‘Clients are not only seeking legal expertise but also looking for firms that practice what they preach’ – ESG Q&A: Herbert Smith Freehills

Could you share some examples of innovative ways Herbert Smith Freehills is working with clients in the ESG space?

Silke Goldberg: At Herbert Smith Freehills, we are actively engaging with our clients in the ESG space through innovative tools like our Global ESG Tracker and ESRS Navigator.

With the Global ESG Tracker, we offer clients a monthly subscription service that can deliver concise business friendly updates covering the entire range of ESG issues across the globe. This service is tailored to the specific jurisdictions and sectors that are most relevant to our clients, ensuring they receive the most pertinent information. It’s a strategic resource that helps businesses navigate the complex and ever-changing ESG legal landscape, enabling them to stay informed and compliant with the latest regulations, policies and legal cases. Our clients really value the fact that we are able to tailor the tool to meet their global needs and they receive a comprehensive summary of all important ESG updates in one place.

Sarah Ries-Coward: The ESRS Navigator, is another innovative tool designed to support our clients in translating the European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD) into practical language for their business teams to implement effectively. This tool serves as a bridge between the technical complexities of regulatory frameworks and the practical needs of businesses. It offers a clear and concise breakdown of both mandatory and voluntary disclosure requirements under ESRS, alongside the underlying process requirements and expectations. By leveraging our extensive global expertise, we provide targeted, actionable insights that empower our clients to proactively meet these standards, ensuring their business remains compliant and competitive in the evolving ESG landscape.

These tools are just a few examples of how we’re leveraging our global expertise to deliver targeted, actionable insights that empower our clients who are ‘running to stand still’ to remain compliant and competitive in the evolving ESG landscape.

What role does tech play in your ESG advisory services, and can you give an example of how it’s being used to enhance client outcomes?

Jannis Bille: Technology plays a pivotal role in our ESG advisory services at Herbert Smith Freehills, particularly through the use of innovative tools like our CSRD Mapper. This tool exemplifies how we leverage technology to enhance client outcomes by providing a clear and efficient pathway through the complexities of ESG compliance. The CSRD Mapper is designed to help clients navigate the CSRD applicability requirements – who falls in scope and when. By inputting specific company data, the CSRD Mapper can generate a tailored report that provides a definitive answer on which companies are caught, availability of exemptions and relevant reporting timelines.

Our use of technology ensures that our ESG services are not just comprehensive but also highly practical, cost effective and aligned with the specific needs and goals of our clients. It’s a testament to our commitment to staying at the cutting edge of ESG advice and using technology to drive better outcomes for our clients.

How do you vary your ESG guidance to meet the specific needs of clients across different industries?

Silke Goldberg: We aim to break down traditional law firm structures bringing together skills across disciplines to assemble bespoke teams of experts and draw in people with deep sector expertise. This allows us to address the unique ESG-related needs of each project and client.

As a team we have been recognised as a leading firm in ESG and have over 30 years of experience advising clients on ESG and sustainability matters. Our market-leading practice delivers expertise in areas such as ESG-related reporting and disclosures, governance and risk management, business and human rights, climate change-related litigation, transition planning, environment, green and sustainable finance, impact investment, and ESG issues relating to due diligence, the M&A process and supply chains.

How is Herbert Smith Freehills helping clients navigate the evolving regulatory landscape?

Sarah Ries-Coward: We’re dedicated to helping our clients navigate the ever-evolving ESG regulatory landscape and understand that keeping on top of the latest regulations and standards and how they interlink (or not!) is crucial for our clients.

One of the most recent ways we assist our clients is through one of the tools we spoke about above, our Global ESG Tracker, an invaluable resource for keeping up-to-date with global ESG legal and regulatory developments.

In addition to the Global ESG Tracker, we also offer bespoke ESG training programmes to our clients. These training sessions are designed to educate and empower our clients’ teams on the nuances of ESG regulations and best practices.

Can you discuss some of the major global trends in ESG that are particularly impacting your clients, and how you are helping them respond?

Jannis Bille: Some of the major global trends in ESG that are impacting our clients include the increasing emphasis on ESG disclosure and reporting such as the EU CSRD and the International Sustainability Standards Board (ISSB), the push on environmental and human rights due diligence in supply chains such as the Corporate Sustainability Due Diligence Directive (CSDDD), the heightened scrutiny on greenwashing and social washing and the rise in ESG disputes. These trends are influencing our clients across various sectors, prompting them to seek guidance on compliance, due diligence, and reporting requirements. They can arise from various issues, including corporate reporting, such as securities claims, and allegations of ‘greenwashing’, where companies are accused of misrepresenting their environmental practices or impacts or making unsupported sustainability claims for their products. Claims may also be brought against company directors in respect of ESG matters, reflecting the growing accountability for corporate leadership on sustainability issues.

Business and human rights issues are increasingly becoming a focal point within the ESG framework. As companies strive to align their operations with sustainable and ethical practices, the integration of human rights considerations into business responses to environmental challenges is gaining momentum. In addition, ensuring human rights compliance across global and intricate supply chains is difficult. Companies must navigate varying international regulations, local laws and cultural norms while maintaining their human rights standards. This is particularly challenging in sectors like agriculture and manufacturing, where labour rights and working conditions are critical.

