The Relevance of ESG in Law Practice

 

 

The acronym ESG refers to Environmental, Social and Governance criteria — the efforts made by a company, a business, or a profession to have a more sustainable operation, in which environmental and social concerns do not succumb to profit. The origin of the term dates back to 2005 and appeared for the first time in the “Who Cares Wins” report, an initiative of the UN (United Nations). Some examples of ESG practices to consider are:

• Reduction of carbon emissions
• Reducing air and water pollution
• Management of waste produced (environment)
• Customer satisfaction and worker well-being
• Diversity and inclusion in the workplace (society)
• Corporate conduct
• Internal compliance policies, and
• Risk management and mitigation (governance)

Let’s see what each of these pillars — that should guide ESG practices — mean.

Environmental: This aspect refers to the environmental footprint of a company, examples of which include carbon emissions and their impact on global warming, air and water pollution, reduction of waste produced, etc. Some measures that a company can adopt are discontinuing a product due to high carbon emissions, searching for less polluting energy sources, changing machinery to reduce water consumption, etc.

Social: Regarding the social aspect, ESG practices seek compliance in the company’s relationship with its stakeholders — employees, suppliers, customers, and society. In addition to the necessary respect for labor legislation, an ethical relationship must be pursued, which respects diversity in the work relationship.

Governance: Regarding this aspect, management and anti-corruption policies, a code of ethics, a reporting channel, and other resources intrinsic to compliance must be present.

Building the Sustainable Law Firm: Developing and Implementing an ESG Strategy

With continued pressure from human rights organizations and socially conscious shareholders, investors, clients, and employees, there is little doubt that every law firm or individual practice must have environmental, social, and governance (ESG) issues at the core of its business strategy.

However, the implementation of an ESG strategy should not be a box-ticking exercise. It requires firm-wide commitment and involves the full integration of ESG criteria into the strategy, operations, and ethos of the firm or practice, in relation to both the firm itself and its dealings with clients.

Increased regulation, stronger business ethics, and attitudes to climate change, environmental protection, employment standards, sustainable finance, risk and governance, community engagement, corruption, and human rights are evolving at an unprecedented rate. As a result, the development of robust, long-term ESG initiatives in these areas can provide law firms and practices with many benefits, including opportunities to:

• Gain competitive advantage;
• Make cost savings due to operational improvements;
• Attract, engage and retain clients and employees;
• Increase value and service offerings to clients through advising them on their own sustainability transformation;

ESG and Law Practice: What to Do and How to Do It

As ethical considerations and sustainable practices become increasingly crucial for both clients and businesses, the legal sector finds itself under scrutiny for more than just its ability to provide a good service. The need to “refocus” activity by placing people and the planet at the center of the organization’s strategy leads them to view sustainable development in a “holistic” and “transversal” way.

This focus can be materialized through the implementation of a set of measures, ranging from human resources policies, to mitigating the carbon footprint, promoting the physical and mental well-being of employees, and covering the value chains of which they are part, including suppliers. Whether in a large law firm, in a small office, or in individual practice, here are some measures to implement:

• Put People First: We are talking about both employees, clients, and communities, monitoring the social impact generated by the activity, and supporting clients and partners so that they also develop sustainable practices. The firm should also increase skills and quality of life, encouraging the adoption of a set of ESG practices among employees and stakeholders, creating policies linked to parenting, career models, and gender parity, and promoting policies linked to human rights, inclusion, diversity, and equity;
• Preserve Resources: (i) maximizing organizational efficiency, (ii) creating circular economy structures, such as leisure spaces that allow, in a logic of proximity, sharing with the community, while taking advantage of internal resources (e.g., urban gardens, in-house), (iii) using available technology and innovation to facilitate administrative processes, (iv) promoting shared and environmentally sustainable mobility (platforms for sharing trips to and from the office and the use of ‘green’ vehicles), and (v) adopting responsible digital behaviors that allow, for example, saving on the use of paper and other consumables;
• Incorporate ESG in Decision-Making: Integrate ESG considerations into the core decision-making processes. This involves evaluating potential suppliers (helping those who would not pass today’s screening to modernize) based on their sustainability practices, ensuring the firm’s operations are environmentally friendly, and actively participating in initiatives that promote social responsibility;
• Transparent Reporting: Law firms should embrace transparent reporting on their sustainability initiatives. Clients want to know what steps firms are taking to reduce their environmental impact, promote social justice, and adhere to ethical governance practices. Providing clear, accessible, and regular information about progress made in the ESG area builds trust and demonstrates accountability;
• Strategic Partnerships: Collaborate with organizations and initiatives that align with ESG values. By forming strategic partnerships with sustainability-focused entities, law firms can amplify their impact and contribute to broader societal and environmental goals. This not only enhances the firm’s reputation but also creates a network of like-minded collaborators;
• Continuous Improvement: Sustainability is an ongoing job, and law firms should commit to continuous improvement. Regularly reassess and enhance ESG initiatives based on feedback, industry best practices, and evolving societal expectations. This interactive approach demonstrates a genuine commitment to sustainability rather than a superficial “checkbox” exercise;
• Adapt to Different Client Segments: Recognize the diversity in client preferences by tailoring the approach to different segments. Younger clients and businesses may place a higher emphasis on sustainability, while others might prioritize different factors. Understanding the varying priorities allows law firms to personalize their communication and engagement strategies;
• Sharing Experience: Implementing internal training programs and sharing of information, experience, and good practices with clients, will provide all areas of practice with knowledge about topics within the scope of sustainability. This could include webinars, articles, and workshops that shed light on the firm’s commitment to ESG values;
• Engage with Social Media: In the age of digital communication, law firms should leverage social media platforms to communicate their ESG efforts. Sharing updates, achievements, and insights related to sustainability not only keeps clients informed but also contributes to a positive public perception.

