What Law Firm Leaders Need to Know about ESG From Leading Experts
In this episode of On Record PR, Gina Rubel goes on record with Daniel Smallwood, the head of content for LegalESG.com and the Legal ESG Summit, and Pamela Cone, Social Impact and Sustainability Sage at Amity Advisory. They discuss what ESG is, why it matters, and how law firms can get on board with ESG considerations.
Today we are talking about ESG. If you’re not familiar with the acronym, it refers to Environmental, Social & Governance considerations by today’s corporations. If you’re not thinking about ESG, you should be. It is top of mind for business leaders and in-house counsel worldwide.
In a 2021 ESG risk research survey by GC magazine, 96% of corporate counsel reported that their companies have either implemented a formal ESG plan or are in the process of developing one.
Daniel Smallwood is a 20-year legal research, content, and publishing professional who has been responsible for some of the most well-regarded and innovative law firm practice management and legal operations, events, and publications. Pamela Cone works with law firm leaders to address the growing expectations of clients, prospects, employees, recruits and communities – around their firms’ ESG, Social Impact and Sustainability programs.
Throughout this discussion, Daniel and Pam share many important resources. Here is a quick list with links:
- 17 United Nations’ Sustainable Development Goals (SDGs)
- Environmental and Energy Study Institute
- Global CO2 emissions from aviation
- Greenhouse Gas Emissions (GHGs)
- LEED Certified
- Legal ESG Summit
- Net Zero
- Pulse of the Profession
- Third-party auditors for ESG: EcoVadis, Supplyshift, Integrity Next
- UN Environment Programme (UNEP)
Now, on with the show. Welcome, Daniel and Pam.
Let’s start with the basics.
What is ESG and why does it matter?
Pamela Cone: ESG is Environmental, Social and Governance and how each company addresses those three pillars. Environment is exactly as it sounds. It’s what’s your carbon footprint? What are you doing about it? How are you making things better in the world? Social, I liken that to everything that has to do with people – your own people, professional growth and development, diversity and inclusion, benefits, equal pay, other things that you do for your own people, but it also includes the community at large. What are you doing to make your community where you live and work a better place?
And then governance – what policies, practices, and procedures do you have in place? What expectations do you have? Not just of your own company’s performance, but what expectations on performance and behavior do you have for your supply chain and vendors? So it is a big all-encompassing umbrella that basically covers all things to do with what a corporation or a law firm’s performance is in today’s society.
Daniel Smallwood: I think there are a number of reasons why ESG matters, especially considering what’s happening in central Europe right now. There’s a massive humanitarian crisis that will come out of what happens. And that’s compounded with the number of existing issues that are going on around the world, whether it’s on a global perspective or whether it’s on a local perspective.
Gina Rubel: We’re more than two weeks into the Ukraine crisis, the invasion of the Ukraine by Russia. And what I think I hear you saying, Daniel, is ESG is very much a part of that conversation and how both law firms and corporations alike are addressing it. Is that accurate?
Daniel Smallwood: I would say so. I think when you look at the ideas that ESG is built upon, these very real-world issues, it is getting highlighted more and more as we move forward. If you go back two weeks, for instance, when we didn’t have essentially the Ukraine issue, the talk around ESG there was around, what’s happening with the pandemic? What’s happening globally? With the climate being a big one within the legal profession, these big issues around diversity, for instance. There’s a bank of issues that are being addressed and with each of these new crises and everything else that goes on around the world, it only adds to that. And so it makes addressing some of these things a little bit harder, and organizations, whether it’s law firms, whether it’s big corporations, they have a big role to play in trying to address some of these issues. And I think that’s really where the need to address some of these things is coming from right now.
Gina Rubel: I haven’t thought of ESG as a crisis communications topic before. But as a crisis comms provider, it really is a big part of that conversation as well. It is a part of the fabric of the culture, which is what I’m hearing from corporations and their partners. But one of the things that I have found challenging over the years is this migration from what we call CSR, Corporate Social Responsibility to ESG and whether or not they’re the same.
