Between the globe-spanning impact of the Covid-19 pandemic and the current economic malaise, business leaders already have plenty on their minds. But a tremor has been running through legal and the wider professional services industry for some time – in among the calls from talent for entrenched flexible working and higher salaries, people have also been demanding their employers demonstrate the ways they benefit the wider world.
Law firms have been shaping a response – with many having put environmental, social or governance (ESG) initiatives in places several years ago – but the strength of feeling has become magnified recently. Pressure from clients, for instance, to demonstrate positive social impact is now impossible to ignore, says Lois Duguid, head of responsible business at DAC Beachcroft. “Twenty years ago, ESG initiatives were a ‘nice-to-have’. Now, they’re absolutely a business imperative – there’s not a bid that goes out of the business that doesn’t include questions around our environmental and social sustainability measures now.”
Walking the path of socially and environmentally beneficial actions is not a clear one though. ESG itself contains a multitude of concerns, with both the magnitude of requirements and the focus – be that environmental, social sustainability, wellbeing, governance, diversity and inclusion (D&I), or a whole host of other, connected issues – varying by client and sector. Duguid adds that, for instance, requirements in the public sector are quite specific. The Public Procurement Policy Note published in June 2021 outlined a requirement to demonstrate a potential supplier’s positive social impact on local government procurement and supply chains, with that weighting growing from 10% to 20%.
“Twenty years ago, ESG initiatives were a ‘nice-to-have’. Now, they’re absolutely a business imperative – there’s not a bid that goes out of the business that doesn’t include questions around our environmental and social sustainability measures now.”
Lois Duguid, head of responsible business, DAC Beachcroft
Client requirements can, however, originate from quite a different place. “Clients are increasingly pushing us to prove our ESG credentials. We represent a lot of entrepreneurs, and reputation is incredibly important to them,” says Kat Barry, head of impact at Mishcon de Reya. She explains that her firm’s outlook has always been angled towards doing good in the world, and so many initiatives have been a response to internal pressures – though that has begun to pivot towards client and talent expectations in recent years.
Despite this sense that expectations are changing, Oliver Bethell, chief technology officer at Travers Smith, says a universal system of expectations has yet to appear. “There’s not much in the way of minimum accreditations or metrics around ESG that firms have to pass to be accepted by a client at this point in time,” he says.
What's in scope?
As set out by the Greenhouse Gas Protocol (GHG), scopes 1, 2 and 3 are a set of categorisations that help organisations account for and report on greenhouse gas emissions. They are defined by the GHG as:
- Scope 1: Direct greenhouse gas emissions occur from sources that are owned or controlled by the company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.; emissions from chemical production in owned or controlled process equipment.
- Scope 2 accounts for greenhouse gas emissions from the generation of purchased electricity consumed by the company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organisational boundary of the company. Scope 2 emissions physically occur at the facility where electricity is generated.
- Scope 3 is an optional reporting category that allows for the treatment of all other indirect emissions. Scope 3 emissions are a consequence of the activities of the company, but occur from sources not owned or controlled by the company. Some examples of scope 3 activities are extraction and production of purchased materials; transportation of purchased fuels; and use of sold products and services.
It also seems firms are not yet feeling the sting of regulatory requirements in relation to ESG. Under the UK government’s Streamlined Energy and Carbon Reporting (SECR) programme, ‘large businesses’ (which captures the majority of Briefing’s readership) need only report on their direct greenhouse gas emissions, and those that result from energy usage – correlating to scope 1 and 2 of the Greenhouse Gas Protocol (GHG) respectively. Scope 3 emissions, where the majority of the service industry’s emissions are likely to be found, are largely voluntary – between this and the minimal requirements for measures such as gender pay gap reporting, Barry further adds, it is clients’ and employees’ expectations pushing the envelope currently. “Regulations will likely catch up with people’s expectations, but currently we’re focused on attracting the best talent and being attractive to clients, so we go over and above what we’re required to do,” she says.
Firms may start to become more wary of regulators, however, as priorities begin to shift. As an illustrative example, Angela Monaghan, purpose and impact manager at Bates Wells, mentions the Advertising Standards Agency’s (ASA) October 2022 ruling that upheld complaints against advertising run by HSBC during the run up to COP26 in 2021. The ASA ruled that the bank, having touted its positive environmental initiatives in the campaign, had omitted its role in financing greenhouse gas-emitting industries, and forbade HSBC from running communications around environmental claims that were not “adequately qualified” in future. This level of scrutiny from regulators may be a sign of what to expect down the road: “The business community is realising it can’t continue to act in the interests only of profits. HSBC have had their knuckles wrapped by the ASA, but it’s a really loud, public statement being made by the regulator,” Monaghan says.
