Law Firms in the ESG Game

From The Practice January/February 2023
ESG practices pervade the legal industry

“At the end of the day, every single lawyer has to be an ESG lawyer,” says Timothy Wilkins, global partner for client sustainability at Freshfields Bruckhaus Deringer LLP. “If we don’t train our lawyers, regardless of practice groups, to spot ESG issues,” he continues, “we’re letting down our clients.” When Wilkins took on his current role at Freshfields in March 2020, it was one of the first of its kind at a major law firm. Things quickly changed. By June 2021 more than 40 percent of major U.S. law firms had practices centered on ESG (environmental, social, and governance), according to Thomson Reuters—a number that has since grown. Similarly, dedicated positions like Wilkins’s have correspondingly proliferated, with almost all major firms now naming partners in charge of ESG explicitly, or sustainability more broadly. Law firms have also begun to view ESG as part of their wider missions, including through investing in thought leadership and law school opportunities to train and educate the next generation of ESG lawyers. (For more on this, see “Charting new courses in law and business.”) In this story, we explore this emergent area, documenting why ESG has become an essential tool for every lawyer and law firm in today’s competitive atmosphere.

A new strategic practice

According to the 2022 Wolters Kluwer Future Ready Lawyer Survey, “50% of law firms across Europe and the U.S. report that they created an ESG practice area in the past three years.” What spurred this major shift in law firm priorities? For Freshfields, Wilkins notes, it all started with their clients. (For more on the role of clients pushing ESG, see “General Counsel Face ESG Headwinds“.) In the 1990s, the United Nations began taking global action on climate change by establishing the UN Framework Convention on Climate Change, calling on member states to help stabilize greenhouse gas concentrations and thereby prevent further harm to humanity. By the early 2000s Freshfields had begun partnering with the UN Environment Programme Finance Initiative, delivering their first joint report on ESG issues in October 2005. That report specifically focused on a legal framework for ESG in institutional investment circles. Soon after, it became apparent that sustainability had become a critical piece of the discussion in boardrooms and C-suites in ways that exceeded traditional reputation management and responsible business practices. One driving force of this was regulation and mandatory disclosure rules, which had started to grow exponentially, especially in Europe, where Freshfields has its largest offices.

Before Wilkins’s formal appointment as head of sustainability, Freshfields was tackling ESG concerns, albeit more diffused. By appointing Wilkins, however, the firm gained a partner charged with the mandate of tracking and coalescing any part of business that might touch sustainability. Wilkins explains this shift:

We had environmental lawyers. We had transaction lawyers who had done, for instance, an acquisition with a renewable energy piece. And we had litigators who were involved in advising clients on potential litigation risks around ESG-type issues. But what was really key for our strategic approach was to ask: What if we could coalesce these efforts, bringing together the various threads from the different practice groups and sector groups, such that they could find even more power through joining up to advise their clients in coming up with an overall strategic plan?

As part of this strategic shift, Wilkins notes that his title intentionally included the word “sustainability” to reflect that he—and the firm—view ESG issues as integral to their client’s long-term outlooks, whether that relates to the environment, social issues, or governance. “The reason why I like sustainability,” Wilkins stresses, “is because E and S and G are all related. What’s the definition of ‘sustainable’? Sustainability is about the long-term vision of how you operate, whether around the environment or diversity or governance.”

He and his team view their mission as focused on three main strategic priorities. First, they aim to provide high-quality advice to clients around the world on ESG-related issues. “If you know the world’s economic environment will be severely stressed by climate change, nobody will be able to make a successful long-term investment,” says Wilkins. This means the firm and its lawyers had to begin thinking in those terms—and evaluating risk for clients (including around disclosure). “You’ve gone from soft law to a real hardening of law in terms of the compliance obligations, both in terms of how our clients are operating their businesses but also in how they’re disclosing information on their operations and how those might have an impact on climate change and other areas,” says Wilkins. Much of this advising also involves working with clients to understand their metrics and goals. It means taking stock of where clients are—either on their mission to be carbon-neutral, to set DEI goals, or to contribute to the communities in which they operate—and helping companies understand where the law firm can help them go.

At the end of the day, every single lawyer has to be an ESG lawyer.

Timothy Wilkins, global partner for client sustainability at Freshfields Bruckhaus Deringer LLP

The second goal for Freshfields was to leverage the unique value of a law firm to create direct impact on environmental and social issues. One example of this is the firm’s partnership with the UN-supported Principles for Responsible Investment (PRI), the Generation Foundation, and the UN Environment Programme Finance Initiative. In this collaboration, Freshfields examined the largest asset holders and the law within 11 jurisdictions and asked, “Can they intentionally invest to create impact?” to produce the report “A Legal Framework for Impact.” Part of the legal analysis of meeting obligations in various jurisdictions is also asking: Where does investing sustainably create value? And if the sustainable option is more lucrative, it may very well be required by law. Freshfields’ partnership with the government and NGO actors represents one area where the firm hopes not only to advise clients but to push the boundaries of the role of the outside lawyers.