What is the difference between ESG and CSR?
Pamela Cone: This is one of my favorite questions because in the true definition of corporate social responsibility and ESG, they are literally the same. However, over the years, the term Corporate Social Responsibility has devolved to mean charitable giving and voluntary. And for law firms, a few pro bono cases.
So I have migrated from using the term CSR because unfortunately, it’s misunderstood and the misunderstandings are very limiting. I completely have turned to using the much broader term ESG, so that my clients understand I’m not talking about charitable giving or philanthropy or volunteering or even just about your pro bono. Those are important things, but in the grand scheme of ESG, those three elements are relatively immaterial compared to the behavior of your corporation, the clients you’re representing, the people you do business with. Those are much greater impacts on your society than individual one-off programs.
Gina Rubel: I love the way you explained that and it reminds me of the way we explain the difference between features and benefits. And it sounds like CSR is a feature of ESG. It’s just a piece of it. And ESG is the benefit, the strategy, the house, as you will.
Pamela Cone: Yes. I think that’s a great analogy. And the other question I often will ask my clients is, is ESG being discussed at your board or your management committee or is it a committee of volunteers who meet once a quarter and are given a budget to do something? Those are two very different things. And ESG is a risk mitigation strategic issue that should influence every decision your board makes. What charity you give to and where you volunteer this year, those two things can be relegated to a committee, but not the strategy of ESG for your firm.
What are some of the critical issues law firms need to address in their ESG considerations? (Ex: decarbonization, reporting, sustainable finance and DEI (diversity, equity and inclusion)
Daniel Smallwood: I think the first one is, understanding where this is coming from, understanding why. And so I think we’ve been on conversations with a number of different firms. I had one yesterday with an Am Law 50 firm, they have a task force to address ESG and the comment was, and it’s not an uncommon comment in that, we know we need to address this, but we don’t know where to begin. And ESG covers a huge umbrella from, say, from water through to gender diversity, through to peace and justice and that side of things. So it’s a big umbrella.
And for law firms at the moment, where they’re getting asked about their ESG numbers through the RFP process. They’re having to provide data on everything from diversity through to their own emissions, for instance. And so it’s hard for law firms at the moment. They know they need to address this as an issue, it’s coming through more and more often, but it’s the starting point. Where do they start?
And think the primary one really is to understand the views of their stakeholders – their clients, their customers, and their employees as well. What’s important in material to their employees and what’s important in material to their clients? Once firms get a grasp on that, then they’re able to build a roadmap, a blueprint, however they want to do it and to try and address these issues from an institutional perspective.
Gina Rubel: You’ve both mentioned a few subsets of ESG, like diversity equity, and inclusion peace initiatives, there’s so many. And this is where I find it a little bit overwhelming. We’ve got decarbonization, sustainable finance, we’ve got lead certification, there are so many different things. And when you talk about where you start and once you get past the culture of the firm and then accepting it, what’s the next step?
Do you start by making sure you’re in a LEED-certified building? That’s just such a small thing but I’ve been in so many law firms that are in buildings where they’re leased and those buildings don’t even have recycling. I had a lawyer laugh at me when I took a plastic bottle home some years ago, pre-pandemic. Because I said, well, I have recycling and I’ll just take it with me. And I put it in my bag and they thought that was funny.
Where do you start when incorporating ESG into your organization?
