ESG: clients push law firms on commitments
Multiple sessions at the IBA Annual Conference in Paris in autumn 2023 saw panellists comment on how clients are increasingly pushing firms on their environmental, social and governance (ESG) commitments. Here, In-House Perspective summarises those discussions.
In February 2023, Impactvise published its annual environmental, social and governance (ESG) law firm ranking, which measures the ESG performance of more than 1,000 firms globally. DLA Piper topped the table, followed by Burges Salmon, Clifford Chance and DWF. Impactvise, which conducts research on ESG performance and data analysis, ranks law firms on the extent to which they meet the World Economic Forum’s (WEF’s) Stakeholder Capitalism Metrics. These metrics calculate ESG efforts across the areas of governance, people, planet and prosperity.
UK firms continue to dominate Impactvise’s rankings. Adrian Peyer, former Chief Executive of Impactvise, has said this is mainly due to pressure from clients. ‘In the EU and UK, the trend towards ESG and sustainability has a longer history than in the US, not just among law firms but among companies’, he says. ‘Clients are more interested in understanding what law firms are doing in the ESG space’.
Peyer, who’s now a partner at MME in Zurich, was speaking at one of the dedicated ESG panel discussions at the IBA Annual Conference, held in Paris in the autumn. He added that client demand in regards to the ESG commitments of firms is increasing, and is ‘no longer just limited to diversity data but also covers KPIs [key performance indicators]. So, those law firms that publish an ESG report are demonstrating that they actually walk the ESG talk.’
Minimum expectations around sustainability reporting were formalised in 2023 with the roll-out of various ESG-related disclosure frameworks, such as those published in June by the International Sustainability Standards Board and the final supporting additional guidance published by the Task Force on Nature Related Disclosures in September.
Although not every framework is mandatory, the overall trend is clear: all types of businesses will be under increasing scrutiny from regulators, investors and wider stakeholders moving forward. ‘Clients are transitioning and finding a lot of these issues hitting them’, said Emma Oettinger, the former Co-Chair of the IBA Regulation of Lawyers Committee and Head of Financial Crime and Risk at Ashurst in London. ‘They want us to be upskilled, and to be able to advise them and help them navigate this’.
Clients are transitioning and finding a lot of these issues hitting them. They want us to be upskilled, and to be able to advise them and help them navigate this
Emma Oettinger
Former Co-Chair, IBA Regulation of Lawyers Committee
Speaking at a panel session at the IBA Annual Conference that explored the role of alternative business structures (ABS) in promoting sustainability, Oettinger highlighted changing client demands. ‘While we all would like clients to just accept our engagement letter and sign up to our terms of business, how many law firms are starting to have client terms imposed on them?’ she asked the audience. ‘Where clients have previously asked us if we have policies, they now ask if they can come and audit us, can they have our KPIs, and can we tell them about our breaches’, she added. ‘Whether you’re a traditional law firm offering or an ABS, you are going to have to think about how you are collecting that data and how are you engaging with those terms’.
While law firms may not be the world’s largest polluters, the panel’s view was that they are seriously behind other professional services companies when it comes to ESG. Fellow panellist Robert Van Beemen, Co-Chair of the IBA Law Firm Management Committee’s ESG Subcommittee and a partner at DRB Group in The Hague, said that clients want guidance on ESG matters from advisers with first-hand experience. ‘Clients increasingly require firms to tell them what they are doing in terms of diversity, equity, and belonging, when it comes to net zero. For example, if your corporate client has committed to be net zero by 2030 or 2035, they require you to be that as well.’
If any profession should be on top of these changes, and be seen to be, it’s the legal profession, said fellow panellist Camila Cardosa, a senior partner at Kincaid | Mendes Vianna Advogados in Rio de Janeiro. ‘How many clients now ask firms about their ESG policies instead of their best price?’ she added. ‘Although this is not yet common practice in Brazil, we will see this in the future’.
ESG factors are a standard element in request for proposals (RFPs) documents in the UK and Europe, said Van Beemen. ‘It goes beyond just diversity and inclusion (D&I). It’s about your supply chain and your net zero commitments, among other things.’
He relayed a discussion that the IBA Law Firm Management Committee had with several general counsel from large US multinationals in 2022. ‘They told us that D&I was a fundamental core principle for them. They said that if law firms pitch, in terms of D&I, but then do not deliver, they would have a serious discussion on whether or not to pay the bill.’
Some clients are even incentivised to only instruct law firms who ‘walk’ the ESG ‘talk’. For example, a company may be obligated to fulfil certain ESG standards when it comes to transactional work. ‘Large international companies are transferring some responsibility to us’, said fellow panellist Rosina Muller, Head of M&A at Ric Energy Group. ‘And when my company presents for public biddings for state aid, one of the challenges we find is that there are not only many ESG standard requirements for us to fulfil with a certain rating, but also for our providers to fulfil’.
She adds that her company presents these declarations by stating the identity of the practice services providers being used for specific services. ‘And they make us sign these commitments that our providers are fulfilling ESG standards because we gain points if we can prove that we work with more providers with greater ESG standards’, Muller explained.
ESG was cited as a top three risk on the horizon by in-house lawyers, according to Thomson Reuters Institute’s 2023 State of the Corporate Law Department report, published in March. The report details how one law firm received 50 requests from RFPs to share its ESG information, including carbon emissions, in a matter of months. Some firms have even created dedicated teams to deal with such requests.
Speaking at the IBA Annual Conference in Paris, David Shearer, a corporate partner at Simmons & Simmons in Amsterdam, agreed that a firm’s approach to ESG needs to be orientated around its values. His firm began with a Corporate Social Responsibility Charter, ‘which we added with our pitch documents. And this was reviewed and later relabelled to become our ESG policy’. He explains that when holding conferences or breakout sessions, the firm tries to host them where they can be reached by train rather than by plane.
The IBA has created a dedicated ESG homepage, showcasing the Association’s content across articles, podcasts, webinars and film.
Image credit: metamorworks/AdobeStock.com
Stephen Mulrenan is a freelance writer and can be contacted at smulrenan@lextelpartners.com