Key insights:

• • • Elevate AI governance to the board 鈥� Companies should tie their AI deployment to enterprise risk management with explicit KPIs for energy intensity, water withdrawals and consumption, and supply鈥慶hain human rights.

    • Make transparency a competitive asset 鈥� Implement auditable disclosures on AI workload footprints, water stewardship, and supplier traceability, and then link executive compensation and vendor contracts to measurable efficiency and resiliency outcomes.

    • Demand transparency despite practical challenges 鈥� Although demanding transparency from suppliers may not be practical now due to current challenges, collectively asking for detailed information sends a notable requirement to AI infrastructure providers that the company is seeking to drive change and preserve trust in an AI-driven economy.

AI now sits at the center of corporate sustainability governance as it supercharges data gathering, analytics, and reporting. Indeed, there is is areas of energy optimization, emissions monitoring, land鈥憉se assessment, and climate scenario analysis.

At the same time, AI’s rise is colliding with sharply growing electricity and water demands from data centers and concerns over geopolitically exposed supply chains. The governance challenge for companies therefore is to manage risk at this intersection. This means treating AI as a capital鈥慽ntensive, cross鈥慴order infrastructure program whose environmental footprint and supply dependencies must be actively governed.

Why electricity and water are now board鈥憀evel AI risks

AI has turned electricity and water from background utilities into constraints that should be dealt with on the board level. Indeed, AI magnifies water risk across cooling, power generation, and chip manufacturing. This makes sourcing and efficiency choices strategic imperatives for many organizations.

Electricity demand 鈥� AI use and the data centers that power the tools already account for a significant and rising share of electricity use in the United States. The finds , a figure poised to grow as AI workloads scale. Forward鈥憀ooking projections from the U.S. Department of Energy indicate that by 2028 could be attributed to AI workloads.

If you translate those projections into , you can get an idea of the potential magnitude of the problem. Together, these sources suggest that the fastest鈥慻rowing part of AI’s energy appetite is not just for training models, but the steady, pervasive inference capabilities听required to power AI features in everyday products and operations.

Direct and indirect water use 鈥� Data centers powering AI also negatively impact local water footprints. It shows up in three places: i) data鈥慶enter cooling; ii) the electricity feeding those facilities, including thermoelectric and hydroelectric generation; and iii) AI’s own hardware supply chain. In regions already facing scarcity, these demands compound local stress. For example, the average per capita water withdrawal is 132 gallons per day; yet a large data center consumes water .

This makes data centers one of the听 in the country, which incidentally is home to . At the end of 2021, around听 from moderately to highly stressed watersheds in the western US. This is a common situation as well.

Geopolitical exposure 鈥� The hardware that powers AI includes advanced logic and memory chips, which depend on concentrated manufacturing nodes and supply chains with access to critical minerals. Extraction and processing of inputs, such as lithium and cobalt, are often clustered in jurisdictions with elevated levels of human鈥憆ights, environmental, or geopolitical risk. This potential amplifies exposure to export controls, sanctions, or resource nationalism, especially directly for companies鈥� supply chains and indirectly for those companies using AI.

Companies need to ensure their communication on legal and policy issues are pointing in the same direction in regard to these concerns. Indeed, companies need to deepen value鈥慶hain due diligence while navigating evolving supply鈥慶hain and AI鈥憇pecific regulatory regimes.

Recommended actions for companies

These intersections have clear implications for corporate governance. AI’s promise to accelerate decarbonization, improve transparency, and strengthen decision鈥憁aking will be realized only if leaders can properly manage the physical, political, and social realities underpinning the technology. Recommended actions to manage risk in areas in which AI and geopolitics converge include:

Demand transparency in electricity and water consumption of AI infrastructure 鈥� Companies building AI infrastructure need to conduct AI workload planning. Companies using AI can demand transparency of their suppliers鈥� 24- to 36-month forecast of training and inference by region with overlays in grid carbon and local water stress to better understand their indirect environmental impacts.

De鈥憆isk impact by incentivizing clarity in supply chains 鈥� Companies using AI can begin asking AI infrastructure companies to provide due diligence in tier 2, 3, and 4 suppliers, all the way down to smelters, refiners, and miners to make sure that companies are not indirectly contributing to environmental and social harms.

The bottom line

While these recommendations generally align with evolving corporate practices in sustainability and risk management, the challenge of implementation will vary based on the company’s size, influence over suppliers, and existing governance structures. The most challenging aspect will likely be achieving transparency and clarity in supply chains, which requires cooperation from suppliers and the investment of potentially significant resources.

At the same time, however, if more companies collectively ask for this level of detailed information from their AI infrastructure providers, it will send a notable demand signal. Indeed, AI is both a sustainability tool and a sustainability liability, but its benefits will be realized only if leaders confront the physical and geopolitical constraints that make AI possible.

Those companies that begin asking for this level of transparency can preserve the trust that underwrites their license to navigate successfully in an AI鈥慸riven economy.