Pamela Cone: Well, here’s what I advise most of my clients to start with. Do an inventory so that you have an understanding of what your firm is currently already doing. Because when the questionnaires start to come in from clients and prospects, you want to have a firm-wide holistic picture of what your firm is already doing across all of those categories on the environmental side, on the social side and on the governance side. Once you have that inventory or that baseline, then you can start building out plans for, how are we going to make progress in each of these areas? And to your example, do we have to move to a LEED-certified building? Probably not immediately, but you could certainly make a policy that says, anytime a lease expires, we will give due consideration to moving to a LEED-certified building in order to help reduce our carbon footprint. So having a baseline is where you have to start in order know what your plan might look like in three years, five years, 10 years, 20 years. This isn’t a “we’re going to solve this today” type of problem. This is what do we have to do in the short term, the medium term, the long term, and over the next coming decades to make sure our firm is an upstanding corporate citizen in the communities in which we do business, let alone the global society.
Where do you start looking at if you’re going to do an ESG inventory?
Daniel Smallwood: What we did recently, we sat down, myself and Pam over coffee one day we just said, why don’t we just start trying to find out what’s important and material to the profession? And so what we did, we set up a really quick three-question survey, which is based around the UN sustainable development goals. And we wanted to look at what’s important to individual lawyers for them personally, what should be important to their firm and then what is important, and what the profession can really start trying to look at.
We set up a Pulse of the Profession survey based around these SDGs and it really just provides a real-time look at which of those SDGs are important to those three different parts of the professions, essentially. And so that’s up on the website right now and you can take a look at that. And what’s interesting there is that what’s important to the individual lawyers and what’s important to the profession, covering the full range of it, are quite different.
For instance, right now from the individual lawyers’ perspective, the most important thing is climate action, which is pretty self-explanatory as to what that is. But then once you get into the firm side of things, it changes. And when you get into the professional side of things – topping off both of those right now is, peace, justice, and strong institutions, which speaks to some of the things that have been changed, especially in the U.S. Florida’s changed laws around what the LGBTQ community can be talking about these days. Texas has got new laws that are coming in that obviously affect more liberal-minded people.
There’s a lot of change that’s going on and not just here. Geopolitical changes in Europe and the changes in governments affect the way that laws are being enforced and administered around the world. So it’s interesting that the the legal profession is looking at strong institutions around peace and justice. It is fascinating to see that.
The starting point’s going to be different for every firm. Climate action may be the most important to a firm on the East Coast, and around the West Coast, it could be something completely different. So everybody has this starting point, and we’ve used the SDGs as that framework and as that starting point to say these are some of the things that are material. This is what’s important. And the Pulse of the Profession looks at that and displays that in a real-time environment.
What is SDG and why does it matter?
Pamela Cone: SDG stands for Sustainable Development Goals. There are 17 sustainable development goals that were established by the United Nations, specifically the United Nations Global Compact in 2015. And it provided a 15-year roadmap to 2030, where if we were able to achieve these goals, society would be a much healthier thriving place.
I love using the UN SDGs for law firms and here’s why. Because law firms work with a variety of industries. They have a wide range of expertise, mostly unless they’re a boutique. And there is something in those 17 United Nations Sustainable Development Goals for everybody, for law firms and for their clients. So to give an example of something that Daniel alluded to, yes, priorities and materiality might change from an East Coast law firm versus a West Coast law firm. But it also might change for a law firm that is strictly labor and employment or a law firm that’s environmental or a law firm that’s focusing on real estate or a law firm that focuses on immigration. So if you choose the SDGs that are most relevant and material to your practice and to your clients, it is a guiding light to the types of things you should be choosing to do.
I am not a huge fan of lawyers spending a weekend building a Habitat for Humanity house. I love Habitat for Humanity, I’ve done that work myself, but that’s not how lawyers can be helping solve societal problems right now. Lawyers’ skills are needed to address what is most needed in our society, especially what we’re experiencing today. And so that’s where lawyers should be spending not only their charitable or their volunteering time, but frankly, should be investing and doing work as part of their daily life to help address some of those problems, not as a side activity. Who else is going to do it if we don’t?
What is driving the growing increase in ESG expectations of law firms?