People empower(ed)
More immediately pressing perhaps is the pressure that seems to be coming from law firms’ talent pools. Rebecca Ormond, inclusive workplace leader at PwC, has witnessed the shift: “It’s not that younger employees want fundamentally different things from earlier generations in terms of feeling included, but they are prepared to turn down an offer to work for you if you can’t meet those expectations. They also have higher expectations around sustainability and purpose, and can readily identify organisations that are not acting authentically in those areas.”
And the situation seems to ring true within legal. Among the generation coming up through the ranks, Duguid says, there’s a strong feeling that junior lawyers care about purpose, be that centred around environmental or social matters. “They want to work somewhere that represents a marriage of minds around the things that matter to them.”
She adds that the chance to work for the firm’s pro bono clients has been a significant draw for juniors – DAC Beachcroft acts for the MOBO Awards, which has championed music of black origin since 1996. “I had trainees beating a path to my door to take part in that work, because they love the music of artists like Stormzy and thought it was just incredibly cool to work with them – but also because they are fantastically keen to help an organisation that promotes equality in the music industry.”
“It’s not that younger employees want fundamentally different things from earlier generations in terms of feeling included, but they are prepared to turn down an offer to work for you if you can’t meet those expectations.”
Rebecca Ormond, inclusive workplace leader, PwC
Similarly, Barry says Mishcon de Reya finds its pro bono work and ESG moves generate high engagement among prospective talent, ensuring that such issues are a part of the firm’s induction process. “The new generation of lawyers and business services talent expects firms to have a stance on societal and environmental matters – it’s a big part of what they’re looking for in an employer.”
And it’s not only employees and clients piling on the pressure. Kirsty Rogers, global head of ESG at listed legal business DWF, says investors are also increasingly taking note of environmental and social matters, citing groups such as Climate Action 100+, a group of shareholders pushing global greenhouse gas emitters such as Shell to take action on climate change. The trajectory of such actions, she says, suggests these issues will only become more significant. “We are going to see more employee pressure in future – you only have to look at strike action to understand the growth in power of employee voice. And there’s an increase in shareholder activism – there’s no question that people are looking to work for, and invest in, organisations that can demonstrate that they’re well governed, sustainable, and looking to the future.”
Just as a firm’s talent pool represents a pressure point for change, so too does it constitute a means of enacting change at a personal as well as a professional level. Monaghan explains that Bates Wells offers its people a one-off payment to offset the increased cost of switching to a sustainable energy supplier at home, for instance, and several leaders this month mentioned that they encourage employees to keep track of their environmental impact by providing them with a personal app to manage their environmental impact. Barry says Mishcon de Reya uses an app called Giki Zero, which asks a series of questions about the user’s recycling habits, home energy usage and other factors.
Similarly, Rogers says DWF has deployed an app called Pawprint, which can be configured to allow groups to track and reduce their impact as a team, leading to the firm’s Glasgow and Edinburgh offices battling against each other in friendly competition.
Taking action
So, with the case for making change happen uneven yet pointing only in one direction, where is the starting point for becoming a force for good in the world? One direction firms might choose to take is demonstrated by Bates Wells, which is one of just a handful of law firms to become a B Corp, and was itself a founder member of the movement. Monaghan says the certification process is extensive: “It’s a very in-depth audit of your organisation’s policies and governance processes, as well as how you treat your employees, how you interact with clients, what you do for communities and how you behave environmentally.”
Representing perhaps a more fundamental change, however, is B Corp’s requirement that organisations shift towards “stakeholder primacy”, which, Monaghan explains, means broadening the firm’s guiding purpose from just profit towards people – including the firm’s staff, the wider community and society at large – and ‘planet’.
Doing so requires adoption of a ‘triple bottom-line’ approach, she adds, something which resonates across other firms also. Like Monaghan, Barry says Mishcon de Reya is adopting what she calls a “multi-capitals model”, both of which involve considering more than the financials in any business decision. “About 15 years ago, businesses would largely have cared only about profit and loss – how much revenue a new office might generate compared with the cost. Now, there’s an emphasis on looking at things in the round – buying a building for that new office means heating it, which will impact our carbon emissions, but it might employ local people – that’s a societal positive. We’re giving equal importance to our non-financial reporting to ensure our decision-makers have that information at their fingertips.”
“We are going to see more employee pressure in future – you only have to look at strike action to understand the growth in power of employee voice. And there’s an increase in shareholder activism – there’s no question that people are looking to work for, and invest in, organisations that can demonstrate that they’re well governed, sustainable, and looking to the future.”
