The sharp rise of the Environmental, Social and Governance (ESG) sector has created a demand from investors and scrutiny from regulators, especially in the environmental sector. The abbreviation ESG has become ubiquitous recently, therefore it is paramount for aspiring lawyers to follow the rise of the ESG sector.
Many companies and law firms emphasise the role of sustainability when establishing corporate structures, offering bond issuances or closing mergers and acquisition (M&A) deals. This is posited with the proliferated demand for improved environmental disclosure standards from large investors. For example, in light of the COP26 climate conference in November 2021, 168 assets – representing more than £17 trillion in assets – have demonstrated support for the Carbon Disclosure Project’s (CDP) campaign, which aims to disclose data regarding water usage, deforestation and climate change by companies.
As Emily Kreps, the global director of CDP's capital markets programme states: “This year’s campaign against non-disclosure has achieved record levels of support with a 56% increase in investor participation. Investors require data that is consistent, comparable and comprehensive to help them to meet their own net-zero ambitions.” Therefore, the fear of climate change leading to permanent environmental damage drives the increase in demand, which also means that vice versa, when there is substantial progress towards an improved environment, there will be less demand from potential ESG investors.
Moreover, as Morgan Stanley states that it executes "innovative solutions" to address complex ESG issues for its clients "to help drive revenue opportunities, and take a forward-looking approach to sustainability" in its operations and disclosure. A recent example of this was Dominion Energy’s sale of storage services and gas transmissions to Warren Buffett’s company, ‘Berkshire Hathaway Energy’. In July 2020, it announced a reduction in its CO2 emission by 50% and the corresponding investment growth was significant. Three months after the announcement, the forward price-to-earnings doubled, relative to trends in the utility sector index.
As the implementation of ESG policies becomes a legal, financial and corporate risk assessment element, in tandem with the increasing impact of its profitability, the demand for high-quality legal advice in assessing ESG risk will increase.
Accordingly, the spill over effect into the legal market means that there will be an increasing demand for legal advice on the structuring and documentation of green loans, green bonds, green stocks, green funds and responsible investment funds, for example. Lawyers are in the key position to assist clients, to respond to responsible governance and regulatory changes needed to meet the new ESG standards.
On top of this, law firms are driven to consider their own ESG performance, therefore new roles within firms are starting to emerge. Law firms are, like other corporations, not immune from damage stemming from negative ESG outcomes, and the impact extends to the clients they work with, for both reputational and financial reasons.
In turn, this will contribute to the importance of the transparency of the firm you are wanting to apply to, as well as improved employment quality and satisfaction for future employees.
Currently, the tier one firms in the ESG sector group are Allen & Overy, Burges Salmon, Clifford Chance, CMS, Leigh Day, and Linklaters. The incorporation of ESG policies within law firms will go beyond existing corporate social responsibility (CSR) programmes, as it is more than philanthropy via pro bono work, given that ESG lawyers can offer quality legal advice to investors and clients to in turn improve the environment.