Why Law Firms Need To Make ESG a Priority
4.8.2022
ESG[1] is corporate America’s current social responsibility response to people’s widespread fears, anxiety and feelings of discrimination. The initials stand for three nonfinancial factors that, together, “assess how an organization impacts on the environment and society.”[2] It asks companies to look beyond narrow shareholder financial interests to the wider community’s greater good issues.
ESG expands the idea of corporate responsibility to include the values, wishes and needs of employees, suppliers, customers and communities affected by the entity’s processes and products. Law firms are part of the corporate supplier category, working with their clients to incorporate the ‘S’ into meaningful DEI initiatives, the ‘G’ into their governance, and the ‘E’ into measurable actions to decrease their corporate carbon footprint.
Relative Importance
ESG’s importance to corporations is evident in the placement and attention given to the subject in IBM’s table of contents for their summary report sent to shareholders ahead of the 2022 annual meeting. The report contains a separate section summarizing ESG initiatives, and the table of contents has a special “ESG Highlights” box showing the page numbers where key aspects of ESG are explained.[3]
However, it seems to be seen as a less important trend in the legal world, judging by its treatment in several reputable 2022 trend reports:
- The acronym ESG does not appear in the “2022 Report on the State of the Legal Market,” Thomson Reuters Institute with Georgetown Law Center on Ethics and the Legal Profession.
- In the “2022 Client Advisory” from Citi Private Bank and Hildebrandt Consulting LLC, ESG is mentioned in one sentence under the “growth opportunities and challenges by practice area”: “Data/technology/cybersecurity and environmental, social and governance (ESG) will be practice areas to watch.” (p.14)
- In the “2022 The Future of the Legal Industry” from Bloomberg Law, ESG is mentioned in one sentence under “In-House Legal Departments Trends.” Under “From Legal Adviser to Strategic Business Partner,” the last sentence says, “Moving forward as strategic partners, in-house legal departments will also be expected to prioritize diversity, equity, and inclusion (DEI) programs and environmental, social, and governance (ESG) initiatives, as these issues are becoming of critical importance to organizations.” (p.11)
Clients Want Their Law Firms To Walk the ESG Walk
The call for law firms to tackle ESG for themselves and to create integrated attorney groups to answer clients’ ESG questions is coming from all sides. A key outside impetus to understand ESG comes from companies that want and need lawyers’ skills to implement ESG goals. A key internal impetus is the current talent retention crisis and the need for law firm leadership to address workers’ interest in shared values.
Clients and prospective clients want to see law firms “walk the walk and talk the talk.” Prospective clients are “asking questions about your [the law firm] environmental practices, your ethics and your sustainable procurement practices.”[4] They want to hire lawyers who have worked with ESG in their own firms to help them create their company’s ESG structures and policies. “It’s really important for firms to be able to say they have also integrated that [ESG] into who they are as a law firm.”[5] In the 2021 Landscape Survey conducted by the Law Firm Sustainability Network, 87% of respondents said that they received RFPs that included questions about firms’ environmental efforts.
Internally, the post-pandemic “Great Resignation” has led to serious talent retention issues. Lawyers and administrative staff both want more than money, even though that is being thrown at them. They want their employers to share their values about diversity and inclusion, environmental sustainability and access to justice. Law firms struggling to respond appropriately to post-pandemic employee demands for respect, transparency and shared values see ESG as a way to meet these demands.
Most law firms already have separate pieces of ESG in place, e.g., diversity efforts, local community outreach, pro bono assignments. Even before they expand their ESG initiatives, law firms can demonstrate to their corporate clients that they mirror their efforts by bringing the pieces together in a published formal statement.[6]
A broadly distributed and publicized ESG statement not only helps to retain corporate clients, often expanding work from them, it also becomes the basis for marketing efforts to add clients, as “[d]rafting a formal ESG statement would require little effort but provide a competitive advantage in attracting clients and holding firms accountable to the ideals that drive them.”[7]
ESG Practice Groups
Large international firms are also being asked to create practice groups to guide clients’ ESG activities, financial investment risk assessments and responses to the ever-growing crop of national and international regulations. According to a 2020 desktop survey by The Blended Capital Group, over 50 law firms worldwide offer integrated ESG services. For example:
- Clifford Chance has an ESG board composed of lawyers from finance, M&A, employment law and litigation practice groups plus geographic representation of the firm’s international network.[8] Other relevant ESG expertise areas include corporate governance, capital markets, pensions and environmental law.
- Freshfields “structured its sustainability practice to advice [sic] clients on four key areas which [the firm] sees as strategic priorities and to which the firm brings particular technical legal know-how of the laws and regulations.”[9] The four areas are: climate change, sustainable finance, human rights and corporate governance.
