Picture this: a large company, by the name “EcoTech Innovations,” is sued for harming the environment. Besides the legal process, their lawyers will also investigate EcoTech’s environmental, social, and governance (ESG) practices. It is increasingly evident that this additional level of surveillance is an integral part of the legal system.
A survey carried out by NYSBA disclosed that there had been 86% of law firm managers who reported an increase in clients asking them questions about ESG issues in the past three years. ESG can be thought of as the rules that organizations must obey to be perceived as socially responsible corporate entities. In this blog, we’re going to discuss the significance of ESG for law firms.In this blog we will understand how ESG affects the running of law firms, and learn how law firms can abide by them better.
What are ESG policies?
ESG policies, also known as environmental, social, and governance policies, emphasize the inclusion of sustainability and ethics in the organizations’ operations and choices made. The policies that embrace a comprehensive range of issues with the reducing carbon emission and diversity and inclusion promotion, to the governance structure of the corporations enhancement and the transparency.
The research conducted by Wolters Kluwer showed that an amazing 81% of legal practitioners are indeed actively working on the ESG concerns within their service. Such a figure reveals more and more lawyers’ awareness of the need to take into account the environmental, social, and corporate governance aspects when practicing law. Furthermore, with as much as 63% of respondents pledging to channel more funds for ESG initiatives over the next two years, the legal sector seems to be increasingly embracing sustainability and ethical concerns into their operations.
ESG Policies – Priorities for the legal profession
Adopting ecological, social, and governance (ESG) policies is no longer a question of choice for law firms; it is an absolute imperative. Here’s why:
Client Expectations and Competitive Advantage
Clients, especially multinational corporations and the institutional investors, are beginning to take ESG factors into account more when they choose for their legal counsel. Legal firms, which are the leaders in sustainability, social responsibility, and ethical governance, not only meet the customer requirements but also gain a competitive edge in a very competitive and congested marketplace. In a Deloitte research, 73% of the investors who are institutional consider the ESG factors in their investing decisions, which shows the increase in the importance of ESG factors among the key client groups.
Risk Mitigation and Compliance:
The adoption of ESG policies helps law firms to be proactive, as ESG risks may come in the form of legal, regulatory, and reputational risks. Law firms can help clients stay compliant by staying updated with the evolving ESG standards and regulations, thus assisting them in understanding the complex regulatory environment and minimizing their liability exposures. According to one study by the Harvard Law School, companies with high ESG scores can access lower cost of debt and equity capital, which shows that a successful approach to ESG risk can save money for a company.
Enhanced Client Relationships and Value-Added Services:
ESG policies enable law firms to engage further with their clients by offering services that fulfill client’s sustainability needs and values. Attaining this by considering and integrating ESG issues into legal plans and solutions, law firms can be the long-term advisors, giving strategic solutions that not only meet the immediate legal needs but also contribute towards long-term business sustainability and resilience. A new research study by PwC shows that the ESG factors are increasingly viewed by 92% of the CEOs as a vital part of the strategy for a long-term prosperity of a company which is a very good evidence of the fact that these services have to be in line with the ESG.
Talent Attraction and Retention:
The millennial generation, comprising the modern-day attorneys, tends to regard the pursuit of meaningful work as the main reason for employment, and to work for an employer that makes a difference, at the very least, in the society. Today, most law firms would be ESG compliant, meaning they would be drawing the best talent as well as establishing a culture of diversity, inclusion and ethical leadership.
Gen Z and millennials are considered being quite socially conscious, and one of the polls conducted by Glassdoor shows that three-fourth of them prefer to work at companies that do social and environmental responsible things, which means ESG itself is very important for keeping the best workers.
Contribution to Sustainable Development Goals:
By putting into practice ESG guidelines, the lawyers in their business naturally contribute to the fulfillment of the United Nations Sustainable Development Goals (SDGs) which is a global platform that addresses and solves critical environmental, social, and economic problems.
In the implementation of the Sustainable Development Goals (SDG) which are climate sustainability, social equity and better management, law firms are critical players supplying legal services, championing and working with other stakeholders.The UN Global Compact, in their opinion, is the main proponent of ESG, as 93% of the CEOs state that their business success is determined by the sustainability factor, which is in line with broader sustainable development objectives.
Summing Up
One of the strategies that legal practitioners can adopt to improve the culture of the company is by taking into account ESG considerations while carrying out their functions. It is a source of competitive advantage, it helps in risk management, enabling relationship deepening, creation of talent pool, and contributing towards sustainable development goals.
The fact, thus, tells us that the ESG issues are increasingly grabbing the attention of clients, investors and employees, which in turn shows the great opportunities and benefits of ESG integration for law firms. As the legal profession continues to undergo the inevitable changes, ESG principles are no longer only a compliance matter, but they are a way of long-term success, resilience, and societal importance. Businesses that incorporate sustainability, social responsibility and ethical governance into their practices can be positioned as drivers of positive changes, thereby serving the interests of the business at the same time as the society as a whole.
