‘In the old days, it was about having a nice brochure with some green pictures, but then getting on with the serious matter of running our business. We’ve moved way beyond that now – it’s a business fundamental now.’
Norton Rose Fulbright head of environment, health and safety, Europe, Middle East and Asia, Caroline May neatly sums up the transformative shift in attitudes in recent years, with law firms now more attuned than ever to the importance of ESG, both in their capacity as commercial advisers and in terms of their reputation as progressive employers.
Now in its fourth year, the responses from leading law firms to LB’s annual ESG survey indicate concrete progress on both fronts, with more widespread evidence of firms putting together a joined-up client offering, while implementing internal strategies to ensure they are also walking the walk, as their sustainability and social responsibility credentials come under scrutiny from all quarters.
As Michael Watson, head of climate and sustainability advisory at Pinsent Masons, explains: ‘The accelerated transition of sustainability from being a reputational issue – and therefore the domain of the marketing department of a business – to being central to the executive and particularly legal and risk, has been a significant trend this year.’
‘A few years ago, there was a high point of “let’s only advise green”, but I think that’s fundamentally wrong. Clients in the most challenging areas are often the ones most inclined to engage.’
Michael Watson, Pinsent Masons
The ESG gatekeepers
One of the most noticeable trends to emerge from this year’s survey is the growing number of firms putting processes in place to reject work on ESG grounds.
While firms are, unsurprisingly, reluctant to cite specific examples, around half of respondents to the survey provided details of how they are integrating ESG considerations into their client onboarding and business acceptance processes, with ethical labour practices, sustainability standards and governance processes all under the spotlight when determining whether potential clients meet the ESG bar.
Notable examples include Simmons & Simmons, which last year established a Business Acceptance Committee to ensure work ‘aligns with the firm’s values’, with all matters evaluated against ESG criteria such as climate risks or social harms, such as modern slavery.
At Bryan Cave Leighton Paisner (BCLP), high-risk matters and clients are considered by a business acceptance team, and can be escalated to the firm’s ‘Client Council’ – a group of senior partners who weigh up the ESG considerations of taking on work. Since assuming the role in January this year, the firm’s new London-based global senior partner Segun Osuntokun has also established an ESG Action Board and is aiming to formulate a ‘clear and progressive responsible business culture’ across the firm.
Other firms taking concrete steps on this front include Dentons, which over the past two years has established and built up a responsible business team for its UK, Ireland and Middle East (UKIME) business. The firm explicitly includes ESG considerations in its client due diligence processes, turning away work from clients which fall short of established ESG standards, such as environmental crimes or poor employee treatment.
Best intentions, market realities
However, the reality is that for most firms, adherence to the purest of ideals is inevitably unrealistic, and there is a balance to be struck when it comes to clients in carbon-intensive industries – many of which are longstanding clients of top law firms.
Linklaters, for instance – a market-leader for oil, gas and mining transactions – is open about the fact that its commitment to ESG ‘does not mean that it does not work for, or impose limits or quotas on, clients which operate in carbon intensive businesses’, but that ‘the risks in relation to carbon intensive new business should be viewed as part of the usual analysis that is integral to the firm’s business acceptance process’.
The firm argues that clients in carbon intensive industries have an ‘acute’ need for high-quality legal advice, given the challenges in transitioning to sustainable practices, and that ‘it is precisely clients in those industries that most need such expertise and experience’.
‘ESG-related regulation is infectious; it snowballs, and the more that is adopted, the more will emerge.’ Jannis Bille, HSF
And this approach is not unique to Linklaters. As May explains, ‘The energy transition needs to happen, so we view it as providing best practice and advice to these companies – helping them move forward and understand where the market is heading.’
Watson adopts a similar stance. ‘The question I often ask is: what is your agency? Withdrawing your advice isn’t agency; giving it is the tool we have as professional advisers.’
He argues that advising clients in ‘challenging’ areas can be a form of social responsibility. ‘A few years ago, there was a high point of “let’s only advise green”, but I think that’s fundamentally wrong. It’s correct to engage with your whole client base, and we’re finding that clients in the most challenging areas are often the ones most inclined to engage with our ESG advisory capability.
‘If you think about energy transition, you need to be leaning into your client base rather than running away from it. Turning away a client wouldn’t necessarily make any material difference to their transition, so what we do is incorporate ESG factors into our broader client onboarding procedure, and I increasingly think that’s the correct thing to do.’
Even allowing for such considerations, firms are of course acutely aware of reputational risks. Taylor Wessing, for instance, escalates potential reputation-threatening mandates to its reputation committee, which weighs ESG factors in deciding whether to proceed with specific mandates. Jannis Bille, UK head of ESG at Herbert Smith Freehills (HSF), acknowledges this shifting dynamic: ‘Traditionally, lawyers would be quite content to follow the letter of the law and advise based strictly on that. However, with regards to ESG, this isn’t sufficient due to the reputational considerations.’
This underscores how there are always business risks to consider – how a company’s actions are perceived by the public, customers, investors, and stakeholders, and for the younger generation in particular, such considerations are front and centre of their personal and professional choices.