Kirsty Rogers, global head of ESG, DWF
Of course, setting out concrete steps toward these goals matters too. Duguid says DAC Beachcroft has taken a number of steps towards demonstrating its action on climate change, publishing its Carbon Reduction Plan in May of this year. That includes a target of a 30% reduction in emissions by 2027, and net zero within scopes 1 and 2 by 2040, also aiming to submit its results to the Science Based Targets initiative (SBTi) in the next 12 months. Bates Wells also committed to a net zero emissions goal in 2019, achieving that within scopes 1 and 2 and parts of scope 3 the same year, and similarly intends to integrate elements of the SBTi.
But deciding which targets to set requires a mix of factors and competing priorities firms may not be familiar with. For that reason, Barry stresses the importance of a central ESG lead responsible for setting a strategy relevant to their organisation – even though that will inevitably mean leaving some things out. “It’s very easy to get distracted by the myriad possibilities and end up with a scatter-gun approach. That can make it difficult to measure the impact of those measures.”
Those decisions can, however, be made against the firm’s Purpose Framework, developed as part of Mishcon Purpose, the firm’s ESG specialist business. Acting as a global standard for such matters, it is, says Barry, applicable to both the firm’s clients and its own behaviours. She stresses the importance of “materiality”, which the Framework defines as “matters that affect a company’s ability to create value”, and which may significantly affect the decisions of investors, customers, employees or other stakeholders.
A similar materiality matrix has been developed at DAC Beachcroft, which Duguid says worked with external consultants in 2022 to generate focus in the areas most significant to the firm, mapping what matters to clients and internal stakeholders. That work produced four areas of focus for the firm’s ESG priorities: climate change, wellbeing, D&I and talent and leadership. That latter area captures, she says, the need to develop people’s careers and the industry’s skills at large. “We’ve recognised that our clients want to know that the lawyers providing them with advice are top talent – recruited, retained and being developed professionally.”
Ripple effects
Though the most obvious area of exertion is in sustainability, many initiatives in the ESG arena mirror one another in their connected nature. One of the biggest opportunities for positive impact, it seems, is for organisations to leverage their position in the business value chain to influence activities beyond their own walls. Ormond points out that choices made by an organisation the size of PwC, which employs more than 22,000 people in the UK alone, has an impact on many people’s lives. And, by raising the standards of D&I and wellbeing there, the business can lead by example across professional services. “There’s an opportunity to role model what we think is the right thing to do and, through that, influence our clients.”
“Professional services are in a unique position to influence and instigate change through advice they give and the services that they provide. We’ve developed and rolled out a Paris Agreement-aligned clause to a contract that will affect approximately 40 organisations – the ripple effect of that work is potentially exponential.”
Angela Monaghan, purpose and impact manager, Bates Wells
Monaghan says her firm has approached environmental issues in a similar manner, leveraging the legal profession’s position as a point of contact across industries. That’s involved negotiating heads of terms and changes to real estate contracts with landlords to make buildings more person- and environment-friendly. “In theory, no law firm has a huge environmental footprint – we don’t have massive smokestacks – but professional services are in a unique position to influence and instigate change through advice they give and the services that they provide. We’ve developed and rolled out a Paris Agreement-aligned clause to a contract that will affect approximately 40 organisations – the ripple effect of that work is potentially exponential.”
At Travers Smith, Bethell says his firm has pushed its own suppliers to consider their environmental standards, having recently refined their client screening tools and introduced a supplier code of conduct, as well as modifying its RFP processes to include sustainability requirements. As an example, he says the firm recently launched an employee electric car salary sacrifice scheme, for which the suppliers’ environmental credentials were heavily scrutinised. “If we can influence suppliers, particularly the larger ones, we can achieve something very positive, so we are asking for a commitment from them – but it’s a slow process,” he adds.
Achieving real change is a path law firms can only tread if they’re willing to influence their clients, Rogers agrees. “There’s a lot to be done collaboratively, among law firms, to incentivise clients to alter their behaviours around both sustainability and D&I, by only acting for organisations that are on a positive path.”
But, she adds, there’s little to be gained from completely cutting organisations off. It’s important to realise the journey isn’t a straight line – just because an organisation isn’t perfect doesn’t mean it should be shunned entirely.”
Indeed, though environmental issues certainly need to deliver concrete results, many ESG concerns seem not to require huge input of resources, but rather an acknowledgement of what can be done and a plan to do it. Or, as Monaghan puts it: “There’s lots law firms can do, and it doesn’t take a lot of time or money – it just requires will.”