Raising the Bar Roundtable - Key Takeaways

On 7 July 2021, Stories Evolved and Impact International hosted a roundtable discussion for legal professionals asking what the rise in prominence of ESG and sustainability means for them and how they provide value to clients. The event was attended by legal professionals from Africa, the EU, North and South America and the UK. Helping shape the conversation were a diverse group of specialists and change-makers in the business and legal sectors:

Professor Judge Mervyn King SC

Becky Annison

Daniella Zussa

Matt Sparkes

Oliver Dudok van Heel.

Summary:

The global economic fallout from the Covid-19 pandemic, the impact of worldwide extreme weather events, and the growing levels of civil unrest (for example, in South Africa in July 2021) are all glaring reminders of the ever-increasing impact of ESG on commercial life. 

The Stories Evolved and Impact roundtable discussion enabled legal professionals to share and listen to perspectives and experiences from Africa, the EU, North and South America and the UK on what ESG means for legal professionals. 

The discussion highlighted that while the dramatic rise in ESG issues is translating into legal professionals and law firms upscaling their ESG credentials to meet the changing needs of the business, investment and finance community; this upscaling is not yet universal, and its need not yet globally understood. Client’s demand for ESG expertise from their legal advisors is jurisdiction, context and sector dependent. Law firms and legal professionals sit on a wide scale of maturity in their understanding of ESG and the implementation of ESG issues into their practice areas and business.

There are barriers to operationalising ESG in law firms. Not all of these will be easy to overcome but embedding ESG understanding and capabilities is an increasingly important differentiating factor to clients and employees. 

Equally, legal professionals are key actors in moving society, business and finance forward to take appropriate action on ESG. They have a critical role in governance and accountability, building the credibility of ESG initiatives and empowering their clients.

Key discussion points:

• Growing awareness and demand for ESG:  Globally, there is a growing awareness of the impact of ESG, sustainability and the SDGs on financial and commercial life. Climate change, biodiversity loss, and gross inequality, for example, are already negatively impacting the bottom line of organisations across the world. Linked to this, there is increasing demand for organisations to be transparent and account for the impact of their business on society and the environment. This is reflected in increasing policy and regulatory demands and ESG-related litigation. Corporate boards and general counsel are sitting up and taking notice.

• The corporate law climate reflects these changing demands:  The meaning of value is changing to encompass more than the maximisation of short-term profits and returns to shareholders. It increasingly emphasises an understanding of the long-term value generated by an organisation for itself and society. Director’s duties and what amounts to the required level of care, skill and diligence and corporate wrong-doing is changing too in line with this changing climate. This has a direct and growing impact on corporate clients and, therefore, on the legal advice that they require.

• Risks and opportunities:  The risks that ESG pose for organisations and law firms alike (compliance, reputational etc.) must be balanced with an understanding of the growing opportunities and expanding commercial advantages that accelerating ESG aligned behaviour represents. This mindset shift requires legal professionals to extend their focus beyond mere compliance and risk management.

• Understanding ESG is complex:  Policy and regulatory developments are helping to build an understanding of ESG and what is expected of countries and organisations, but ESG can still be confusing. There are varying terms (e.g. ESG, CSR and sustainability), definitions and frameworks at play, and reporting remains fragmented by country, region and sector. In addition, different jurisdictions have their own context of sustainability challenges and opportunities, so ESG priorities differ and/or ESG is not always identified as an immediate priority.

For example, in practice:

(i) developing countries focused on job creation and poverty reduction may not see limiting climate change as an immediate priority, or as a priority linked to social upliftment; while the EU, the UK and now the USA are driving net-zero initiatives; and

(ii) companies may be focused on the financial sustainability and profitability of their operations in the short to medium term, rather than long-term value creation. This drive has been exaggerated by the economic hardship caused by Covid-19 and the varying levels of government and financial support that has been extended to business in this context.

• There is a vast range in the levels of understanding and implementation of ESG amongst law firms and legal professionals:

- While many law firms are rushing to establish or build on their ESG credentials and capability, others question or remain unsure about the applicability of ESG to their practice areas, clients or regions. The vast areas of law and resulting wide range of legal specialities add to the uncertainty regarding the applicability of ESG to all legal professionals.

- Law firms seeking to upscale their ESG credentials sit on a wide scale of maturity in their understanding of ESG and the implementation of ESG issues into their practice areas and business. These range from having no strategic focus or understanding of the relevance of ESG to their firm or practice area to implementing ESG considerations in their operations, collaborating for impact, and supporting their clients to transition to organisations that create and sustain long-term value for themselves and the societies that they operate in.

• Law firms’ action (or lack thereof) on ESG is becoming a key enabler (or barrier) to client and employee attraction and retention.

Key take-aways:

• Legal professionals are responsible for leveraging their role and influence to ensure the credible and legitimate upscaling and implementation of ESG in business, finance and investment decisions and projects.

• Equally, ESG presents law firms with a significant opportunity to create new areas of business. ESG capability is a material issue for growing clients and employees and is key to boosting reputation and building demand for legal services. In-house counsel and young professionals increasingly recognise the legal implications of ESG and the need to manage them proactively. The requirements for and expectations of external lawyers as trusted advisors is evolving accordingly. To be relevant and add value, external lawyers must push beyond providing legal expertise to deliver excellent legal advice in the context of an understanding of their client’s culture, commercial opportunities, risks, and context.

• As in all sectors, the devil of ESG is in its implementation. Barriers to the operationalisation of ESG by legal professionals exist. These include:

(i) a lack of understanding of what ESG means and why it is relevant to a law firm, practice area and/or its clients;

(ii) the confusion created by multiple legislation, policies, standards, indices and reporting requirements;

(iii) social and cultural barriers to changing the way things are done; and

(iv) the responsibility lawyers have to represent and support clients irrespective of their industry or sector.

Questions to explore going forward:

- What does operationalising ESG for law firms look like? What are the various stages of maturity, and how can law firms go about implementing these?

- How do law firms move beyond reporting on ESG to creating an additional revenue stream based on ESG that also builds their own credibility and reputation in ESG?

- What role can and should legal professionals play in driving ESG if there is no demand or interest in ESG issues by their clients?

- How, if at all, do competition law concerns impact the ability of law firms to collaborate and build knowledge and expertise regarding ESG?