Freshfields likewise dove into a similar concern when it brought together major corporations, NGOs, and government players like Goldman Sachs, Pepsi, the New York City Sanitation Department, and more to write the “New York Circular City Initiative” report. They started with the question: How can we as a law firm act as an organizing force to bring about a cleaner, more efficient city? This embodies the third core part of the mission: encouraging collaboration across organizational boundaries to solve critical issues, such as working with a group of clients and partners with similar values to achieve common goals. Wilkins highlights that a good lawyer’s talent for bringing people into a room to solve the world’s most complex challenges is critical: “I hope that all law firms continue to do their own internal good ESG practices. But I am convinced that to truly move the dial as a large law firm, at least, how we collaborate with clients, government, and NGOs is going to have the greatest impact on people and planet,” he says.

Operationalizing an ESG practice

How was this all operationalized? For Wilkins, it meant making sure ESG values and learning were driven throughout the firm. He notes, “Our firm sees sustainability not in its own silo but driven through the other practice areas from corporate to regulatory to finance to litigation.” When the practice first launched, he admits, that meant educating partners and practice groups and “gathering the know-how within particular disciplines and making sure it could be shared across practice groups relating to ESG work.” Since then, and given the emphasis of clients on ESG, Wilkins and his team inject the firm with thought leaders who can work across issues. To do this, he says, “we start by asking tons of questions.” He goes on:

Who are the stakeholders who are going to care about this issue? How’s this going to affect suppliers (throughout the supply chain, including on business and human rights issues)? How’s it going to affect or be perceived by investors? Because investors are looking to businesses to prove that they are lowering their carbon footprint in many, many situations. How’s it going to affect shareholders? Are shareholders going to see this as a short-, medium-, or long-term potential gain? A short-term profit hit is probably not a good sale to most shareholders, but if there’s a clear vision of how this will enhance long-term reputation, purpose, and profits, that might be the path to even greater investments. 

Indeed, the sustainability mindset is now so engrained in Freshfields that Wilkins says that “our partner candidates go through a rigorous interview process—and most engage with the firm’s ESG team in advance to see how their work and practice expertise fits into the wider sustainability strategy.”

While Freshfields was an early adopter, other firms are now adopting similar structures. For instance, at Paul, Weiss, the ESG team includes not only ESG lawyers but also “dedicated program managers, sustainability experts, data scientists, and researchers” along with “lawyers in M&A, white-collar and regulatory defense, internal investigations, fund formation, and other practices,” according to Paul, Weiss partner Jeannie S. Rhee in LEADERS magazine. Similarly, as Betty Huber, global cochair of ESG for Latham & Watkins, says in an interview in Authority Magazine: “Being an ESG lawyer allows me to interact with nearly every practice area at the firm, and figure out where they fit on a playing field with all different types of rules and standards, from actual regulation to soft law to current trends.” Sarah Fortt, the other global cochair of ESG for Latham & Watkins, likewise emphasizes in that same interview: “The most successful lawyers in ESG have learned all of the different shades of practicing law … That holistic body of knowledge across practices and fields expands our views on the issues clients bring us, both at seeing all the moving parts in the present, as well as the long view of what our clients will face down the road.”

ESG is not just a goal for clients—it is also increasingly a mission unto itself for law firms, themselves large enterprises with thousands of employees and global footprints.

In an interview with Asian Legal Business in 2021, Kate Hodson, head of ESG at Ogier, called for an upheaval in training, which would help seed new generations of versatile lawyers who could advise across issue areas: “Gone are the days of the E and S considerations sitting predominantly within the remits of human rights and environmental lawyers.” Indeed, like Wilkins, Hodson stressed the need for all lawyers to be ESG lawyers, calling to rectify “a talent gap in sustainability.” She continued:

Almost overnight, some of our lawyers are now needing to be in a position to advise on issues relating to climate change and other environmental and social factors in the context of corporate and financial transactions. We have certainly seen how beneficial it is to clients when our lawyers are not just technical banking, corporate or capital market lawyers but also have sufficient knowledge about ESG factors so they can appropriately help identify risks in documentation and transactions and guide clients appropriately.

And for associates, the opportunity to work on ESG-related issues can be a powerful recruitment tool. One June 2022 Thomson Reuters Institute report notes, “This generation of associates believe they can and should hold their leaders to account for consistency between espoused ESG policies and the day-to-day decisions made in advising clients and indeed, which clients and matters to accept.” For Wilkins, this is a bigger question about impact, both internally and externally. “Young people are concerned about gaining those skills to be a fantastic lawyer, so that certainly means you have to understand the law, but it also means you have to ask the question: How do you use your skills for helping society more broadly with impact?” he says.

