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Law firms and ESG: getting it right

Mia Kalajdžić of Bardek, Lisac, Mušec, Skoko (in co-operation with CMS Reich-Rohrwig Hainz) and Dennis Fromm of CMS Germany discuss how law firms can deliver on their environmental, social and governance targets.

Environmental, social and governance (ESG) is a phrase that has been thrown around within the legal industry for quite some time now. However, many law firms have recently begun to realise that the occasional pro bono or charitable action here and there in support of sustainability commitments does not lead to successful ESG adoption within their firms. As a result, there is still huge potential for improvement in the legal market.

The dimensions of sustainable business are widely underestimated and professional sustainability standards are often not adhered to. This leads to intensified greenwashing, bluewashing or pinkwashing, rather than an active contribution towards a more sustainable world.

Against this backdrop, there are six important areas to consider when addressing ESG performance within law firms:

Carbon footprint

The term ESG implies quite clearly that there are more than just environmental issues linked to sustainability. Furthermore, the term indicates that environmental, social and governance issues are connected. 

Law firms are service providers. Therefore, lawyers are faced with a range of sustainability issues that are specific to the provision of legal services. These differ from issues that an airline might face, for instance, or those that affect a local energy provider, where carbon footprint is very much the main concern in terms of sustainability impact. 

As a general rule, corporate sustainability is about reducing a law firm’s negative impact and increasing its positive impact in several areas. To identify these areas, a materiality analysis will need to be carried out for the firm (see box “Materiality analysis”). While the findings of a materiality analysis are individual, there are industry specifics. For law firms, one of these specifics is that the “S” and the “G” in ESG are more significant than the “E”, as a law firm’s environmental impact is relatively low. Therefore, a law firm’s ESG approach should include a lot more than just its carbon footprint.

Materiality analysis

A materiality analysis will help to prioritise what really matters to a law firm in terms of its environmental, social and governance (ESG) goals. The findings of a materiality analysis should guide all of the firm’s activities, reportings, policies and key performance indicators on ESG.

Invest in resources

Nothing comes from nothing. Corporate sustainability comes at a price, and law firms need to invest in ESG resources.

Firms rely on their employees to establish sustainable business practices. However, the relevant ESG expertise that is necessary for a professional sustainability set-up is rarely found within law firms. As is the case with other businesses, law firms should hire ESG or sustainability specialists to professionally guide and oversee their ESG and sustainability strategies.

ESG specialists can impart their expertise by developing and managing the firm’s ESG structures, strategies and activities. However, they need to collaborate closely with a variety of stakeholders and be embedded into the wider firm. The responsibility for solving operational challenges relating to ESG, from supply chain standards to employee health and safety, lies within several different departments. Within these departments, some resources should formally be reallocated to the firm’s ESG strategy.

Prioritise limited resources

Rome was not built in a day and neither was the sustainable law firm. ESG encompasses many fields of action. There is so much that law firms can do to become more sustainable, however it will take time and resources to achieve these goals.

Firms should narrow down the issues to be addressed by means of a materiality analysis, as required by professional ESG standards, but it will still be necessary to prioritise targets and projects. Even if a firm has invested into hiring ESG professionals and freed up resources in its various departments, its resources will be limited. While this is not law firm-specific, ESG ambitions are often unrealistic. Therefore, choices around what to prioritise will need to be made in order to make any progress.

Harmonise communication

It is tempting and easy for a law firm to present itself as sustainable to the outside world. Marketing professionals have the means and skills available to advertise their firms as the most sustainable law firm, which excels in supporting diversity initiatives, commits to a sustainable future for the next generation by sponsoring education projects and engages extensively in pro bono activities.

While no law firm needs to hide its light under a bushel, it might be worth considering whether the firm is practising internally what it preaches. For example, if the firm supports external diversity initiatives and proudly emphasises this on its social media accounts, but has a corporate culture that discourages parental leave for men, the firm could be accused of bluewashing. In addition, employees might not feel happy about this contradiction and the firm’s reputation as a credible and reliable employer might suffer. Therefore, external and internal communication and action should be consistent and aligned when it comes to ESG.

Build competencies

ESG is relevant to all units and departments in the firm. Therefore, it requires capacity building at the firm across all levels of seniority of legal and non-legal staff. It generates several benefits for firms in the immediate and long term, from staff retention to valuable knowledge that can be captured in client advisory work and contributes to realising the firm’s ESG strategy and ambition.

Manage the change

Implementing sustainable business practice in a law firm is a demanding transformation project. Many certainties, behaviours and philosophies that big law has taken for granted will be turned upside down. Just like with other transformation projects that touch on fundamentals, the successful implementation of a professional ESG strategy within a firm requires proactive change and expectation management. Governance as well as communication and stakeholder involvement are key, as professional corporate sustainability is not self-explanatory. It is an emotional matter for many and requires sympathy for the different perspectives and collaboration across different departments, given ESG’s interdisciplinary nature.


This article first appeared in the June 2022 issue of PLC Magazine.

Key contacts

Mia Kalajdžić
Partner
Zagreb
T +385 1 4825600
Dennis Fromm
Dennis Fromm
Business Development Manager
Berlin
T +49 30 20360 2256