takeaways 

• Organisations should take steps to ensure that any IP rights developed in connection with their ESG strategies, or which are otherwise used as part of these strategies, are appropriately protected in a manner that aligns with their broader organisational goals, including through trade mark registrations and/or patents and, where appropriate, enforce those rights against infringers.
• Organisations should avoid infringing third-party IP or engaging in misleading or deceptive conduct in connection with their ESG strategy. They should also undertake appropriate searches in advance of using particular IP and ensure they maintain a rigorous process for the review of public-facing materials.
• Organisations should perform an IP evaluation, formulate IP guidelines and provide an account of IP procedures. This will ensure a comprehensive understanding of the worth of their IP, enable appropriate safeguarding of assets and establish enhanced governance, innovation and ethical business practices.

Who in your organisation needs to know about this?

Executives; marketing teams; in-house counsel

The role of IP in ESG

An effective IP strategy can uniquely advantage a firm's ESG positioning and differentiate an organisation from its competitors. For example, a successful ESG strategy will often require substantial investment in the development of innovative technologies. As such, an organisation must ensure that material IP rights that are developed in connection with the strategy, or which are otherwise to be used as part of the strategy, are appropriately protected in a manner that aligns with the organisation's broader goals. Securing registered IP rights is not only an important step in ensuring that the organisation can recoup its investment in innovation, but it can also facilitate partnerships and collaborations amongst companies, which can in turn lead to more effective solutions in overcoming environmental and social challenges.

There are many different ways organisations can implement ESG in their business. By developing innovative products and services, for example, organisations can help to address social and environmental challenges—such as developing renewable energy technologies, medical devices or water filtration systems that can improve people's lives. Organisations can also work with third parties to address their ESG goals collaboratively through the licensing of their IP. This can be an effective way to harmonise synergies and better achieve product and service development goals. In turn, investing in ESG can also help build the goodwill associated with an organisation's brand, thereby increasing the value of that IP.

When it comes to ESG, there is no one-size-fits-all approach. However, whichever strategy is adopted, IP considerations will certainly have a role to play.

Five key considerations for your IP-ESG strategy

An organisation's IP approach will vary depending on both the IP at issue and the organisation's specific ESG strategy. However, as a starting point, the following five measures should be considered:

1. Register key trade marks: where possible, organisations should seek appropriate trade mark registrations for any key logos or branding that they intend to use in connection with any ESG-related activity. This is of particular significance in the context of an ESG strategy to ensure an organisation's brand is appropriately protected given the time, money and resources invested in building goodwill. Organisations should also ensure that the scope of any such trade mark registrations accurately reflect the ways in which they intend to use the relevant brands or logos.
2. Ensure branding is not misleading or deceptive: it is also crucial for organisations to ensure that any trade marks and logos they use do not convey unsubstantiated environmental or sustainability claims. Misleading or deceptive branding not only undermines consumer trust but also risks legal consequences.
   
   A recent example of how a green (or related) claim could give rise to liability under Australian law was seen in RB (Hygiene Home) Australia Pty Ltd v Henkel Australia Pty Ltd [2022] FCA 1042. In that case, Henkel had offered dishwashing gelcaps for sale in packaging bearing a green logo with the environmental callout: 'Biodegradable and 100% water-soluble film'. RB claimed that, by doing so, Henkel had engaged in misleading or deceptive conduct by misrepresenting to consumers that the entirety of the gelcap was biodegradable, when in fact it contained non-biodegradable ingredients such as perfumes and dyes. During the course of the litigation, Henkel amended the logo to state 'biodegradable film' and '100% water-soluble film', and undertook to the court not to use the unamended form of the logo. Although the court ultimately found that the amended logo was not misleading or deceptive, the case is a reminder of the importance of ensuring that any claims conveyed through trade marks and logos can be substantiated, and do not overstate the position. Read our Insight on mitigating greenwashing risk and our Insight on ASIC's uptick in greenwashing regulatory interventions.
   
   
3. Safeguard any ESG-related technologies: innovation is a crucial driver of both economic growth and societal progress. However, without patent rights, companies may be hesitant to invest in research and development as they lack a secure way to recoup their investments. This hesitancy could lead to a lack of innovation, resulting in fewer solutions to environmental and social challenges. Therefore, it is essential for organisations to safeguard their investments in 'green' or other technologies that form a part of their ESG strategy by securing patent registrations wherever possible for their key inventions.
   
