Environmental, Social and Governance (ESG) credentials have quickly transitioned from a buzzword for large corporates to a strategic must-have for law firms and in-house legal teams.
More than 80% of companies worldwide now report on sustainability, a figure that rises to 90% for the largest corporations (KMPG). Law firms make up part of their clients’ supply chains and therefore their indirect emissions, with a 2021 survey by the Law Firm Sustainability Network revealing that 87% of responding law firms had received requests for proposals that included information about the firm's environmental efforts. Well-established ESG credentials are also essential for finding and retaining top talent among younger generations and will be particularly relevant for SMEs as a competitive differentiator to their larger, corporate counterparts.
How can law firms leverage technology to improve their ESG prowess?
Regulatory compliance tools
Recent years have seen the introduction of various regulatory disclosure regimes for sustainability across the European Union and, the UK’s Companies Climate-related Financial Disclosure Regulations 2021, which applies to large LLPs from April 2022. In-scope firms have to disclose their governance, strategy and assessment of climate-related risks and the accompanying metrics used. Technology like regulatory compliance tools and platforms can make the transition from voluntary to mandatory disclosures simple: by accounting for the sustainability of third-party procurement; by automating required due diligence and data capture; and by allowing firms to self-assess whether their business purpose is sufficiently integrated into their contractual and governance arrangements. These tools can be personalised to account for different reporting regimes and lead to huge efficiency savings. Companies and SMEs not in-scope for the initial reporting rounds should expect to be included in the coming years as the UK government ramps up its effort on net zero for 2030.
Promoting corporate social responsibility with technology
The social component of ESG is often overshadowed by its counterparts. A 2021 global study by asset manager Architas found that ‘Governance’ was deemed the “most important” element in relation to discussions about ESG investing, while ‘Environmental’ factors – understandably – are indicative of today’s Zeitgeist. To combat this, law firms and in-house legal teams can boost their social credentials by allowing employees to make measurable and meaningful impacts on the local and international community through corporate social responsibility (CSR) platforms. These platforms, often in app or website form, can allow firms to donation-match their employees’ contributions, to share fundraisers, host pro bono activities and invite others to online events – all in one place. Dedicated sustainability or CSR officers can use these tools to share new initiatives and uplifting stories. In turn, businesses can leverage their recorded CSR credentials to appeal to a broader customer base, evidence their commitment to social issues and increase employee recruitment, satisfaction and retention.
Lawyers will be well-aware by now of the efficiency savings of document automation, but it can also contribute to fulfilling a company’s ESG goals. Technologies that allow for seamless, cloud-based drafting of contracts will reduce printing, save employee time thus tackling the culture of long-hours in the legal industry - and can ensure that internal governance of contracts is fair, transparent and accessible. A number of platforms can estimate the savings made in energy consumptions and water waste, contributing to employee satisfaction. A centralised contract management system can allow one to view and track compliance with any sustainability-related policies the firm has agreed to in writing, improving the internal governance of sustainable measures and agreements.
Managing ESG data
Firms developing ESG frameworks have to navigate inconsistent metrics and indicators. The data is usually backward looking, rather than reflecting current trends. There is no single source of available data that incorporates procurement and third-party suppliers. Regulatory requirements complicate the picture by creating voluntary disclosure categories and shifting timelines. An ESG data and analytics platform can overcome these challenges and strengthen an ESG strategy by providing tangible data-driven goals that can be easily measured. Complex granular data can be sourced from all levels of business – from tracking the carbon footprint of flights between two offices, to demonstrating the percentage gain towards internal ESG target metrics. In turn, this can allow firms to meet their regulatory requirements and compare and contrast suppliers on their ESG rating, promoting better overall decision-making.
Green bonds and loans
Law firms should be aware of green financial instruments as they stand to benefit from the resulting work and their own potential offerings. Green loans and bonds, as well as sustainability-linked loans, are all forms of financing to consider, however, the core difficulty within green finance is working out what counts as “green” and sustainable. In response, numerous platforms supported by blockchain technology exist to fill the data and metrics gap, supplemented by the standards found in legislation and ICMA’s Green Bond Principles, to automate the labelling process. Law firms and in-house counsel have in recent years boosted their ESG credentials by helping companies to create green finance instruments – it remains to be seen whether law firms will invest in these instruments themselves.
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