Aguas! Myths and reality of ESG: business opportunities for the legal profession and alternative business structures
Saranya Mishra
Khaitan & Co, Mumbai
Session Chair
Jimena González de Cossio, Chevez Ruiz Zamarripa, Mexico City
Panellists
Zulon Begum, CM Murray, London
Satyajit Gupta, EXL, New Delhi
Sarah Lucey, Norton Rose Fulbright, London
Rafael Pacchiano, Environmental Affairs Mexico, Mexico City
Dionisio Pérez Jácome, Governmental Relations of Volaris, Mexico City
Session overview
This session focused on the rising importance of environmental, social and governance (ESG) factors in the legal sector. With ESG issues gaining traction, the panel aimed to clarify misconceptions and highlight actionable strategies for law firms and alternative business structures to align with the UN Sustainable Development Goals set out in the 2030 Agenda for Sustainable Development.
The lead IBA committee was the Alternative and New Law Business Structures Committee, supported by the Corporate Counsel Forum; the Environment, Health and Safety Law Committee; the Law Firm Management Committee; and the Regulation of Lawyers Committee.
Key discussions
The evolution of ESG
Jimena González de Cossio set the stage by tracing the evolution of ESG, highlighting its transformation from a regulatory checkbox to being a vital component of long-term business strategies. She emphasised that the dialogue surrounding ESG often frames it as either a cost centre or a value driver.
The panellists collectively challenged the notion that ESG compliance is merely an administrative burden, instead they framed ESG as a proactive opportunity that can drive innovation, enhance a brand’s reputation and create competitive advantages.
Real-world applications
Responding to the suggestion that ESG involves a catch-22 situation between profitability and relevance, Dionisio Pérez Jácome provided a compelling case study involving Mexican airline, Volaris, detailing the company’s comprehensive value creation model amid the unique challenges faced by the aviation sector. He discussed specific initiatives aimed at reducing the company’s environmental impact, such as the transition to neo-engines (currently, 59 per cent of Volaris’s fleet operates using these advanced engines, with a goal to achieve 100 per cent adoption by 2030 and a commitment to net-zero emissions by 2040) and sharklet modifications (these modifications have led to a four per cent reduction in fuel consumption, showcasing the tangible benefits of integrating ESG initiatives into operational practices).
Pérez Jácome’s insights illustrated how strategic ESG efforts can not only help to fulfil regulatory obligations, but also enhance shareholder confidence and improve operational efficiency.
The ESG imperative
Rafael Pacchiano referred to the Paris Agreement, the signatories of which have agreed to limit global warming to 1.5°C above pre-industrial levels on average over a 20-year period. He pointed out that the global temperature has already increased by approximately 1.2°C over the past decade, stressing the importance of immediate and concerted efforts to mitigate further detrimental climate change impacts. He called for leaders to exemplify sustainable practices and advocate for stronger ESG commitments across all industries.
The need for an ESG framework
The influence of regulatory pressure cannot be understated. Governments and regulatory bodies worldwide are increasingly mandating transparency and accountability in ESG practices. These regulations are not merely compliance requirements, they represent a broader societal expectation for companies to act responsibly. The panel discussed the need for a regulatory ESG framework in regard to evaluating business practices, risks and opportunities and to serve as a safeguard against greenwashing.
Sarah Lucey pointed out that there is a need for a suitable regulatory regime, due to a lack of voluntary ESG implementation by companies. She illustrated her point by referring to the EU’s Corporate Sustainability Reporting Directive. She also stressed the importance of collaborative regulatory action across jurisdictions.
Satyajit Gupta noted that while India lacks a consolidated ESG law, there exists a statutory mandate on corporate social responsibility, underscoring the benefits of regulatory frameworks in regard to promoting ESG compliance.
Law firms on ESG
The discussion then highlighted not only how law firms can leverage ESG compliance to attract clients, enhance their reputation and mitigate risks, but also the avenues offered by ESG that enable law firms to increase their service offerings.
Zulon Begum mentioned that the dial on ESG is moving and that along with these changing times, there is a growing need for transnational ESG due diligence and increasing demand for law firms to be involved in it.
She also shared that clients now expect law firms themselves to be conscious of their ESG obligations and be making institutional strides towards ESG compliance. However, unfortunately, more than 60 per cent of law firms do not have any policies on ESG.
Begum called for the integration of ESG into law firm management agendas, advocating for practical steps to be taken, such as embedding ESG criteria into legal advisory practices and developing sustainable business models.
Conclusion
This panel session successfully illuminated the complex landscape of ESG in regard to the legal profession, debunking myths, while providing actionable insights for law firms and alternative business structures.
As ESG considerations continue to influence the legal field, embracing ESG principles will be essential for future success. Law firms that proactively engage with ESG will not only enhance their reputations, but also position themselves favourably in a rapidly evolving market.