What lawyers and law firms need to know about ESG

Photo by Melinda Gimpel on Unsplash

What do we mean by Environmental, Social and Governance (ESG)?

That’s a great question.

The rise of ESG presents various risks — and opportunities — for your clients.

The great majority of clients are collecting and reporting ESG data, whether or not their lawyers know it.

I recently spoke at a continuing legal education seminar where I noted that, “if you haven’t read your client’s ESG report, and made yourself aware of any climate, EDI, or other commitments, you are putting them at risk,” and I stand behind that statement.

Your clients need your “climate cooperation” to meet their climate targets.

Because climate is a shared resource, we need to work collaboratively to address climate change.² Companies are looking to their vendors and suppliers to help them meet their climate goals — this includes their lawyers and law firms. Why? Because of what we call “Scope 3” emissions.

Scope 3 Emissions

This section requires some background. When we talk about Greenhouse Gas Emissions (GHG), we are really referring to at least three big “buckets,” or sources of those emissions. We generally refer to these as “Scopes” 1, 2 and 3 (there are others, let’s focus on the Big Three). The below chart provides some additional detail and examples.

New contractual mechanisms

So how do companies plan to get a handle on their Scope 3 emissions? Among other strategies, they are increasingly leveraging new types of contractual provisions.

https://www.salesforce.com/content/dam/web/en_us/www/documents/legal/sustainability-exhibit.pdf
  1. Requires customers to set Science-Based Targets. A Science-Based Target is “in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement — limiting global warming to well-below 2°C above pre-industrial levels and pursuing efforts to limit warming to 1.5°C”;
  2. Actively work towards those targets (“develop and implement a plan for continuous improvement,” Sec. 2.1.2);
  3. Publicly disclose Scope 1, 2 and 3 Emissions (Sec. 2.3.5); and
  4. Penalties of cost of carbon offsets for any emissions above zero, or 0.5% invoiced to Salesforce over past 12 months (“Climate Neutrality Fee”).

So what does this have to do with law firms?

Law firms should expect to see these types of clauses incorporated into their engagements in the very near term. In fact, Salesforce is hoping for exactly that type of circularity: Patrick Flynn, Salesforce’s VP of Sustainability, has publicly stated that he hopes the Sustainability Exhibit (or similar terms) comes back to Salesforce from one of its customers, not knowing that it originated from Salesforce.

What are the opportunities?

As explained above, companies that have made climate commitments (the great majority) have quickly realized that they need to engage their supply chain in order to meet their climate targets — this includes their legal service providers.

ESG is an important issue for employees and it presents emerging ethical issues

Your current and future employees care about ESG

Lawyers and legal staff are increasingly inquiring with respect to both the firm’s own commitments (or lack thereof) on key ESG issues and the types of clients law firms are serving.

Ethical obligations are evolving to reflect this new business reality

As the ESG landscape continues to evolve, so will legal ethical obligations.

So what should you do?

At a minimum, get up to speed on ESG generally, and start asking your clients if they have made climate or other public commitments. Read their ESG and related reports, to make sure you can provide competent representation.

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Nicole DeNamur

Nicole DeNamur

27 Followers

Attorney + sustainability consultant. I write about how we can drive deep green innovation at scale. https://www.sustainablestrategiespllc.com