Environmental, social, and governance (ESG) has undeniably become a significant area of focus across the legal sector. It is now widely accepted that a law firm’s ESG credentials can impact key areas such as recruitment and staff retention, as well as client relationships and business development.

Thomson Reuters research shows that, within law firms, it is associates that are most determined to play an active role in shaping the ESG strategies of the firms they work for. This enthusiasm amongst junior lawyers is driving an increased focus on ESG issues within law firms.

So what are firms doing to leverage the enthusiasm amongst junior lawyers for ESG matters? What are the risks for firms that ignore ESG matters, from both a staff retention and business development perspective? What more can firms do to ensure that they take advantage of the opportunities?

Younger associates driving change

Some law firms featured in a recent Thomson Reuters study, Talent & ESG Top Concerns as Firms Find New Ways of Working, said they are passing the onus onto associates to drive their ESG efforts. One firm, for example, has set up a ‘Millennial Board’ to give junior lawyers a platform to voice their opinions and play a decisive role in shaping the firm’s strategy for ESG. This has enabled junior lawyers to hold senior managers to account and ensure that there is consistency between the ESG values that the firms espouse and the day-to-day decisions made in advising clients.

The majority of U.S. law firm leaders interviewed as part of the Thomson Reuters study said they are seeking to rebuild their firm’s working culture following the pandemic. Many associates have reported feeling unmotivated or complained that their firms are lacking in coherent teamwork because of disruptions caused by the pandemic.

As part of the efforts to rebuild working culture, involving junior staff members in ESG matters could help to remotivate them. Associates who are passionate about ESG could be provided with the opportunity to participate in groups making important decisions that will have a bearing on the future of the firm. This could help to re-invigorate and empower these associates who may have felt detached from their firms over recent years.

Cross-generational initiatives can be beneficial in helping to establish a sense of belonging and responsibility. Junior lawyers who feel they are making a difference and that their firm stands for values that they share are more likely to want to remain working at that firm. As competition for talent intensifies, having an ESG-focused culture could be a strong selling point for recruiting and retaining lawyers.

Business development

An additional factor behind the legal sector’s increasing focus on ESG is the new business opportunities that it presents.

Green bonds, regulatory compliance and ESG-based litigation, for example, are high growth areas which many law firms are seeking to expand into. As countries continue to plan for ambitious net-zero targets, investment in green projects will inevitably grow and regulatory changes encouraging green energy infrastructure will need to occur. This will increase business opportunities for law firms to provide counsel on all matters green, providing that they have the necessary expertise in place.

Many firms are creating ESG-focused teams to guide their clients’ ESG plans, which in turn, deepens the relationship between client and firm if that client and its law firm clearly share the same values.

At the same time, these increasing ESG considerations have led firms to undertake much deeper levels of discussion around which clients they want to represent and which they may wish to avoid. This can involve both individual clients or even entire industries and sectors in which the firm may wish to either highlight or, conversely, avoid involvement.

Competitive pressures

To attract new clients, particularly those with high ESG ratings, law firms may need to clearly display their own credibility within ESG. Corporate clients are paying close attention to their vendors’ ESG practices, including their outside counsel. This has forced law firms to undertake much deeper discussion than previously with their clients on ESG matters. This helps to better maintain client relationships and reduces the risk that their clients will switch to an alternative law firm.

Therefore, there is an onus on the legal sector, as much as any other, to quickly get up to speed and have dedicated and highly knowledgeable ESG teams in place. Law firms that have been slow off the mark may find it difficult to compete against firms that have already built up a reputation of excellence in ESG matters.

With the rapid growth of ESG, firms that were slow to adapt simply have no choice but to try and catch up or else risk missing out on both new client instructions and top talent.

Conclusion

The ESG profile of a law firm is becoming an increasingly crucial aspect of a law firm’s overall 'brand' and a law firm that neglects to focus on ESG could risk losing standing with both their own lawyers as well as clients. Any firm that ignores these issues risks being left behind in area that is becoming essential both in developing the firm’s brand and also in business development.

 

Natalie Runyon is director of ESG Content and Advisory Services at Thomson Reuters

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