In a nutshell
As is often the case with emerging legal sectors, there’s a lot about ESG that’s quite tricky to pin down. “It’s a very broad concept,” Paul Davies, global co-chair of Latham & Watkins’ ESG practice tells us, “and it’s one that’s very difficult to define, because it means different things to different people.” Put simply, ESG is the criteria used to assess the environmental impact, social conscience, and ethical governance of a company. “It’s essentially a question of how an organisation operates,” Angela Monaghan, purpose & impact manager at Bates Wells explains, “The things that they do to account for the problems facing the planet, people, and communities in their operations and decision making.”
When it comes to the role of a lawyer in the sector, it’s not just about bringing a companies’ practices in line with new climate change regulation, for example, but helping those clients appeal to a new generation of investors: “Investors and stakeholders increasingly want to see that the companies they are associated with share their values,” Monaghan tells us, “not just as a result of regulation, but because norms are changing.” In short, it’s a question of helping clients to bring their practices in line with stakeholder expectations.
Whether it’s net zero targets, sustainable finance, diversity in the workforce, corporate digital responsibility or anticorruption, there’s a whole host of issues that an ESG lawyer might be working on with clients at a board level. In this way, most ESG lawyers will spend time in the corporate space, advising on everything from M&A deals to fund formation. Yet as Angela Monaghan explains, there’s a lot more to the new and exciting world of ESG than you might expect: “You could be working in almost any area of law, I would argue, and build in the kind of principles that are the focus of ESG. It’s neither restrictive nor restricted. It’s about having the mindset to say, ‘there’s a problem that needs to be addressed’, and working with the client to find ways to do that.”
What lawyers do
- Provide strategic risk advice to clients on a wide range of matters. A big part of ESG practices revolves around providing next steps advice for clients seeking to mitigate ESG-related risk - whether that’s what to do when suppliers turn out to be using exploitative labour practices, or how to integrate net zero policies.
- Assist with internal due diligence, research, and supply chain audits, as companies then seek to bring the spectrum of their practices in line with ESG-related concerns.
- Advise clients on ESG disclosure regulations. Regulatory requirements outlined in legislation such as The Companies Act (2006) requires large and medium-sized businesses to disclose the policies they have in place with respect to things like the community, employee rights, and the environment.
- Negotiate and draft transaction agreements with ESG components – “which might involve putting clauses into contracts that require companies to take on net zero strategies, for example” Monaghan adds.
- Assist clients to ensure that claims made in advertising – particularly those relating to environmental impact - are accurate. For more information, see our interview with Client Earth on ‘greenwashing’ here.
The realities of the job
- For those looking to get a foot in the door, it shouldn’t surprise you to know that a lot of ESG lawyers come from a background in areas like human rights, employment, environmental law or corporate/M&A. But having the right sort of background isn’t enough on its own: “You need to be innovative” Paul Davies explains, “ESG law is constantly evolving, so you have to be prepared to be involved in an emerging and dynamic area, ready to embrace new challenges and quickly adapt to new areas of law.”
- This brings with it the need for lawyers in the space that can offer steady reassurance to clients walking a tightrope of stakeholder expectations. So strong people skills and a steady hand are a must.
- As is almost always the case, a detailed knowledge of your subject is essential: “It's worth your while being knowledgeable,” Monaghan remarks, “keep on top of trends. If you're interested, get informed.” This is something that Davies echoes: “I would encourage anyone interested in ESG to read around the subject. Many global law firms, like Latham, have ESG pages, so look at what law firms are doing both internally and externally.”
- Finally: “If you want to shake up the status quo, it helps if it's something that you're personally invested in” Angela Monaghan adds. And all the better for it: a personal stake in the future is something that has united younger generations around ESG-related issues: “I think it’s fair to say that a large proportion of young people are more likely to think this way anyway. Whether we’re talking about the environment or social justice, it’s a problem that impacts their immediate future.”
- Up until relatively recently, corporate accountability on ESG issues simply wasn’t a legal requirement in the UK. But this is changing. In the time since the Companies Act (2006) was introduced, the Modern Slavery Act (2015), targeted supply chains, requiring companies with an annual turnover over £36m to disclose and display the steps they have taken to ensure the absence of any forced labour in their supply chains.
- Before now, the likelihood of enforcement around many of these issues was low. The Modern Slavery Act, for example, didn’t state a deadline for the publication of these statistics. But this has changed. Now, companies are able to delay the publication of their statement by up to six months, but only where they can provide sufficient reason as to why.
- There are also regulatory hurdles to navigate from other governmental bodies, such as the UN’s Sustainable Development Goals, and the Principles of Responsible Investment – ESG-friendly investment practices that encourage signatories to develop a more sustainable global financial system.
- Courts in the UK are paving the way for companies to be held responsible for the conduct of those in their supply chains. In 2021, a landmark case (Hamida Begum v Maran (UK) Limited) set the precedent that a companies’ duty of care could potentially extend to third parties operative in the production line.
- Research published by global firm Latham & Watkins in 2022 suggested an increased need for firms to assist clients with mitigating the risks of ESG litigation across a range of ESG-related factors. This comes amid a backdrop of an upward trend in ESG disclosure obligations in the US.
- In 2021, US-based global professional services firm Marsh & McLennan published a report arguing that as millennials and generation z become a larger percentage of the workforce, companies that perform well against ESG metrics stand to gain a competitive advantage that comes with improved staff morale.