Additional Data and Insights

The Growing Demand for ESG Expertise: According to a 2022 Thomson Reuters report, over 60% of major U.S. law firms now have dedicated ESG practice areas, up from 40% in 2021. This rapid growth reflects the surging client demand for ESG-related legal services. A 2023 PwC survey found that 76% of corporate legal departments expect their need for external ESG counsel to increase over the next three years.

Benefits of ESG Integration for Law Firms

• Attracting and Retaining Talent: A 2022 Deloitte survey revealed that climate change and environmental protection are the top concerns for Generation Z professionals and the third-highest priority for millennials. By 2025, these generations are projected to constitute 75% of the global workforce. Law firms with strong ESG credentials are better positioned to attract and retain top talent from these environmentally and socially conscious cohorts.
• Enhancing Client Relationships: Clients increasingly expect their legal advisors to demonstrate ESG commitment. A 2023 Legal 500 survey found that 82% of corporate clients consider a law firm’s ESG performance when selecting external counsel. By “walking the talk,” firms can build trust and deepen client relationships.
• Driving Innovation and Efficiency: Implementing ESG practices often leads to operational improvements. For example, a 2022 American Bar Association study reported that law firms adopting sustainable practices reduced their energy costs by an average of 15% and paper consumption by 30%.
• Mitigating Risks: Proactive ESG management helps law firms identify and address potential risks. A 2023 Law Society report highlighted that firms with robust ESG policies experienced 25% fewer reputational incidents compared to those without such policies.

Key Strategies for ESG Integration

• Develop a Comprehensive ESG Strategy: Establish a clear ESG vision and set measurable targets. For example, many leading firms have committed to science-based emissions reduction targets aligned with the Paris Agreement.
• Create Dedicated ESG Leadership Roles: Appoint senior partners to oversee ESG initiatives. For instance, Freshfields Bruckhaus Deringer created the position of Global Partner for Client Sustainability in 2020, a move since emulated by many peer firms.
• Invest in ESG Training and Education: Ensure all lawyers are equipped to identify and address ESG issues across practice areas. The International Bar Association recommends that firms provide at least 10 hours of annual ESG training to all attorneys.
• Leverage Technology for ESG Management: Implement ESG data management and reporting systems. A 2023 Legal Technology Survey found that firms using dedicated ESG software improved their ESG performance tracking efficiency by 40%.
• Engage in Thought Leadership and Advocacy: Contribute to the evolving ESG landscape through publications, speaking engagements, and participation in industry initiatives. The Law Firm Sustainability Network reports that member firms engaging in such activities saw a 30% increase in ESG-related client inquiries.

Conclusion

Law firms and practices that recognize the importance of sustainability, adapt to evolving expectations and proactively communicate their ESG efforts, are well positioned not only to meet client demands but also to future-proof their practice in an increasingly conscientious business environment.

These measures bring positive changes in the business, environmental and social impacts in the office — particularly in terms of mental health and work-life balance — and even in financial terms: from the savings implicit in reducing resource consumption, to attracting and retention of people who identify with the purpose, generating high levels of engagement, motivation and productivity.

From the firm’s stakeholders’ point of view, doing the “walk the talk” gives credibility to the law company’s own activity and the advice it provides, placing it in the position of a preferred, strategically aligned partner. After all, it is not possible to provide quality services to customers in these matters without adopting the same attitude regarding your own activity.

The inclusion of ESG practices in the day-to-day routine of law firms is an investment in the future, and is currently a requirement from employees, clients, and partners alike. From the moment they can align themselves to business ethics and a way of being in the world, ESG practices are an indisputable tool for attracting and retaining talent, generating a cohesive culture, and a sustainability mindset.

 

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