You can find out more on the sustainability issues companies are facing around the environment here

Defining Scope 4 emissions

First, it is important to note that although the term Scope 4 is utilized, it is an unofficial term and is not recognized within the , which is the most widely recognized carbon accounting methodology. Generally speaking, Scope 4 captures emissions related to a company’s products or services that can be avoided, facilitated, advertised, or advised. They are industry-agnostic and can apply to any business whose products or services can generate emissions throughout their life cycle. A few companies already are of their Scope 4 emissions.

For more companies to comply, however, they need to better understand the components of Scope 4 emissions, such as:

Avoided emissions 鈥� This component of Scope 4 emissions is the most common and is calculated based on the environmental impact in the production of a product or service across its lifecycle. For example, avoided emissions are found in the production of reusable water bottles, as compared to single-use plastic bottles. In this way, Scope 4 considers the full life cycle of each product 鈥� in this case, reusable bottles, which despite requiring more resources initially, can lead to fewer emissions over time as they displace the need for producing and disposing of multiple single-use bottles.

Facilitated emissions 鈥� This is related to avoided emissions and occurs in cases in which professional services firms work with their clients to increase or decrease those emissions. For example, an engineering firm’s design of a new building development can facilitate avoided emissions by reducing operational emissions and lower those emissions that occur during the production and transportation of goods, often referred to as embodied emissions. The design firm also can base the design on innovative low-carbon materials thereby further reducing the embodied emissions associated with the building’s construction phase.

Advised emissions 鈥� The concept of advised emissions captures those created by professional services firms when they are working with external clients in pursuing projects that increase or reduce a client鈥檚 GHG footprint. Law firms, for example, often provide services that can indirectly affect GHG emissions. A firm that supports permitting and litigation matters for companies involved in fossil fuel projects is an example of increasing advised emissions, while legal support for regulatory compliance work on a renewable energy project is an example of a reduction in advised emissions.

Advertised emissions 鈥� This group of emissions arises from sales growth in response to an advertisement campaign. Advertising agencies can indirectly influence emissions through campaigns that increase the sales and production of consumer goods. A successful advertisement that boosts the demand for a high-emission product can lead to an increase in Scope 4 emissions due to the additional production required to meet consumer demand. Conversely, a campaign that helps to increase consumption of products that lower emissions can be classified under this category as well.

Scope 4 emissions reporting unlikely to emerge from periphery

Despite their overall positive intent, Scope 4 emissions are likely to remain on the periphery for some time into the future, according to , a sustainability expert and managing partner at Agendi, a boutique climate and sustainability consulting firm. First, calculations are laborious. 鈥淎 credible calculation requires careful consideration to include the full boundary of emissions impacts,鈥� Walsh states, adding that for example, helping clients account for their avoided emissions that are associated with their products, services, or decisions for credible integration into public reporting need to include many factors.

First, a baseline of emissions has to be established for the traditional activity or product that is being replaced along with an evaluation of any additional stakeholder that may share the claim. Second, a comparative lifecycle assessment has to be used to assess all stages of the environmental impact of a product or action throughout its lifecycle. Then, a comparison of the client’s product or service to the baseline has to be conducted to quantify the avoided emissions.

鈥淎 credible calculation requires careful consideration to include the full boundary of emissions impacts… [that contains a holistic analysis] “to consider potential contributing factors and unintended consequences that might arise.鈥�

With the calculation of avoided emissions complete, Walsh explains, a holistic analysis is then undertaken to 鈥渃onsider potential contributing factors and unintended consequences that might arise.鈥� Finally, strategic guidance is provided on how to incorporate these results into public reports with credibility as well as to ensure transparency on the methodologies used to quantify the reported emissions.

Clearly, the decision to undertake Scope 4 emissions requires accuracy and transparency and entails some risk, such as greenwashing accusations. For companies that are looking to voluntarily report on avoided, facilitated, advised, or advertised emissions, Walsh recommends that they ensure their calculations are based on a consequential accounting approach (such as such as the by the World Business Council for Sustainable Development; the developed by Net Zero Compatible Innovation Network; and the World Resource Institute鈥檚 working paper .)

These works consider all unintended consequences while explicitly providing transparency in the methodologies and assumptions in an accompanying document or statement. 鈥淲e always recommend our clients be fully transparent in terms of the methodology used and disclose all assumptions used throughout the calculations to further build stakeholder trust,鈥� Walsh says.

Looking forward, Walsh says that she believes that detailed sector-based methodologies are necessary for credible Scope 4 emissions reporting, but that they are not likely to become commonplace within the next few years. Indeed, many companies are only just coming to grips with their traditional three-Scope emissions inventories and are not ready to expand to non-traditional emissions or accounting boundaries.

Yet, Welsh adds that she is hopeful. 鈥淪cope 4 emissions do have a place in demonstrating organizations鈥� transition plans as part of details of climate-related solutions鈥� and in their current use, are meant 鈥渁s a means to show positive contribution to solutions for the future.鈥�

As a result, it鈥檚 perhaps not surprising that many mid-size and large law firms now have dedicated information governance (IG) policies in place. For many firms, however, the issue comes with taking the next step: What do we actually do with our IG policy to help guide the firm?

