In the current environmentally conscious climate, it seems appropriate to describe ESG (environmental, social and governance) responsibilities as the new CSR (corporate social responsibility) – and the primary policy focus for law firms to incorporate into the day-to-day running of their business. This note explores what ESG involves in relation to the environmental piece, how firms can improve their approach to that and why it should be taken seriously.
Where is the demand coming from?
ESG became popular in the private equity world in the early 2000s as principles of responsible investment – the term was first used in a study for the UN labelled “Who Cares Wins” in 2005. Over the past decade organisations have been paying increasing attention to the environmental aspects of ESG as criteria to measure business sustainability. As a banking solicitor, I see the responsibilities arise in finance transactions and in March 2019 the Loan Market Association published the Sustainability Linked Loan Principles, which lenders use to incentivise borrowers to improve upon their ESG performance in return for lower interest rates or finance costs.
However, organisations are no longer primarily concerned with ESG criteria solely for cheaper financing or equity investment. Advisory firms, in particular law firms, are experiencing a demand for better ESG performance from a multitude of stakeholders. Employees are not only advising business clients on ESG, but demanding better performance from their own firms. It is commonplace for clients to ask about the sustainability practices of their legal, financial or tax advisors during pitches or in tender documents.
As a result, akin to CSR, many law firms now have a staff member or committee responsible for overseeing environmental policy or ESG. The growing movement has led to over 180 law firms signing up as members of the Legal Sustainability Alliance, an organisation supporting law firms to improve their environmental sustainability, and an increasing number of groups, such as The Chancery Lane Project, bringing together those from across the legal profession to collaborate in tackling climate change.
What can law firms do?
There are many “easy wins” to improve environmental sustainability within a firm, for example:
- increase recycling with firmwide initiatives such as more recycling bins in communal areas, introduction of food wastage bins, and removal of individual desk bins;
- swap plastic cutlery/cups for metal/glassware;
- install dual flush toilets to reduce water consumption; and
- increase vegetarian and vegan food options available to employees.
An assessment of a firm’s energy use can also identify areas where savings can be made. Automated lights and air conditioning, for example, improve in-house efficiency and start the path to becoming carbon neutral. Similarly, firms are divesting pension fund investments away from fossil fuels and are making public commitments to work towards using 100% renewable energy. Focusing a firm’s attention to environmental sustainability also overlaps with another prominent topic facing all law firms now: legal technology. As organisations adopt legal technology this can in turn reduce; (i) paper consumption, by increasing the use of electronic documents; and (ii) travel, as video conferencing can replace the need for all employees to be in one location for meetings, etc.
Social sustainability concerns relationships with stakeholders; namely clients, suppliers, employees and local communities. Modern slavery legislation has turned attention to the operations of suppliers for some time and greater scrutiny is now being applied. Organisations have strict ethical guidelines governing how they select and foster the best relationships with all stakeholders, which includes closely auditing suppliers and requesting sustainable supplies.
Many firms already organise volunteering days with their employees, clients and intermediaries, so that they offer their skills to the local community. This can range from helping at a foodbank, mentoring local young people, or problem-solving particular issues for start-up charities. It is also common for firms to enable employees to make charitable donations directly from their pay, through “give as you earn” schemes.
Over 150,000 people work in the legal sector and therefore management in firms are adopting structures that empower employees to take responsibility for the sustainability of their work, for example, staff can be engaged in this task by linking ESG responsibilities to performance appraisal criteria and/or remuneration.
Change usually occurs quickly when it impacts short-term profitability, so energy saving measures are implemented to reduce energy costs and legal technology is adopted when it increases revenue. However, the growing attention on ESG principles by law firms demonstrates how one of the oldest professions does not rest on its laurels and is instead concerned with ensuring continued long-term sustainability.
Laura is a council member at The Law Society representing solicitors up to five years’ qualified