ESG Survey 2024 – analysis and discussion
Wednesday 4 September 2024
This environmental, social and governance (ESG) survey is the third consecutive annual survey conducted by the IBA Law Firm Management ESG Subcommittee. Over the past three years, more than 150 law firm leaders have completed the survey, representing national independent firms (60 per cent), boutique firms (15 per cent) and international business law firms (17 per cent) and predominantly from Asia, Europe, North America and South America. The key themes from the 2024 survey are as follows.
- Just a minority of firms has adopted all three pillars of ESG, and monitors and prepares for new and upcoming ESG regulations for both themselves and for their clients
- However, almost 80 per cent of the firms indicate that they have an ESG practice group advising their clients on ESG matters, but only 40 per cent says they also have seen an increase in demand for ESG support for clients
- A large number of firms have indicated that ESG is not an integral part of their own governance and partnership model, including decision-making
Reporting and compliance
With developments happening at pace within the ESG space, only 43 per cent of respondents indicated that they monitor and prepare for these ESG developments for their firm, increasing to 64 per cent monitoring this for clients (compared to 62 per cent and 82 per cent respectively in the 2022 survey). This suggests that, while the regulatory agenda is advancing in this space, firms are not keeping pace and with increasing talks about fines for non-compliance, this is something firms need to watch out for. It is perhaps therefore not surprising that there is interest from respondents in learning about international developments across the ESG landscape, including the EU Forced Labour Regulation and EU Deforestation Regulation (which becomes applicable for most companies on 30 December 2024).
Outside of compliance however, only eight per cent of respondents didn’t reflect ESG in their firm strategy and 57 per cent of respondents covered all three pillars, with the environmental pillar being the least represented. 59 per cent of respondents indicated that their firm had not calculated their carbon footprint, with only 11 per cent of firms calculating Scope 1, 2 and 3 emissions. There is therefore significant progress to be made if, as an industry, we want to be aligned with the global net zero pathway, which would require firms to reduce Scope 1 and 2 emissions by 42 per cent by 2030, and Scope 3 emissions by 25 per cent in the same timeframe.
ESG is an area of strategic importance for firms and one that there is interest to share best practice and hear from other law firms about how they are implementing this within their businesses. There are a number of actions firms can take which are not expensive to implement and can ultimately save money, such as switching to LED lights, turning equipment off when not in use and moving to paper-lite practices. Reporting is just one aspect which aides this sharing of information.
Reporting also facilitates the proper tracking – or ‘monetising’ – of ESG initiatives as you can track cost and then return for the initiatives being put in place.
People
The social pillar of ESG is included in most firms’ strategies. Interestingly 78 per cent of firms have an ESG group or team advising clients and 62 per cent of respondents said that this team was a selection of people from different practice areas. It is therefore an area which is bringing people together from across the business to collaborate and provide advice to clients in a cohesive way.
When it comes to ESG initiatives focused on people, with the expectations related to wellbeing in the workplace and the employer’s role increasing, it is good to see that only ten per cent of firms don’t have initiatives in place to improve employee wellbeing.
However, while there has been a lot of focus on diversity for years, 62 per cent of firms don’t have a clear programme in place to support social mobility in their recruitment process. Social mobility programmes aim to achieve equality of opportunity, allowing people access to law firms regardless of the socio-economic background of their parents. Lack of diversity in a workplace can increase discrimination which in turn can lead to anxiety, depression and lower productivity and job satisfaction.
While historically wellbeing, diversity and inclusion (D&I), employee volunteering and climate action may have been looked after by separate teams within the organisation, it is increasingly important to bring teams together across the firm to make a difference. For example, when looking at wellbeing, historically this may have looked at health and safety in the workplace but there is no denying the connections between this and other areas of ESG. Take the climate crisis for instance, with record-breaking heatwaves in Australia and wildfires in the EU in 2023 resulting in an area twice the size of Luxembourg being burnt, air conditions became hazardous.
