As law firms worldwide rush to bolster their ESG practices there is a risk that valuable pro bono work will fall by the wayside. By Jacquelyn MacLennan, a member of the Brussels Bar and a Scottish solicitor, a CEDR-accredited mediator and Hon. Professor at Edinburgh University Law School.
A few years ago, a version of the ‘fastest things on Earth’ meme was doing the rounds: A cheetah? An airplane? The speed of light? Or people becoming ‘specialists’ in ESG?
Today, the promise has come to pass. ESG is not quite a topic for airport bookshelves, but the acronym is no longer met with blank stares in the business world, and the role of the ESG professional is fairly well-known. ESG is mainstream. The problem is ESG has become everything for everyone, and is increasingly criticised as just a smokescreen for unreliable claims, ‘rainbow washing’, misleading rankings and beloved only of left-leaning liberals.
ESG may be facing a backlash and may well be renamed ‘sustainability’ or ‘responsible business’ – but it is not going to go away. Not while the climate change whiplash effect can be seen in the fires currently raging in Los Angeles and the floods and snow which brought California to a stop in the previous two years, repeating patterns seen in Europe; not while human rights abuses in supply chains concern consumers from the fashion to fishing industries; and not while the corporate world realises that diversity in its widest sense leads to better decision-making. For sure, the election of Donald Trump in the US, his ‘drill baby drill’ mantra and support for the ‘anti-woke’ movement, will restrict federal level regulation in the area of the environment and climate change.
Antitrust law may be (ab)used to try to scare financial institutions and companies from cooperative efforts to increase voluntary disclosures: BlackRock, previous champion of ESG, has withdrawn from the Net Zero Asset Managers global group, and the six largest US banks have exited from the Net Zero Banking Alliance. But ‘Blue State’ regulation will likely continue, as it did under the previous Trump administration.
Following recent Supreme Court decisions, DEI may be reframed as ‘inclusion’ and targets replace quotas, but responsible companies will not jettison the advances they’ve made and should continue to make in their own self-interest.
And US (like other global) companies and financial institutions will be affected by EU law already in force requiring disclosures on sustainability issues – the EU Corporate Sustainability Reporting Directive (CSRD), and publication of climate transition plans – the EU Corporate Sustainability Due Diligence Directive (CSDDD). In the EU, there has been an exponential increase in ESG legislation in the last six years or so. The adoption of the Green Deal package has been accompanied by corporate sustainability due diligence requirements in specific legislation covering conflict minerals, batteries, timber and commodities in regions at risk of deforestation, culminating in the adoption of the long-discussed EU CSDDD.
This affects not just the large EU and non-EU companies directly subject to its requirements, but has a key trickle down effect through supply chains, resulting in a fundamental change in how companies organise their business worldwide. In addition, the EU has caught up with the US and introduced a law requiring that goods sold in the EU must not involve forced or child labour. In Australia, Canada, and other countries around the world, ESG regulation is increasingly affecting all companies doing business there.
Companies also face a growing threat of lawsuits regarding their climate change commitments flowing from the Paris Agreement and their substantive obligations under ‘soft’ law, in particular the UN Guiding Principles on Business and Human Rights (the UNGPs). The innovative Milieudefensie v Shell litigation in the Netherlands, where the Court of Appeal has just confirmed the principles established by the Court of First Instance that Shell has a duty of care under Dutch law to implement climate change commitments, although softened the specific obligations imposed on Shell (a further appeal may follow).
All that to say: companies and financial institutions have to face new and serious ESG legal compliance issues. Taking a narrow ‘tick box’ approach has considerable risks, since underlying the law is the reality that environmental issues and climate change create major liability threats which companies must recognise and factor into their operations and investors and lenders will require this. Similarly, human rights abuses, including the use of forced and child labour or unacceptable labour practices, are potential litigation hazards – as well as public affairs disasters – which companies can’t ignore. The more transparency is mandated, assuming (and I think we can) the continued existence of an effective media and concerned NGOs, the more ESG litigation will result, such as Shell in the Dutch courts regarding its net zero commitments, or Total regarding its GHG emissions and its Uganda/Tanzania pipeline and Lafarge regarding its operations in Syria in the French courts, or the duties of directors in cases brought in the UK courts.
Law firms are waking up to this new world. A new category is emerging, that of ESG lawyers. I’m a little suspicious of this trend. In my view, all lawyers should be ESG lawyers to a greater or lesser extent, since this is such a broad and fundamental risk area that no legal practitioner should be oblivious to. Lawyers representing financial institutions or companies or governments or individuals, either as litigators or trusted advisors, must be aware of ESG developments to properly advise their clients, and increasingly their Bars require this.
The International Bar Association (IBA), the American Bar Association (ABA), and the European Bar Group (CCBE) are all concerned that lawyers fully understand their obligations and update their legal knowledge in the fast-moving areas of business and human rights and ESG in the widest sense. I also take the view that no individual lawyer can be a specialist in ESG as a whole, only in certain components. The trick for law firms is in pulling together the specialist lawyers – the ‘E’ environmental lawyers, the ‘S’ employment, discrimination and human rights lawyers, and the ‘G’ corporate, capital markets and financial services lawyers – to offer clients the holistic legal advice they need covering all relevant ESG risks and opportunities.
