Tech entrepreneur Matt Ellis isn’t at all surprised about the boom in ESG—environmental, social and governance—practices at law firms over the past decade. He saw it coming a mile away.
“Law firms are in the business of mitigating risk,” he said. “When their clients started to understand that sustainability was becoming a material risk, law firms were always going to see a business service opportunity.”
He also saw data as being central to how law firms not only solve ESG problems such as compliance and enforcement for their clients, but also for themselves.
Ellis’ company, Measurabl, produces ESG data and metrics for the real estate industry. His whole business is founded on the principle that accurate, actionable information on ESG performance is vital not only to saving the planet, but also satisfying regulators and convincing investors that a business is sustainable—core goals for many an ESG lawyer.
When shareholder groups started lambasting listed companies for so-called greenwashing—professing to be environmentally friendly while acting adversely—Ellis anticipated lawyers would need quantitative proof to combat the claims of activist investors.
“Robust, provable ESG data—like carbon usage metrics—is the ready response to allegations of greenwashing,” said Ellis. “Without the data, you can’t prove your case. So, lawyers needed to become experts in what ESG actually is—and how you measure it.”
And that’s exactly what has happened.
As he predicted, lawyers were called on to help build client narratives about why they are ESG compliant and why their actions are environmentally friendly.
Central to those narratives has been data, according to ESG practice heads and management at Am Law 100 firms.
With a practice that incorporates sustainability and a best-selling 2008 book on the subject, titled “The Blue Way,” Dentons’ global chair Joe Andrew knows how important data is to corporate ESG clients.
“There’s no question that understanding data is exceptionally important inside ESG practices,” Andrew said. “Traditional environmental lawyers involved in regulatory practices always relied on data and had to be very facile with understanding that information. But ESG has grown in importance and become a topic of boardroom conversations. So, corporate lawyers like me are now involved too.”
Data is so crucial to ESG legal services offerings, Andrew said, that Dentons employs dozens of ESG-focused data scientists.
Freshfields Bruckhaus Deringer’s Timothy Wilkins said the importance of ESG data and metrics has led to greater collaborations between sustainability teams and other practice areas, such as technology and data privacy—not only for environmental issues, but also for social and governance matters.
“To battle climate change, you need better data. To improve racial and social justice, data and technology are no less important,” Wilkins said.
In 2005, the United Nations asked Freshfields to put together a legal framework for the integration of ESG issues into institutional investment. The work became the foundation for many ESG financial regulations around the planet. Then in 2019, Freshfields followed up with another U.N. report, this time on whether legal frameworks help investors understand sustainability impact, and whether it influences decision-making.
The message for the investment community was that companies that follow effective ESG principles are better investments. But in both the 2005 and 2019 reports, Freshfields also saw a message for law firms, said Wilkins: To win business and be sustainable, law firms themselves need to follow ESG principles.
By 2021, Freshfields had already reduced carbon from its energy usage by 22%, travel by 13.7% (against a 10% target), and paper consumption by 40%. Its latest targets include cutting paper usage more than 60% by 2025 over the previous 10 years; phasing out single-use plastics in all offices by the end of this year; reducing carbon from business travel by 30% by 2025; and having every Freshfields office powered by 100% renewable electricity by 2030.
As well as desiring to be a more sustainable firm, Wilkins said Freshfields’ ESG policies are a business imperative. He and his colleagues have increasingly seen prospects demand law firms provide their ESG policies and credentials as part of the request for proposal (RFP) process—even in the last six months.
“We’re getting a lot more interest in our green credentials when we’re submitting pitches,” said Michael Bloxham, environment manager at Freshfields. “This year alone we’ve had twice as many requests on our sustainability scoring platforms as we did all of last year.”
Wilkins and Bloxham said clients are asking for this information because they believe sustainable firms have better long-term business models, and diverse firms are smarter—because diverse teams tap a wider pool of thought and innovation when working on client matters.
Marketing Spin No Longer Enough
But while in the past, law firm ESG policies may have been a one-page, vague promise to reduce carbon footprints, increasingly sophisticated clients are requiring robust, verifiable detail on a law firm’s commitment to ESG.