Indeed, that same Thomson Reuters Institute report indicated “a sense of purpose” was vital to how young lawyers choose their firms. Part of this can be accomplished through revision to the billable hour. For instance, Reed Smith announced in 2021 that “attorneys can count up to 25 hours of leadership, training, advocacy and development work tied to environmental sustainability towards their billable hour targets,” reported Reuters. Indeed, many firms offer credit for DEI work, including Reed Smith, but also Sidley Austin, Latham & Watkins, and more.

The backlash

On November 3, 2022, U.S. senators Tom Cotton, Mike Lee, Chuck Grassley, Marsha Blackburn, and Marco Rubio sent a letter to 51 top law firms warning them that their ESG practices could be considered an antitrust violation, given the “collusive effort to restrict the supply of coal, oil, and gas, which is driving up energy costs across the globe and empowering America’s adversaries abroad,” in the senators’ words. In particular, they instructed the firms to ensure their clients were well-aware of “the risks they incur by participating in climate cartels and other ill-advised ESG schemes.” The letter comes on the heels of similar warnings to BlackRock in August 2022; in the latest move, the state of Florida pulled billions of dollars out of BlackRock managed funds in opposition to the investment firm’s ESG strategies. In November 2022 the back-and-forth continued with Democratic attorneys general writing to Republican lawmakers who had warned BlackRock, saying that ESG factors were, in actuality, material factors that can affect returns and worth being considered as part of sound planning.

In a public memo, Wachtell Lipton partners pushed back on the pushback, saying “ESG, properly understood, is apolitical.” Elsewhere in the memo, they address the allegations of collusion:

Embracing ESG does not mean that a company will make decisions exclusively with the goal of preventing climate change — it simply means that a company will consider whether and how to minimize the effect of these impacts and weigh potential future actions that could impact climate change against the corresponding risk and against other material considerations to arrive at the optimal outcome for the company. This is not only the socially responsible course of action, but also the one that best promotes long-term sustainability and value creation for the benefit of the shareholders and other stakeholders.

With Republicans taking the U.S. House of Representatives in 2023, government inquiries into ESG are only set to increase.

Internal firm ESG

ESG is not just a goal for clients—it is also increasingly a mission unto itself for law firms, themselves large enterprises with thousands of employees and global footprints. “It’s nice to be striving for the same goals as our clients,” says Anna Livesey, a business development manager on the sustainability team at Freshfields, “so when we talk to them, we have that experience.” In early 2022 the United Kingdom passed laws requiring larger, more-profitable registered companies and LLPs to provide transparent data related to sustainability, affecting Magic Circle firms like Allen & Overy, Clifford Chance, and Freshfields. Even before the required reporting, Freshfields assiduously tracked its ESG efforts; they have released responsible business reports since 2005. Wilkins thinks of it as: “Can we think more proactively about the sustainability impact of how we actually practice?” In line with this thinking, the firm has signed agreements like the Green Arbitration Pledge and the Greener Litigation Pledge and is running several ESG pro bono efforts.

Sustainability offers an avenue where lawyers can be proactive, advising clients not only to abide by the law but to leave the world in better shape.

A law firm’s internal ESG policies and practices are likewise important to clients. As the New York State Bar Association said in one blog post, “Clients and prospective clients want to see law firms ‘walk the walk and talk the talk.’” As Wilkins notes, “Our clients now have a section in most panel pitches, just like they’ve done on DEI efforts, asking about where we are on sustainability.” In a 2021 survey of law firms, the Law Firm Sustainability Network found that “87 percent of respondents said that they received RFPs that included questions about firms’ environmental efforts.” Almost every firm notes such statistics on their website, especially those headquartered in the European Union.

Looking forward

Sustainability offers an avenue where lawyers can be proactive, advising clients not only to abide by the law but to leave the world in better shape. As Wilkins says:

It’d be one thing to say, “Well, nobody sued us for disposing of a so-called dirty asset.” It’s quite another to say, “What have we done for the world? Is there a way to dispose of that asset in a more ethical and sustainable way?” That has to be the goal. And that’s what we’ll continue to do at Freshfields: recognizing the superpower of lawyers as advisers, as conveners, and as thought leaders on these topics.

As lawyers look to make inroads in these areas—both internally and externally—an increasingly big question will be how they measure ESG. “Investors like to figure out, can we break each of those components down to something measurable such that we can see what’s going to happen in the future?” Wilkins says. There’s good reason, however, that ESG—though complex in its acronymic nature—is useful when looked at as a whole. An electric car company with poor human rights or workforce equity principles might score high on the E but lower on the S and G. “It’s all sustainability to me,” says Wilkins. “You are at your best if you can intertwine that advice.”