   
4. Enforce IP rights: strong IP enforcement can help mitigate risks associated with IP infringement such as counterfeit products, theft of trade secrets and other unauthorised use of IP assets. These risks can harm an organisation's reputation and financial performance, as well as the environment or society more generally. For example, counterfeit products, typically produced under exploitative or harsh labour conditions, may be less safe or effective than genuine products. Unauthorised use of IP assets may also lead to less innovation and slower progress in addressing environmental and social challenges.
   
   
5. Consider appropriate licensing strategies: organisations should consider how best to deploy their IP assets to advance their ESG goals, including by licensing the use of their IP to third parties. There is a range of ways in which this can be achieved. For example, organisations may wish to enter into collaboration agreements with third parties permitting their IP to be used for certain limited purposes, whilst retaining control over and ownership of the relevant IP. This approach may be appropriate, for example, where organisations each bring different skillsets and capacities to the table, thereby enhancing the potential for problem-solving and innovation. Depending on the circumstances, organisations may also wish to consider making certain of their IP available on an open source basis, thereby facilitating collaboration. This is an approach we have seen gain momentum in the climate change movement.
   
   However, there are risks under either approach. In the case of open source licensing, for example, organisations may have limited ability to subsequently commercialise the licensed IP and any developed IP that results from the collaboration. Whatever the strategy adopted, organisations should carefully consider the legal and commercial risks involved.

Respecting third party IP rights

In addition to protecting their IP rights in the context of an ESG offering, organisations should also ensure they do not misuse or infringe any third party IP. Infringement claims can give rise to substantial financial liability and reputational damage. A strong IP management program can help to mitigate the risk of infringement and avoid litigation.

There is a range of ways in which potential IP infringement can occur in the context of ESG, including where an organisation seeks to develop 'new' IP but uses existing third party materials, or where the organisation uses third party IP without a licence or in a manner that is beyond the scope of its licence.

However, there are also a number of ways an organisation can arm itself against the risk of potential IP infringement, including by:

• undertaking appropriate freedom-to-operate searches prior to using any new IP
• to the extent that an organisation does wish to make use of a third party's IP; (including, for example, any logos or trade marks), ensuring that the organisation has an appropriate licence from the owner, and that the proposed use falls within the scope of that licence; and
• implementing rigorous processes for the review by in-house counsel and/or external advisers of any public-facing materials prior to publication.

Where an organisation commissions a third party to develop IP, the position under Australian law is that, in general, the rights to that developed IP will be owned by the third party. As such, organisations must ensure they are granted appropriate rights to the relevant IP from the third party (ie they should ensure they are expressly assigned the IP rights, or are otherwise granted a licence that permits them to use the IP as contemplated).

Organisations should also take care to understand the precise scope of any licences they are granted in respect of the developed IP, including the extent of any exclusivity arrangements, as well as what rights will be retained by the licensor. An interesting example in this regard is the famous 'Fearless Girl' statue, which was commissioned by US-based investment management company State Street Global Advisors for the purposes of promoting gender diversity in senior business leadership. Under the terms of the agreement between State Street and the artist, State Street was granted an exclusive licence in respect of certain uses of a 2D representation of the statute in connection with gender diversity issues in corporate governance and in the financial services sector. However, these rights did not allow State Street to prevent the use by a third party of a 'Fearless Girl' replica in connection with a campaign for workplace gender equality.

Actions you can take now

There are several proactive steps organisations can consider to align their IP practices with their ESG goals.

• IP audits: organisations can leverage their regular IP audits to gain insights into the value of their IP assets and identify avenues for innovation that align with their ESG objectives.
• IP policies: organisations can review and update their IP policies to ensure they are aligned with their broader ESG strategy, and that ESG-related technology is safeguarded and protected effectively.
• Reporting on IP practices: organisations can enhance their ESG reporting by including information about their IP practices. This may involve disclosing details about their IP policies, procedures, the value of their IP assets and their efforts to protect and enforce their IP rights. Such reporting demonstrates a commitment to better governance, innovation and responsible business practices.