“The questions on RPFs are getting longer and requiring more detail,” said Bloxham.
In response—and to provide the firm with actionable information on its ESG progress—Freshfields meticulously tracks its own ESG metrics. It also partners with organizations that align with its goals so that it can be sure it is making real change; last year it signed up to the Green Arbitration Pledge, which addresses the need for environmentally sustainable practices in arbitration.
Instead of simply buying retail carbon offsets, the firm developed its own program—the Reforestation in East Africa Programme (REAP)—that not only satisfies a stringent carbon offset function, but also hits several other ESG goals. REAP supports the livelihoods of around 8,800 small-scale farmers in Kenya and Uganda, and the program fosters gender diversity by placing local women in leadership roles.
Law firm ESG policies are not just being read by prospective clients. They can be invaluable in the hunt for talent, too.
Philip Chang, a J.D. candidate at the University of Southern California’s Gould School of Law, became interested in ESG during a summer internship in 2021—so much so that he wrote a paper on the subject for the school’s business law digest: “Why ESG Matters for Big Law Firms.”
This year, a large part of Chang’s decision to accept a summer associate position at Reed Smith was because the firm’s ESG policies seemed to him convincing and authentic.
“A lot of law firms have ESG information on their websites, but not all firms organize it into a disclosure like Reed Smith,” said Chang. “From a law student’s perspective, it’s hard to pick between firms, but how they speak about their ESG program and why it matters shows their commitment to ESG and to their clients’ concerns. Reed Smith stood out to me.”
Chang said it was too early in his career to pick a practice area—and did not discount ESG—but what was more important to him than a firm with a strong ESG practice was a firm with a strong commitment to ESG principles.
“We have a responsibility to act sustainably in support of our communities around the world,” said Nick Bagiatis, Reed Smith’s chief operating officer. “The firm’s sustainability plan reflects the shared commitment of our people to this endeavor.”
While this is positive in the case of Reed Smith, the obvious implication is that it can start to play against firms that are less impressive with their numbers and policies. In the U.K., law firms are already having to report publicly on their carbon emissions. An analysis of 2019-20 numbers found some of the largest law firms in the country, including Allen & Overy, DLA Piper, Clifford Chance and Freshfields, emitted the highest tons of CO2 equivalents per U.K. employee.
Conversely, the U.K. operations of firms such as Eversheds Sutherland, Clyde & Co, Ashurst and Norton Rose Fulbright ranked well against their peers.
Central to the Core
Beyond Big Law, ESG has become part of the raison d’être for many smaller firms, as a way of standing out from the crowd and attracting top talent.
New litigation boutique Pallas made ESG one of its founding pillars when it launched earlier this year with former Boies Schiller Flexner co-chair Natasha Harrison at the helm.
“We have put ESG in the absolute foundation of our firm,” said Harrison, explaining that the firm’s policy comprises three pillars: Diversity parity by 2025, devoting 5% of resources to pro bono work and volunteering, and carbon neutrality by 2025.
Harrison said the impact on lawyers and business professional alike has been significant.
“It knits the team together. They’re passionate about these issues. It is not about lip service. It’s about doing the right thing, and because it gets better results,” said Harrison, adding that clients are also taking notice.
The firm’s ESG commitment is followed through in the work it takes on, said Harrison, explaining that part of Pallas’ work is representing investors that hold corporates accountable for their actions.
“These clients want to drive change in corporate governance,” said Harrison. “They want to call out companies that engage in bad behaviors.”
Ellis said for law firms to truly help companies with their sustainability and ESG goals and compliance, all lawyers need to understand how ESG impacts their clients in their particular practice area—whether it be employment law, securities, white-collar, or sector-specific practices.
“ESG is no longer just the domain of lawyers in a specialist practice. It now touches on every discipline of the law,” said Ellis. “To effectively service your client, you now need to understand how ESG—and ESG metrics—impact your practice area, and your clients. When it comes to ESG, if you’re not data savvy, you’re not going to be much help to your clients.”