A session at the听 titled, You have an IG policy in place, now how do you manage compliance? looked to help answer that key question. The five law firm panelists, all members of a group known as the Law Firm Information Governance Symposium that has developed on the subject, noted that while many firms may pay lip service to IG concepts, a functioning program can take a lot of hard work.

鈥淚n my career, IG is sometimes not so easy to accomplish,鈥� said Leigh Isaacs, Senior Director of Information Governance at .

Achieving buy-in with communication

Jill Sterbakov, Information Governance Compliance Attorney at , said she often gets the question of how often a traditional records room can transform into a modern information governance team. She estimates that 鈥渋f you can secure the buy-in you need, the resources you need, in a large firm it should take about 3-5 years to develop an advanced program,鈥� but that鈥檚 with one caveat: It requires full-firm buy-in.

鈥淵ou need to sell before you can build,鈥� Sterbakov added, noting that this doesn鈥檛 just mean going to GCs or managing partners for leadership input. 鈥淚f you鈥檙e walking into an organization and you鈥檙e building an IG program, you really need to go to the practice group leaders and sell to them.鈥�

Isaacs agreed, noting that data professionals need to 鈥渦nderstand the culture and politics of the firm so you really know where to start.鈥� She said that being a good listener is an underrated key skill. 鈥淚f I鈥檓 taking a position where I鈥檓 coming in and telling you what medicine to take because it鈥檚 good for you, I might get some resistance to that,鈥� she explained.

This means that all proper IG plans should include both two-way communication and a proper information program around the firm鈥檚 information governance goals. Karen Allen, Information Governance Manager at , called this the 鈥渦ser education鈥� portion. 鈥淚 try to avoid the word training because when you say training, people run and hide,鈥� Allen said, adding that this education around proper IG etiquette should be baked into every interaction. 鈥淚t鈥檚 not one and done, [or] a once-a-year type of thing.鈥�

In fact, law firm IG professionals should think outside the box about ways to get this training across, she explained. In one conversation, she noted, she brought actual Legos into the office to illustrate a point about how cloud architecture works.

Sterbakov also added that the firm鈥檚 internal calendar has become her friend. 鈥淚 can see, oh the Philadelphia L&E group is meeting on March 3. So, I can go to the practice group leader and say, can I grab five minutes of that meeting?鈥�

Technology and obligations

Panel moderator Michele Gossmeyer, Global Director, Information Governance, Risk and Compliance at , noted that law firms can鈥檛 lead with technology 鈥� it鈥檚 people and processes that need to drive technology鈥檚 use. That said, the panel agreed that the technology is an important component to making sure an IG program runs smoothly.

That鈥檚 why one of her most crucial relationships within the firm is with its IT team, Allen said, citing an example from her previous firm of building a dashboard with the IT staff to identify where data lived on employees鈥� computers. The dashboard allowed her to identify potential governance problems, such as: 鈥淚 have a senior partner who has 40 gigs on my documents on their desktop and 12 documents in the DMS.鈥�

That visibility was only possible with the technology and collaborative efforts with IT, Allen said. 鈥淭hey know where a lot of the stuff is, even if they don鈥檛 know why it鈥檚 important to us.鈥�

Isaacs agreed, saying that she even brought IT into her IG education efforts, adding that 鈥渘ow we鈥檝e got a nice cross-section of training.鈥�

Data maps and visibility into data usage that technology provides can provide ammo in tough conversations with leadership, Sterbakov of Morgan Lewis said, citing, for example, that it鈥檚 鈥渘ot just this one guy [putting things on C-drive] but 50% of the firm is doing this.鈥� She added that people 鈥渁lways think they鈥檙e a unique situation鈥� to get away with non-compliance but explaining the importance of compliance with 鈥渢his is what we鈥檙e telling our clients and our insurer鈥� can help get them back on track.

Indeed, the panelists pointed to data compliance requirements within outside counsel guidelines (OCGs) as a periodic burden, but also as a potential weapon for enforcing IG policies. James Merrifield, Director of Information Governance & Business Intake at , touts OCGs as a way to drive buy-in, 鈥渂ecause now it鈥檚 not just important to the firm, but to the client.鈥�

Sterbakov noted she reads every OCG that comes into the firm 鈥渁nd they鈥檙e getting more and more sophisticated what they鈥檙e asking to do. [And] if we accept those outside counsel guidelines, we鈥檙e telling them we鈥檙e doing that.鈥�

Sound overwhelming? It certainly can be, especially as data governance technology is still continuing to evolve. But Merrifield said his key to satisfying disparate IG requirements within OCGs is to start small, perhaps by taking the firm鈥檚 largest 20 clients and certifying those requirements are satisfied first before building out.

Indeed, taking the next step in IG can potentially difficult, especially for those firms without ample technology or staffing resources. But Wiley鈥檚 Allen 鈥� herself the sole person fully responsible for IG within her firm 鈥� said data and records professionals shouldn鈥檛 be afraid to ask for help. 鈥淚 have tentacles everywhere else that can help me get done what I need to get done,鈥� she said. 鈥淓ven as a party of one, that doesn鈥檛 mean you can鈥檛 staff your program.鈥