Businesses and the environment

Answer

In recent times, global awareness of environmental deterioration and its profound impacts has grown significantly. As a result, businesses are facing increased scrutiny on how their business practices play a role in this demise and are having to act. Crucially, businesses are rethinking their relationship with nature and adopting more sustainable business practices.

There’s rising demand for transparency and accountability, requiring businesses to not only acknowledge these challenges, but to also take meaningful action. Corporate social responsibility (CSR) has now become a critical expectation.

Nature markets offer a unique opportunity to bridge this gap. They enable businesses to implement credible, nature-positive initiatives that deliver tangible environmental benefits. The growth of nature markets has also given law firms a new avenue of legal expertise to utilise, and has even created the emergence of business ventures dedicated solely to operating within nature markets.

What’s CSR?

‘CSR’ refers to the commitments companies make to manage and mitigate the social, economic and environmental impacts of their operations. It goes beyond mere regulatory compliance or the pursuit of profit. Instead, CSR represents a proactive approach to sustainable development with meaningful strategy.

CSR has historically been viewed as an ancillary agenda item playing second fiddle to larger business strategy. Today, CSR is quickly becoming a core part of business ideology and growth strategy. Business stakeholders and consumers increasingly demand tangible, measurable actions, rather than token gestures and superficial commitments. Businesses are taking quick note, recognising that effective CSR is now essential for long-term, reputational success.

The legal sector is no exception. Law firms, like all businesses, are under the same pressure to demonstrate meaningful CSR practices. These initiatives are now influencing strategic decisions, client relationships and even driving competitiveness within the legal market.

The evolvement of CSR aligns with broader governmental and societal goals. The main example being that the UK government has committed to achieving net zero by 2050. In respect of law firms, many are following suit by setting their own sustainability goals, even committing to net-zero targets within the next five to 10 years. Alongside these voluntary strategical goals, regulations are increasingly focusing on conservation, biodiversity and the protection of natural capital.

CSR is no longer optional. It’s a fundamental expectation and imperative for strategic direction.

What are nature markets?

‘Nature markets’ are an innovative approach to valuing and investing in the natural environment. Historically, we used nature commodities such as timber and minerals as a way of generating income and deriving income out of our natural capital. A nature market is essentially an alternative method to generate investment from our natural ecosystem by assigning economic value to ecosystem services such as carbon and biodiversity. This is done by creating ‘credits’ or ‘units’, which produces a monetary value and allows them to be purchased/traded, creating a ‘market’.

In the UK, nature markets include the following:

• Carbon credits – these are created through woodlands or peatlands and allow businesses to offset their carbon emissions.
• Biodiversity net gain (BNG) – this is an ever-growing regulatory requirement which represents that habitat loss from development is offset, with a minimum gain, either by purchasing biodiversity credits or by investing in habitat restoration.

These markets rely on ‘natural capital’ – a term that refers to the naturally occurring ‘stock’ within our ecosystem and acts as the foundation for nature markets. It has the core benefit of aiding the conservation and regeneration of our natural capital, while offering essential regulatory benefits to a variety of business.

These markets within the UK are increasingly gaining momentum given the increased demand for material sustainable goals through CSR. In 2023, the UK government published its framework for nature markets, which set out the core principles of its operation, and the Department for Food and Rural Affairs (DEFRA) set out a target for private investment into nature recovery to meet at least £500 million per year by 2027 and reach more than £1 billion per year by 2030. This illustrates clearly the monumental movement of nature markets and the important role it is to play in the sustainable business transition.

Business benefits/encouragement for undertaking CSR

As outlined above, CSR is becoming an essential part of business strategy. Firstly, there’s increasing regulatory requirements meaning businesses adopt and adhere to sustainable business practices to stay ahead of the environmental regulations.

CSR initiatives now have a vital role to play in brand and reputational management. Consumers and clients are increasingly demanding substance when it comes to these initiatives and want to see real impact. Businesses that can demonstrate credible, measurable CSR commitments can strengthen their brand image and foster client relationships.

As client/consumer attitudes adapt and more focus is placed on CSR and its associated initiatives, CSR is quickly becoming a key differentiator. Businesses and law firms that embed sustainability within their core policies, backed by credible and tangible results, will attract an increasingly conscious consumer base, placing them as leaders in a rapidly evolving landscape.

Nature markets and CSR intertwined: what does this mean for the legal sector?

Bringing it all together, nature markets and CSR are deeply interconnected. CSR represents a business' commitment to managing its social, economic and environmental impact. Nature markets provide a practical mechanism to achieve these commitments, providing measurable, nature-positive outcomes that align with their CSR strategies.

Law firms are subject to the same business pressures as other businesses and therefore are putting CSR at the forefront of their core strategies. This means that they may need to engage with nature markets to offset emissions and enhance biodiversity as they, too, look to achieve their sustainability goals.

Additionally, the growth of nature markets is generating a new demand for legal expertise across multiple practice areas. Corporate and commercial advice will be needed to structure investments in nature-based projects; real estate advice to navigate BNG requirements for developers; and environmental and agricultural advising on regulatory frameworks and natural capital accounting. These developments position law firms as one of the key enablers of nature markets and the transition to a nature conscious society. Law firms that can build expertise in nature markets and the key legal concepts will not only be able to service their existing clients' needs, but also differentiate themselves and emerge as market leaders in an already competitive legal landscape.

Conclusion

CRS has evolved from being a set of marketing gestures into core governance principles, driving businesses to make strategic commitments to improving social, economic and environmental concerns. Among the variety of methods to assist in helping businesses deliver on their commitments and achieve the goals, nature markets are a vital mechanism.

Nature markets are set to exponentially grow off the back of the importance of the implementation of CSR strategies given that they are inherently nature positive. It’ll create the emergence of businesses with the sole purpose of providing nature market solutions and create opportunities for investment.

Ellis Arnold is a third-seat trainee in Michelmores LLP’s corporate team in Exeter.