Clients
Over 60 per cent of respondents see the huge increase in ESG regulations, litigation and reporting requirements, among others, reflected in an increase in ESG work with clients. They see an increase in ESG support across all sectors and industries and especially with respect to financing (ie, green bonds and sustainability-linked financing), corporate governance and compliance (ie, regulatory reporting and risk management, including supply chains and management board issues) and (climate) litigation. This is very similar to the results from the 2022 survey.
The climate demand for ESG support is also reflected in the high percentage (almost 80 per cent) of firms that have either a dedicated ESG practice group or an integrated team from multiple practice groups. In 2022, less than half of firms reported having an ESG practice group. Great progress has been made.
On the other hand, and although ESG affects all operations and activities of an organisation, just a third of the respondents (35 per cent) indicated that their ESG strategy covers all three factors, for both their own firm and for their clients.
Governance
A vast majority of the respondents (65 per cent) have not been asked by clients to commit to specific ESG standards (for example, the UN Global Compact). The ESG commitments that clients are asking about mainly relate to internal processes (namely, compliance and risk management in relation to environmental and people policies). Nevertheless, a slight majority (54 per cent) indicate that their firm has a dedicated committee looking at internal ESG strategies and policies for the firm. Compared to a previous survey in 2022, this number has slightly improved; from 48 per cent to 54 per cent.
The way this responsibility is organised varies greatly among firms. In some cases, the management board oversees and is responsible for the overall ESG strategy of the firm. In other cases, firms have appointed dedicated committees, steering groups and/or individual partners and officers on specific ESG-related issues (for instance, sustainability, pro bono, D&I, the climate crisis and ethics).
Although a small majority of firms have dedicated ESG committees, this does not seem to affect decision-making. A large majority (60 per cent) indicate that ESG is not an integral part of decision-making (for example, performance management, lease renewals and travel). Similarly, if we look at some specific components such as the review and appointment of suppliers and client and matter intake processes, 70 per cent and 73 per cent of respondents, respectively, said that ESG does not play a role in decision-making. This result is comparable with the results from the 2022 survey.
Conclusion
Developments around ESG have developed at an unprecedented speed over the past three years. Whereas three years ago it was still mainly about the ‘what’, today the focus is mainly about ‘how’. Nowadays, there is hardly any doubt about ESG, and the opportunities and challenges it presents. That is also what we see in this latest survey.
More than 90 per cent of respondents indicated that they have integrated – to a greater or lesser extent – ESG factors into their overall business strategy. The survey also shows – same as in previous years – that most firms have pursued relatively low-hanging fruit. Most ESG policies focus on client work and people (namely, wellbeing and diversity, equity, inclusion and belonging (DEIB)), which is in line with other reports and surveys and shows that talent and clients are the two main drivers behind ESG strategies within law firms. However, it seems that the more strategic and/or impactful decisions are pushed aside. More specifically, in most law firms ESG is not yet part of the monitoring, reporting and decision-making process.
Current developments in the world are creating enormous challenges in society, including for business. These developments are not ignoring the legal profession. With climate litigation, sustainable financing and all the new ESG regulations (most recently the adoption of the EU Nature Restoration Law), the legal profession is pre-eminently the party that often operates at the forefront of major changes. We strongly believe that if the legal profession wishes to stay ahead and keep playing a strategic role in this fast-changing world, law firms should now start to align their words, promises or principles with their actions and behaviours. In other words: walk the talk!
Notes
The IBA Law Firm Management ESG Subcommittee provides a platform for and contributes to the development of ESG strategies and policies within law firms. The Subcommittee has 16 members from every continent. We work closely with other IBA committees, ESG working groups and international legal networks. The Subcommittee organises and provides support to other committees on activities and events, such as:
For more information and enquiries please contact:
Robert van Beemen (vanbeemen@drbgroep.nl) – Co-Chair of the ESG Subcommittee
Nicky Sinker (nicky.sinker@auditel.co.uk) – Subcommittee member and responsible for the survey