Pamela Cone: Just like law firms experienced pressure from clients decades ago around diversity and inclusion and managing those metrics and putting programs in place in order to improve law firm’s diversity and inclusion, so too are law firms and other service providers starting to feel that same pressure from clients around other ESG topics. And I’ll give you an example. So when a client organization makes a commitment to Net Zero by 2030 or 2035 or 2040, part of that journey includes their vendors and suppliers also making progress on carbon reduction.
Law firms are vendors and suppliers to their clients. Even though they like to think of themselves as trusted advisors and not a vendor, their clients think of them as a vendor. So part of your client’s success in reaching their carbon reduction journey is going to be their assessing auditing and measuring your progress on your carbon reduction journey. And they’re serious about it. They engage third-party auditors and assessors like EcoVadis, like Supply Shift, like Integrity Next. You may have seen some of these questionnaires come across your desk.
Those are your clients hiring the third party to assess your progress on ESG. And I’ll give you one example of how intense these questions can be. I had one client who got a questionnaire from a client and the question said, please provide your GHGs per location and what percentage of those GHGs is attributable to the work you do for us? GHGs are greenhouse gas emissions.
Now, law firms like to think, we’re not really important in the grand scheme of carbon emissions because we don’t have smokestacks. We don’t extract resources from the earth. We don’t dump anything into the river. We don’t have residual product that gets taken to the landfill. All of that is true, but when your clients are on a Net Zero journey, the percent reduction is what matters. So even if most companies are starting at 200 and law firms are starting at 50, your progress with respect to percentage reduction is just as important.
To most law firms pre-pandemic, your biggest carbon emissions are from air travel. And yet law firms focus on recycling paper and compostables in the kitchen and we have lights that turn off when I leave my office. All of which are important, but all of which are minuscule when it comes to the carbon being emitted by air travel. So now the pandemic has given us the gift of no air travel for an extended period of time, and frankly, law firms have continued to be incredibly successful. Are we going to be more deliberate and cautious about our decisions when we are able to travel at will again, or are we going to rush back to what we used to think was normal, which we have since found out never really was, or never should have been?
Are there firms that are incorporating ESG well?
Daniel Smallwood: I think the answer is yes. I think there are definitely some standout firms out there. Some of the big names, without naming names. And then there are the smaller firms and mid-size firms and so on who are doing some really interesting and good work across the board and have taken essentially an early stab at this. The whole premise around ESG isn’t 20 years old, it’s a very reasonably new thing in terms of what individual firms are having to address. And there are some firms who are at the very beginning stages of this, not necessarily Am Law 50 firms, but much smaller firms who are addressing this.
And I think that’s possibly part of the difficulty in this. It is a broad topic and you don’t have to address every single piece of it. But what you commit to and what you decide to commit to and work on is your contribution to this. And I think that’s potentially one of the main points to this, is that it doesn’t matter what size of firm you are, you can make a difference to ESG related activities.
Pamela Cone: I think one of the things that at least in the last year and a half to two years that law firms have been quick to act on is, the recognition that clients need help in this area. So almost every law firm has formed an ESG practice group to help clients with this. And I think that’s a very good thing. I think building expertise and combining the different components into a new practice group specifically to address clients, those are all really good things.
But you also have to make sure you have the right expertise as part of that practice group. And you also have to make sure your firm is also on this journey because otherwise, the very first thing I would say, if I were a potential client and you were pitching the ESG services, is, “Sounds interesting. What is your firm doing?”
And if you don’t have an answer to that question, you’ve just blown the opportunity. So law firms have to get started on this journey, especially if they’re pitching expertise to clients.
Gina Rubel: About a year ago this time, I had the opportunity to interview Pavani Thagirisa, who’s the associate GC and head of legal for ESG at S&P Global. And what I found interesting is, they have someone in the GC suite who is dedicated to this.
Are you seeing a lot of big companies putting people in the GC’s office in ESG roles?