Arthur Cox financial regulation head Robert Cain, who is also the firm’s people partner, notes the importance of ESG credentials in the context of recruitment and talent management: ‘We are finding that Gen Z professionals value meaningful cases, social impact, and alignment with their personal values.’ Such issues are undeniably growing in importance for law firms, in terms of creating a culture that resonates with the values of the next generation.
‘We are finding that Gen Z professionals value meaningful cases, social impact, and alignment with their personal values.’
Robert Cain, Arthur Cox
Sustainable service
The responses to the survey also underline the efforts that firms are making to put together cohesive and convincing multidisciplinary practices to service client needs, which are only increasing amid snowballing ESG concerns.
Rachel Barrett, who leads the ESG practice at Linklaters, says there has been substantial progress on this front in the last year, with new ESG regulations ‘catapulting these issues further into the mainstream’. ‘As lawyers we’ve always had a crucial role, but now there are concrete new rules to address,’ she explains. ‘Clients are increasingly seeking specific support to meet their compliance obligations.’
Typical matters handled by Linklaters’ multidisciplinary practice include governance strategies, regulatory compliance, advice on disclosure requirements covering pay, climate targets, sustainability and D&I, while the firm also holds a number of broad ‘ESG counsel’ roles for major multinational corporates and financial institutions.
Hogan Lovells global ESG head Adrian Walker says a ‘tsunami of global regulation’ has been a key factor behind ESG’s rise up the agenda, with new reporting and disclosure obligations such as the EU Corporate Sustainability Reporting Directive (CSRD) and the UK’s climate disclosure requirements generating increasing volumes of work.
‘The old ESG economy was transactional driven – the game changer in the ESG advisory space is the tsunami of global regulation, which has really changed things for us as a global law firm,’ he explains.
HSF’s Bille adds that, ‘The CSRD has expanded the European lens of sustainability-related reporting from 10,000 to 40,000 companies, with an extra-territorial reach. ESG-related regulation is infectious; it snowballs, and the more that is adopted, the more will emerge,’ he continues.
On the sustainable finance front, Hogan Lovells last year advised the International Finance Corporation and the Bank of the Philippine Islands on its $250m green bond to finance eligible green assets in the Philippines, and is one of many increasingly involved in such pioneering work in this space.
Other firms acting on market-leading sustainable finance work include Ashurst, which earlier this year advised HSBC on the Hong Kong Monetary Authority’s issuance of a digitally native green bond – the world’s first multi-currency digital bond offering – after acting for Goldman Sachs on the world’s first government-issued tokenised green bond in 2023.
Meanwhile, A&O Shearman recently took the Legal 500 ESG Award for Sustainable Finance for its impressive CV in this space, including legacy Allen & Overy’s work with the International Swaps and Derivatives Association to develop template documentation for trading voluntary carbon credits.
Other typical areas of work being handled by ESG practices include the ESG aspects of major transactions, and ‘values-driven litigation’ concerning issues such as greenwashing, environmental and human rights, for example Baker McKenzie’s role for the UN High Commissioner for Refugees in the Supreme Court case which ruled against the UK government’s policy to relocate asylum seekers to Rwanda.
‘As lawyers we’ve always had a crucial role, but now there are concrete new rules to address.’
Rachel Barrett, Linklaters
Connecting the E to the S and G
To meet and manage this rising demand for ESG-focused legal services, over recent years more and more firms have established dedicated ESG practices.
Latham & Watkins is known for being a market-leader on this front, with London partner Paul Davies leading the ESG practice – which combines regulatory, transactional, and litigation practitioners – alongside US co-chairs Sarah Fortt and Betty Moy Huber, both of whom joined the firm in 2022. Typical work handled includes regulatory reporting, compliance, and the ESG aspects of major M&A and private equity transactions.
This March, HSF named new regional leaders to drive its practice forward, with corporate energy specialist Bille taking the UK leadership role, working with existing global practice head Silke Goldberg and newly appointed US and EMEA co-heads – litigator Ben Rubinstein in New York, Frankfurt finance partner Heike Schmitz and Madrid administrative and environmental specialist Iria Calviño.
HSF’s changes came after the firm’s global head of sustainable and impact investment Rebecca Perlman left for Kirkland & Ellis, as the US leader moved to grow its ESG practice.
To integrate ESG across their operations, firms are also investing in training programmes to educate and equip staff on ESG. Linklaters’ ESG Accelerator Programme, which is run in collaboration with the University of Oxford, has trained over 500 of the firm’s lawyers over the past three years, equipping them to provide a comprehensive ESG-focused service.
Barrett elaborates: ‘At Linklaters, we started upskilling our lawyers early. We launched the Accelerator programme in 2020, which included six to eight months’ worth of training and coaching – it’s an intensive programme and a really big investment the firm made in getting our people up the curve, but also to ensure that different practice areas were able to take the time to work out what ESG meant for them.’
Hogan Lovells, meanwhile, operates under the philosophy that ‘every lawyer of all of our 2,800 lawyers is an ESG lawyer’, a bold claim backed up by its ‘You Are An ESG Lawyer’ programme, which provides customised ESG issue-spotting training tailored to each of the firm’s key sectors. ‘We want everyone to be thinking about ESG in every piece of advice that they give,’ Walker explains.