ESG Standards, Measurements and Reporting Requirements
Norman Clark, quoted in an article in Law360, says: “One of the clearest markers of firms with a strong approach to social impact is a written strategy incorporating it into their strategic objectives.”[10] These firms have thought through and can answer questions such as: What are your ESG-related goals? What targets will you go after? Where does leadership stand on this? How much time, money and resources are you willing to invest in ESG initiatives?
Many firms begin their ESG programs with sustainability efforts because the targets are obvious, low-hanging fruit that can almost immediately yield results. “The key to law firm sustainability is taking a measured approach, and systematically looking at firm functions and departments to learn where the biggest impacts can be made using measurements and engagement as a guide.”[11] A growing number of education opportunities, self-assessment tools and measurement techniques are available. These include:
- The NYSBA Business Law Section’s ESG Committee, tasked with educating firms about best practices for developing the two sides of ESG involvement;
- The Law Firm Sustainability Network, which provides knowledge, standards and measurements about environmental sustainability programs to law firm and law department members and the general public (one of their courses identifies the “10 elements of highly effective sustainability programs”);[12] and
- The International Bar Association Law Firm Management Committee, which has produced an “ESG Toolkit for Law Firms” (2021).
The Law Firm Sustainability Network ties these efforts back to the reasons for embracing ESG:
As sustainability continues to become increasingly more important to clients, employees and communities, it will become more integrated into law firm business strategy and planning, not only employing [sic] for cost-cutting measures and operation efficiencies, but for talent retention, client relationships and strategic advantages in the long-term growth of the firm.[13]
Law firms of all sizes, even if they don’t serve ESG-motivated clients, per se, should think about incorporating some ESG goals into their mission:
Firms that are slow to adapt to the new reality are ensuring that they will be left behind by firms that are able to align their purpose with those of their clients, employees and communities. The world is moving in one direction: more sustainability, more accountability, more responsibility. You can no longer be just left alone and pretend that nothing’s happening around you.[14]
Carol Schiro Greenwald is a marketing and management strategist, trainer and coach. She is the author of “Strategic Networking for Introverts, Extroverts and Everyone in Between” (ABA, 2019) and “Build Your Practice the Logical Way – Maximize Your Client Relationships (with Steven Skyles-Mulligan, ABA, 2012).
[1] Definition of ESG: E stands for environmental, defined as “the effects on the physical, natural environment,” such as climate change, extraction and use of raw materials, carbon emissions, waste and pollution and effects of human activity on biodiversity. S stands for social, defined as the entity’s impact on employees and other communities including shareholders, suppliers and clients. It includes factors such as respect for human rights, consumer protections, data protection and privacy, diversity and inclusion, employee relations and working conditions, health and safety. G stands for governance, which includes “making sure there are systems in place to ensure accountability within a corporation.” It involves factors such as involved leadership, executive compensation, board diversity, audits and tax strategy, transparency of processes and procedures, whistleblowing and anti-bribery/corruption policies.
[2] Bristol Law Society, Landmark Information: What is ESG and What Does It Mean for Law Firms, https://www.bristollawsociety.com/what-is-esg-and-what-does-it-mean-for-law-firms.
[3] IBM, 2022 Notice of Annual Meeting and Proxy Statement.
[4] Jacqueline Bell, As Social Impact Becomes the Test, Firms Asked To Step Up, Law360.com, Nov. 1, 2021, https://www.law360.com/articles/1434747/as-social-impact-becomes-the-test-firms-asked-to-step-up.
[5] Id.
[6] Id.
[7] Id.
[8] Sophie Yantian, Why ESG Is Rising to the Top of the Agenda for City Law Firms, Legal Cheek, Aug. 27, 2021, https://www.legalcheek.com/lc-careers-posts/why-esg-is-rising-to-the-top-of-the-agenda-for-city-law-firms.
[9] Natalie Runyon, Increase in Clients’ ESG Transparency Is Driving Law Firms To Create New Sustainability Practice Areas, Thomson Reuters, June 9, 2021, https://www.thomsonreuters.com/en-us/posts/legal/esg-transparency-law-firms.
[10] Norman Clark, quoted in Jacqueline Bell, supra note 6.
[11] Id., 8.
[12] Gayatri Joshi, Law Firm Sustainability: Creating a Robust Sustainability Program, 10 Elements of Highly Effective Programs, GLA ALA Magazine-Leadership Exchange, Fall 2018, pp. 8-14.
[13] Id., 14.
[14] Olga Ivannikova, quoted in Jacqueline Bell, supra note 6.
