With a wave of environmental disclosure legislation on the horizon – CSRD, SECR, and many more – legal firms are filling a new niche: advising clients and organisations with sustainability compliance, greenwashing-proof marketing, and financial communications with new emissions line items. And more than ever, legal firms are recognising the need to implement their own carbon reporting and to build meaningful reduction plans.
This article will explore the main drivers and benefits of carbon emissions reduction in the legal sector, as well as the challenges organisations face and a path forward.
Main drivers of carbon reduction in the legal sector
Some disclosure legislation already impacts legal firms. The Corporate Sustainability Reporting Directive (CSRD), now mandates nearly 50,000 EU companies to comprehensively report on their sustainability efforts, including the challenging scope 3 emissions. Meanwhile, the UK’s Streamlined Energy and Carbon Reporting (SECR) framework requires large companies to report on their energy use, greenhouse gas emissions, and energy efficiency measures. Under the policy, businesses and organisations are obligated to disclose their energy consumption and carbon emissions data in their annual reports.
‘Clients have always preferred to partner with firms that share their core values – today, that often means a commitment to sustainability.’ Kristian Rönn, Normative
Even for those that aren’t yet required to report, there’s a critical need for transparent carbon reporting and effective carbon reduction strategies. Reducing carbon emissions is not only encouraged through legislative pressures, but it can help legal firms save money, differentiate their businesses, develop new areas of practice, and attract new clients.
Adopting carbon reduction measures offers significant financial benefits. A McKinsey study revealed that 10% of investors are willing to pay 10% more for a company with a positive ESG record. This fiscal common sense is appealing to investors which is another reason why carbon reduction directly contributes beyond mere compliance, to enhancing a firm’s bottom line and market competitiveness.
Moreover, legal firms face unique risks in ignoring climate action. The tightening of regulations and increasing energy and business costs due to inflation pose plausible risks, especially to those areas of operation heavily reliant on emission-intensive processes like travel, office heating and material costs.
There are also strategic and cultural reasons to not only conduct comprehensive sustainability work, but also to share it with clients and employees. Clients have always preferred to partner with firms that share their core values – today, that often means a commitment to sustainability. Legal firms that actively pursue carbon reduction strategies not only align with these values but also stand out from their competitors. This alignment is not just a matter of corporate responsibility – it’s a strategic differentiation point.
In addition, legal firms are experiencing increasing pressure from their own employees to take action against climate change. A Deloitte report found 50% of Gen Z employees are pushing their employers to drive change on environmental issues.
CSRD vs SECR
The Corporate Sustainability Reporting Directive (CSRD) guidelines are a set of reporting requirements for companies operating in the European Union. The guidelines aim to improve the transparency and comparability of sustainability reporting by standardising the information disclosed by companies, including environmental, social, and governance (ESG) data.
The Streamlined Energy and Carbon Reporting (SECR) framework is a UK government initiative that requires large companies to report on their energy use, greenhouse gas emissions, and energy efficiency measures. The aim of SECR is to encourage businesses to reduce their carbon footprint and improve their energy efficiency, while also increasing transparency and accountability.
The rise of specialised law firms focused on carbon reduction and net zero targets presents a separate new challenge. These firms, adept in navigating the complexities of sustainability legislation, could potentially surpass competitor firms because of their compliance credentials. For instance, such law firms could leverage their specialised expertise to offer bespoke guidance, differentiating themselves to traditional law firms. Such specialisation is a new area of practice that could be a big revenue stream for legal firms in the near future, underscoring the urgency for legal firms to embed sustainability and decarbonisation into their practice.
Challenge: The business execution gap
Even with the additional cost and time required to complete sustainability reporting and reduction planning, more and more legal firms are committing to comprehensive carbon reporting and net-zero plans. But oftentimes, progress towards net zero stops after a firm has tackled the low-hanging fruit, like switching offices to renewable energy or reducing office supplies. Overcoming this execution gap requires detailed emissions insights across scopes 1, 2, and, especially, 3.
