Law firm leaders navigate ESG’s increasing influence

Rachael JohnsonFriday 10 December 2021

Environment, social and governance (ESG) issues are exerting an increasing influence on the management of law firms. In September, the IBA Law Firm Management Committee reacted to this trend by publishing an ESG Toolkit to help its firm leaders understand the scope and importance of ESG from their perspective.

Hanim Hamzah, Co-Chair of the IBA Law Firm Management Committee and Regional Managing Partner of ZICO Law Network in Singapore, says ‘the subject of ESG is front and centre for all stakeholders, so it was an important task to produce a toolkit for our members’.

Both talent and clients are asking what law firms are doing to address the important issues that fall under the umbrella of ESG, such as the climate crisis, diversity and inclusion and social impact. Increasingly law firms are stating their purpose and values and placing their work in the broader context of addressing the issues of the day. Running law firms in this way should ensure they remain relevant and competitive.  

Andrew Darwin, Global Co-Chairman and a senior partner at DLA Piper, argues that, setting aside the Covid-19 pandemic, ESG is ‘probably the single biggest theme and trend in the sector’. He believes what law firms are doing on ESG will be a key area of competitiveness in future.

Law firm leaders report being motivated to address ESG issues by their experiences of attracting and retaining talent. Younger lawyers in particular want to work for a firm with values that align with their own.

David Raine, Chief Executive of Penningtons Manches Cooper, says that ‘increasingly people looking to attach themselves to an organisation are looking [at] the organisation’s purpose, values and beliefs’. Paine argues that when a firm’s values ‘resonate and are seen to be actually lived out in practice’, employees feel more satisfied at work.

For Raine, this area of employee satisfaction is growing in importance alongside the usual factors, such as pay.

Clients are also asking what firms are doing to address ESG as part of the panel selection or tender process. Zoya Todorova, Regional Fora Liaison Officer of the IBA European Regional Forum and a partner at Dimitrov, Petrov & Co in Bulgaria, says ESG topics have increased in importance for clients over the last two to three years and ‘will be crucial for client attraction and retention’ in future.

The power of law and legal representation is in representing clients. It’s better to have the best advice directed at the most difficult and thorniest problems

Michael Watson
Global Head of Climate Change Mitigation and Sustainability, Pinsent Masons

Law firm leaders are now taking concrete action to address ESG issues that are relevant to their business. For example, adopting science-based targets to reduce emissions within a set timeframe, undertaking a materiality assessment, using renewable energy sources or reducing business travel.  

ESG is different from corporate social responsibility because proponents seek to embed it in strategy in recognition of how it can drive long-term growth, rather than treating it as a cost centre that sits outside the main function of the business.

JP Douglas-Henry, Managing Director of Sustainability and Resilience at DLA Piper, describes ESG as a lens through which the firm makes certain decisions, much like a compliance lens, or an anti-bribery lens.

‘In the future we’ll stop talking about ESG as “other” or separate from the mainstream; it will become the mainstream’, he argues.

As part of the process of embedding ESG into strategy, law firm leaders will face difficult decisions about the clients they represent. Some lawyers feel uncomfortable undertaking work for fossil fuel companies, for example. However, many law firm leaders argue that representing clients that may be viewed as problematic from an ESG perspective, such as fossil fuel companies, allows them to work with those organisations to address ESG issues in a way that withdrawing representation would not.

‘The power of law and legal representation is in representing clients,’ argues Michael Watson, Global Head of Climate Change Mitigation and Sustainability at Pinsent Masons. ‘It’s better to have the best advice directed at the most difficult and thorniest problems.’

Law firm leaders will need to navigate this challenging and nuanced terrain more often as the ESG agenda becomes more powerful. Increasingly they’ll be required to think not only about their role as legal advisers but also about their firm’s broader contribution to society.

In this context a growing number of law firms are stating their purpose and values. Watson’s firm describes itself as a purpose-led, professional services business with law at the core. He describes an internal process of consulting with colleagues to establish the firm’s purpose and values, hinging on a ‘key question: what is the underlying purpose and reason for us as a firm to exist?’

Watson argues that establishing a sense of purpose in the business enables long-term decision-making and allows for a deeper connection with employees and other stakeholders. He says the next step is to demonstrate the manifestations of your purpose. For him, addressing the ESG agenda is a manifestation of being a purpose-led business.

‘What’s been beneficial from our business’ perspective is that the architecture and the understanding of our purpose and our values then leads us to understand why it’s important, internally, to articulate our sustainability agenda’, he says.

Raine describes a similar process at his firm, which has also outlined its purpose and values. ‘It’s the right thing for the business to do,’ he says, ‘otherwise we’re [practising] law in a vacuum and it won’t have any resonance with us as we face increasingly tough challenges.’

Both Raine and Watson describe placing the services their firms offer in the broader context of the challenges society faces, to ensure they remain relevant.

For Watson this means working with experts from other disciplines to offer a more rounded product to clients. He sees this type of service as particularly well suited to addressing the ESG agenda.

‘The client wants to be advised as to what they should do – the word “should” is a critical word here’, argues Watson. ‘That “should” involves pulling in your expert understanding of the law, but also your expert knowledge of other adjacent issues and matters.’ ​​​​​​​

Image: TarikVision/Shutterstock

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