But law firms also increasingly recognise they are on their own ESG journeys. First, they are impacted by ESG in their own right, and not just in how they ‘tool up’ to advise clients. As much as any other organisation, they must comply with the ESG regulatory framework. Depending on where they operate, they may have to meet new corporate sustainability legislative reporting requirements and due diligence requirements, both because they are directly caught by the new rules or because they are part of the supply chain of their clients (who are already seeking information for their own reporting).
Second, they must be accountable for their own ESG profile. The term ESG seems to have taken over from corporate citizenship or corporate social responsibility or corporate philanthropy (though there may be a resurgence in such terms, or simply ‘responsible business’) and firms must respond to mounting questions from clients, from their people, and from potential clients and recruits on their impact and their practices. Firms must develop strategies reflecting their particular location, size and culture and values, and be visible on these.
To date, most law firm attention has been focused on the ‘E’ and the challenge of reporting not just on the environmental credentials and green practices firms want to publicise, but their actual emissions. Focus is mounting on the ‘S’ and the ‘G’, requiring firms to look at their own operations and their supply chain in terms of diversity, discrimination, employment, well-being and remuneration practices, and the avoidance of use of forced or child labour (who picked those strawberries in the staff fruit bowl?)
Law firms are also being ranked – and choosing to be ranked – on whether they are good ESG citizens. A number of indexes are emerging; for example, the Law Firm Maturity Index, and rankings of law firms by Impactvise or Lamp House/Chambers. Law students also have their own rankings, the best known being Law Students for Climate Accountability.
This has an impact in at least two particular directions. One is the criteria applied by law firms to how and what they take on in terms of new clients and business, and the importance of keeping under review existing client relationships. Law firms need to define carefully what they do and what they stand for, and be ready to define and communicate that clearly. They also need systems in place so that management knows what the partners are actually doing in terms of new matters, and that can be a challenge.
The second is pro bono work. Self-evidently, law firms and lawyers, differ in the value they place on their pro bono contribution. US, Australian and some UK firms – perhaps driven by Bar obligations, or a lack of legal aid, or particular moral or societal expectations – have long placed a high value on pro bono and expect significant pro bono contributions from their lawyers. Progressively, across many jurisdictions from Brazil to Japan, law firms recognise that public funding for legal work is insufficient and many are stepping up in offering pro bono legal advice and their Bars are supporting this. Conflict, migration, natural disasters and socio-economic deprivation all give rise to intense legal need – and pro bono may be the only solution for many.
I would argue that pro bono work should be seen by firms as a key component of their ESG strategies. Indeed, the need for firms to consider their own profile in ESG terms, and the questions on pro bono in ESG rankings should be a stimulus for pro bono work. Of course, pro bono should not be a smokescreen to green/blue-wash how firms actually operate, and should be well supervised and high quality, but the need for legal pro bono is undeniable and in principle more is better.
But I would also argue that pro bono should not be conflated with ESG, and firms should see their pro bono work (and their dedicated/specialist pro bono teams if they have them) as separate from their organisation of ESG work. Of course, law firms may do pro bono work falling into different ESG components – work for environmental NGOs, or employment law cases for migrants for example. The expertise developed in that work can be harnessed for relevant client-billable ESG matters. But pro bono work is much wider than ESG-topic related.
My concern is if a pro bono practice is re-labelled as an ESG practice, or pro bono-dedicated teams become ESG teams, the priority a firm gives to pro bono work against billable work may reduce, and the priority given to certain types of pro bono work may change. In essence, a firm’s work may shift away from areas of crucial need: from helping individuals with legal needs, or assisting law clinics, or taking on litigations which may be resource-intensive, unpredictable and lengthy (such as those involving criminal convictions or sentencing appeals or seeking corporate liability for an alleged harmful practice), and shift towards pro bono which fosters the ESG work done by the firm. That work may be entirely justifiable as pro bono in its own terms, but if the focus or indeed the only pro bono work done by a firm becomes matters which substantively could be valuable for its ESG practice, then the ethos of pro bono is undermined.
Lawyers have an obligation to society to promote access to the law, and fairness and equality before the law. If the centre of gravity of pro bono work becomes ESG-related work rather than ‘classic’ access-to-justice cases, there is a real problem. Further, it would make financial sense for lawyers in dedicated pro bono practices (ie doing 100 per cent pro bono work) to be re-purposed into billable ESG work as well as pro bono work, which compounds the problem.
As the focus on ESG progresses and matures, the challenges for legal firms will evolve. It’s important to ensure that this is positive for pro bono work as a whole and does not detract from our fundamental responsibility as lawyers, irrespective of the sector in which we practice, to contribute to achieving access to justice for all in need.