Nature and biodiversity issues are becoming another significant aspect, the European Union, for instance, has been proactive in this area, with the introduction of the Regulation on Deforestation-free Products. This regulation is part of a broader effort to ensure that products entering the EU market do not contribute to deforestation and forest degradation. This shift towards integrating nature and biodiversity into ESG considerations is not just a regulatory trend but also a response to the growing awareness and demand from consumers, investors, and other stakeholders for more environmentally responsible business practices.

How has the tone of ESG conversations shifted in the last 12 months?

Silke Goldberg: Over the past year, the tone of ESG conversations has notably shifted from being a ‘nice-to-have’ initiative to a critical aspect of business strategy and operations across the globe. ESG is no longer seen as a peripheral concern but is increasingly integrated into Board level discussion and the core decision-making processes of businesses. This change is driven by a growing recognition of the financial materiality of ESG issues and the realisation that sustainable practices can lead to better long-term outcomes for companies and their stakeholders.

A significant shift has also been the importance of ESG in M&A transactions with ESG factors becoming increasingly significant in due diligence, strategic positioning and financing.

In your experience, where do client ESG concerns come from? Are they a result of internal or external pressures?

Sarah Ries-Coward: In our experience, client ESG concerns stem from a combination of both internal and external pressures. Internally, employees and shareholders are increasingly aware and concerned about ESG issues, recognising the importance of sustainability and ethical practices for long-term business success. They are advocating for change and accountability within their organisations, driving the agenda towards more sustainable and responsible business operations.

Externally, pressures come from customers who are demanding greater transparency and responsibility from the companies they support. Regulators are also playing a significant role, as they introduce stricter ESG-related regulations and reporting requirements. This regulatory landscape is compelling companies to adhere to higher standards of ESG compliance, influencing their strategies and policies.

Both these internal and external forces are shaping the ESG landscape, making it an essential consideration for businesses across all sectors. As a result, companies are increasingly seeking guidance on how to integrate ESG principles into their core strategies to meet the expectations of all stakeholders and to comply with regulatory demands.

Why should lawyers care about ESG?

Jannis Bille: ESG has hit the mainstream in legal services, so lawyers everywhere will already be paying attention. There are several reasons for this, including:

1. compliance with regulation – as we touched on before, our job as lawyers is to help clients navigate the fast-evolving ESG regulatory landscape;
2. risk management – it is also important to help clients mitigate liability and reputational risk not only advising clients on their disclosures but also on their wider ESG strategies and policies;
3. sustainable investment and financing – ESG considerations influence investor decisions and access to capital so we help clients align with ESG criteria to attract investment and secure favourable financing; and
4. commercial contract obligations – likewise, ESG considerations are integral to supply chain management and M&A transactions, so through contract drafting and advising on due diligence, lawyers help clients with compliance and risk mitigation.

The reality is, ESG has become a global trend. Aside from helping clients stay ahead of the curve and gain a competitive advantage, having a strong ESG practice leads to innovation and market differentiation.

Would you say ESG expertise is now more of a priority for companies when instructing a law firm?

Sarah Ries-Coward: Absolutely, ESG expertise has become a critical priority for companies when selecting a law firm. We are witnessing a significant uptick in ESG-specific mandates as well as the influence of ESG in wider mandates, reflecting the growing importance of ESG issues in the corporate world.

Furthermore, when engaging with clients, they are increasingly enquiring about our own ESG credentials and metrics. They want to ensure that their legal partners align with their ESG values and commitments. This scrutiny extends to our internal practices and our approach to ESG in our operations. Clients are not only seeking legal expertise but also looking for firms that practice what they preach in terms of ESG.

What do you see as the future of ESG, and how should companies prepare now to stay ahead of the curve?

Sarah Ries-Coward: The future of ESG is poised to become even more integrated into the core of business operations and strategy. Companies should anticipate a landscape where ESG considerations are not just compliance requirements but also key drivers of innovation, competitive advantage, and long-term sustainability. To stay ahead of the curve, companies should:

• Keep up-to-date with ESG developments: Utilise tools like our Global ESG Tracker to stay updated on legal developments and best practices in ESG. This will help companies remain informed about the evolving ESG landscape and anticipate changes that could impact their business.
• Understand ESG reporting requirements: Companies will need to know which ESG reporting standards apply to their operations and when. It’s crucial to understand what information and data is expected to be reported on and processes that need to be put in place – none of which can happen overnight.
• Develop a robust ESG strategy: Reassess ESG strategy to ensure it aligns with the company’s business goals and stakeholder expectations. This strategy should include clear objectives, actionable steps, and measurable targets.
• Foster an ESG culture: Engage with employees at all levels and integrate ESG considerations across the business. This can include working with law firms to provide ESG training for their teams. This will ensure that internal stakeholders understand the importance of ESG and are equipped to implement ESG principles effectively within the company.
• Leverage technology: Use technology to monitor and manage ESG performance. Digital tools will be critical to help track progress, identify areas for improvement, and report on ESG metrics effectively.
• Collaborate and innovate: Collaborate with industry peers, non-profits, and governmental organisations to drive collective action on ESG issues. Innovation in products, services, and processes can also contribute to better ESG outcomes.

By taking these proactive steps, companies can ensure they are not only prepared for the future of ESG but are also leading the way in sustainable business practices. If you need further guidance on developing and implementing an ESG strategy, our firm is here to assist you.