Pamela Cone: I am, but I would also caution about housing the ESG team in legal. And here’s why – because it sends the message that this is just a legal compliance thing and nobody else needs to care about it. If you put ESG in HR, it sends the message that this is a diversity and inclusion thing and there’s somebody over there who’s crunching numbers. If you put it in marketing and communications then – well this is just something we’re doing so we can market it to clients.
I caution all of my clients, be really thoughtful and deliberate about where you house this. I don’t deny that it touches every single one of those areas, but if you make it part of that team, there are consequences to that messaging. So this depends on the maturity of the ESG program and the size of the firm or even the size of the company. But this should be a standalone person or group on par with the chief legal office, the chief financial officer, the chief marketing officer, the chief HR officer, the COO, whatever. Because that person has to coalesce the activities and encourage the right behavior and decision-making amongst all of those teams. So if in fact it’s independent of all those teams, you avoid inadvertently sending the wrong message and you give it its due importance in the way your firm operates.
How does a commitment to ESG help law firms gain that competitive advantage that they need?
Daniel Smallwood: I think there’s an increased awareness from the stakeholder perspective, whether it’s clients, customers, et cetera. And it’s not just from law firms – there’s a demand in a number of areas right now from a number of different facets of ESG. If you have a look again at the past few years here, you’ve got the Black Lives Matter movement here in the US, you’ve got water issues in Flint still, you have immigration issues on the border, whatever it looks like. And I think it’s more of a case that the stakeholders are asking for it, and that pressure and the demand to start doing things better is also an opportunity for law firms.
So if you take a long-standing issue within law firms like diversity numbers, that’s something that really should be addressed institutionally. But for a law firm that is truly diverse and leveraged that as an opportunity, they’re doing something right. And it’s only going to attract further clients down the road. The RFP process is going to get easier and that need or that incoming level of business will only improve. It’s a case of doing the right thing and the demand for doing the right thing is increasing. And that’s really what it comes down to.
Gina Rubel: And one of the things I think is important, because you mentioned this early on, is the RFP process and the fact that you’re not even going to get past the first step. Like, don’t waste your time, you’re 40, 60, 80,100 hours of time responding to that RFP if it asks about ESG and you’re not committed.
Daniel Smallwood: And I think that’s also a big part of not addressing ESG. And we, just by doing the research on things that we work on, you do hear from individuals, individual lawyers, managing partners that they’ve genuinely lost business because they simply cannot answer the questions that are being asked in the RFP process.
Pamela Cone: Right now, ESG can be a differentiator for firms who take it seriously and have robust programs or are building robust programs. I think very soon it is simply going to be table stakes. Now, I don’t think law firms will get hired because they have robust ESG. But I do think law firms will be able to stay in the running for consideration because their ESG helps them remain a contender. And to Daniel’s point, I had a client that lost a valuable client. And the reason was, because your firm’s performance on ESG metrics was insufficient to meet our expectations. Now, there may have been other underlying reasons, but they certainly used the lack of ESG performance as the excuse and as the reason to terminate the relationship.
What one thing do our listeners need to do now to start addressing ESG?
Daniel Smallwood: I think the big thing right now for all firms is to define their purpose. It’s something that we’ve been working on quite a bit recently, we even post on LinkedIn and whatnot. It’s figuring out what’s important to your firm, to your stakeholders, clients, customers, employees, and then you can start addressing ESG. And I think for me, the big takeaway is for firms to find their purpose, find out what’s important and then go from there.
Pamela Cone: I would echo that because once you know your firm’s purpose, your north star, if will, it makes all these other decisions so much easier. Because to your point earlier, Gina, there are hundreds of frameworks out there. There are a hundred guidelines, which reporting structure should we use? If you know your purpose and if you’ve done your basic inventory, you will know what’s most material and meaningful to you and your stakeholders. And it makes choosing the framework easier. It makes making decisions easier whenever there are societal issues that need to be addressed. So having the groundwork, the roadmap and the purpose well-defined makes the whole journey, I don’t want to say easy, but obvious. Let’s say obvious.
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