Scope 3 emissions, or value chain emissions, is one of the most challenging areas for companies to calculate and understand. These value chain emissions typically make up over 90% of a law firm’s total emissions. Additionally, there is a growing demand from clients for legal firms to reveal their own greenhouse gas emissions. A prominent law firm reported receiving 50 requests from RFPs between October 2022 and March 2023, asking for the disclosure of the firm’s environment, social and governance (ESG) data, which includes carbon emissions. Additionally, a recent report by Thomson Reuters Institute revealed that in-house lawyers consider ESG as one of the top three risks on the horizon.
Tracking scope 3 emissions is particularly complex for legal firms, necessitating insights into the operations of multiple external entities. Without designated specialists and automated technology solutions equipped with the know-how to track, measure and reduce emissions, these initiatives can become fragmented and lose momentum.
‘Reducing carbon emissions is not only important for the environment, but it is also essential for businesses to remain competitive and sustainable in the long term.’
Kristian Rönn, Normative
Carbon accounting used to be part of the annual reporting cycle, but today, it’s being used every day to access, evaluate and improve business models and performance. For instance, businesses are using carbon data on a regular basis to improve their offering, and this can help them become a leader in the value chain.
As the leader in the value chain, a firm is best placed to distribute the costs of Net Zero across all participants of the value chain, and the decisions this leader makes have the biggest impact on the composition and efficiency of the value chain.
A good example is our work with transportation company Hitachi Rail, which optimised its carbon accounting processes with the help of our platform. The outcome was a significant enhancement in the organisation’s sustainability reporting. For the first time, Hitachi Rail could claim a comprehensive account of its scope 3 emissions, catapulting its reported figures from a mere 10-13% to over 90% of their total emissions.
This success in data accuracy and granularity has paved the way for targeted strategies in decarbonising the organisation’s supply chain and has solidified Hitachi Rail’s position as an industry frontrunner in environmental accountability.
The transformation to Net Zero will be led by value chain leaders such as Hitachi Rail who, because of their dominant position, have most to gain through action, and most to lose through inaction.
Know your scopes
Scope 1, Scope 2, and Scope 3 emissions are categories used to measure a company’s greenhouse gas (GHG) emissions. Scope 1 emissions refer to direct emissions from sources owned or controlled by the company, such as fuel combustion in boilers or vehicles. Scope 2 emissions refer to indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions refer to all other indirect emissions, including those from suppliers, customers, and transportation of goods.
Scope 3 emissions can be difficult to track and quantify, as they may involve multiple parties and complex supply chains. Additionally, the level of detail required to accurately calculate Scope 3 emissions can vary depending on the industry and the specific activities involved, making it challenging to develop standardised methodologies for measurement and reporting.
Solution: How can legal organisations overcome the execution gap and reach net-zero goals?
To overcome the execution gap and make meaningful reduction process, legal organisations should first gather precise data across all scopes. The firm’s business and activity data must be paired with relevant and scientific emissions factors, to ensure an accurate carbon footprint.
With over 40,000 vetted emissions factors and AI-powered calculation processes, carbon reduction platforms like Normative can massively speed up this process. When the calculation is complete, a firm can examine its emissions footprint in detail – and can forecast the impacts of potential sustainability initiatives. This level of insight is required to identify, design, implement, and ultimately verify, specific reduction projects.
It is especially important to access primary data from a firm’s value chain, the suppliers that contribute to scope 3 emissions. The Normative Carbon Network assists legal firms in connecting with their suppliers to obtain essential carbon data. This network streamlines data sharing and encourages ongoing cooperation.
Conclusion
Reducing carbon emissions is not only important for the environment, but it is also essential for businesses to remain competitive and sustainable in the long term. Legal companies that prioritise sustainability and take action to reduce their carbon footprint can not only meet the demands of clients and investors but also demonstrate their commitment to positive impact.
By adopting sustainable practices, legal firms can contribute to a healthier planet and support the transition towards a low-carbon economy while positioning themselves as leaders in their industry and attracting like-minded clients who value environmental responsibility. Ultimately, legal companies that prioritise sustainability can make a meaningful difference in the world while also benefiting their own bottom line.
For more information, please contact:
Kristian Rönn
Chief executive and co-founder at Normative
Normative
Metal Box Factory
30 Great Guilford St
London, SE1 0HS