Looking ahead, May says her sustainability goal is ‘to work us out of a job so that we don’t need a separate sustainability committee, because it’s absolutely embedded,’ – a particularly apt goal for the firm’s first head of sustainability.
‘The goal is to work us out of a job so that we don’t need a separate sustainability committee, because it’s absolutely embedded.’
Caroline May, Norton Rose Fulbright
Happy teams, happy schemes
Alongside market-facing considerations, firms are also increasingly aware that they need to ensure their own houses are in order. This shift is evident in the formation of dedicated ESG committees, the appointment of ESG ambassadors to promote integration, and the establishment of robust governance frameworks for effective implementation.
Watson cautions against ESG being ‘placed into the reputational box rather than the strategy box’. ‘There’s a risk that if people are only concerned with the reputational aspects of ESG, they will see less rather than more.’
One such example of ESG considerations being embedded into business can be seen in Eversheds Sutherland, which in 2022 secured unanimous agreement from its international partnership to make an annual investment of at least 1% of net profit – equating to over £2m – in its responsible business programme, which has included the launch of a new global Ethical Code of Conduct, continued efforts to reduce carbon emissions, and the establishment of five-year partnership with the International Rescue Committee to provide pro bono and financial support.
Another trend among firms is an increasing emphasis on supporting employees’ mental health and wellbeing, an issue which was thrust into the spotlight last year by the death of Pinsent Masons partner Vanessa Ford, who had been suffering from an ‘acute mental health crisis’. As Reed Smith London office managing partner Andrew Jenkinson notes: ‘While mental health challenges are not new in the profession, the tragic news of Vanessa’s passing certainly seems to have catalysed the discussion within the UK legal industry.’
Alongside employee assistance programmes, in-house counselling services, and 24/7 access to mental health support, notable initiatives this year have included moves by Reed Smith and Macfarlanes to offer free therapy for their staff.
At Reed Smith, everyone at the firm – including their partners and children, now have access to eight free therapy sessions a year, delivered through external mental health care provider Lyra, while Macfarlanes offers all staff up to seven fully-funded confidential counselling sessions led by qualified psychotherapists and psychologists from Cognacity.
Reed Smith also holds an annual global mental health summit, where lawyers come together with industry professionals to open up about their struggles and strategies for dealing with mental health issues, as part of an effort to tackle what Jenkinson recognises as ‘one of the biggest problems in the industry – the stigma around the topic’.
Underlying numbers
On the question of whether firms’ diversity initiatives are helping to shift the needle on ethnicity and gender statistics, the jury is out – although progress is being made in some quarters.
Of the firms which provided diversity data in our survey, around half increased their percentage of women among the UK lawyer ranks last year, with the overall average in that group continuing to inch up, now standing at 55%. Strong performers include Eversheds, Pinsents, RPC, Simmons and BCLP, all of which have at least 60% female representation among their UK lawyer ranks.
Female partner numbers are also inching up – although only nine firms reported a higher percentage of women among their London partnership this year, the average across firms which provided figures now stands at 30%, up from 29% last year. Of the firms that provided figures, the standouts were Greenberg (42%), CMS (37%) and Mishcon de Reya (37%).
The figures for ethnic diversity are less encouraging, however, despite much talk from firms about how this is crucial to address. Of the firms that provided figures, average BAME headcount among lawyer ranks fell by 1% to 19%, while the equivalent figure for partners also fell 1% to 10% this year.
Our survey also asked firms to provide data on the percentage of their lawyers who are state school educated – and of those which provided figures, four stood out with figures of just over 50% for both lawyers and partners – RPC, Greenberg, Pinsents and Mishcon. At the opposite end of the spectrum were Simmons, with just 17% state school educated lawyers, and Latham with 18%.
‘Clients now want all sorts of information about how diverse we are as a firm and what our approach to sustainability is.’
Farmida Bi, Norton Rose Fulbright
What clients want
While improving these figures is undeniably a key consideration for firms, client demands will inevitably be front and centre. May describes how ESG credentials are now a ‘pre-qualifier’ for some clients. ‘We are often quizzed and rated on our ESG and sustainability performance, irrespective of our legal services. This has been a development over the last five years – we may not stay on a panel if we don’t meet the client’s criteria.’
Norton Rose Fulbright EMEA chair Farmida Bi emphasises this evolving dynamic: ‘Clients – including those with whom we have deep relationships – now want all sorts of information about how diverse we are as a firm and what our approach to sustainability is, for example. The relationship and the values are much more shared than they used to be in the past.’
And while ESG may in the past have been an easy target for non-believers, law firms now have to strike the balance between business and their best intentions, as Hogan Lovells’ Walker sums up: ‘We want to have maximum positive impact for all our stakeholders and clients, but we need to make money as well, because if you don’t, then it’s not sustainable.
‘It’s important that businesses do make money, but if you’re just in it to make money, it’s going to be a pretty bad business – I’m with Henry Ford on that.’ LB