Reimagining ESG

Law firms all too often fall into the trap of treating environmental, social and governance (ESG) as something that can be sold to clients. This is not unsurprising when ESG is merely – and reductively – seen as a legislative or regulatory matter. Viewed in this manner, it can be attacked as a ‘trendy’ way of packaging the provision of legal services.

Instead, ESG should be regarded as an essential element in the management of all business activity. As such, it can be used to: 

• assess the direct and indirect impact that a business has on people and the planet, and vice versa 
• identify what may derail enterprise value, and 
• establish how long-term business success can be built on the bedrock of good governance and a sustainable strategy driven by informed impact assessment.

For law firms, the message is simple: don’t treat ESG as a siloed standalone offering.

Redefining ESG

The acronym ESG has become misused and misunderstood. To some, it’s tied inextricably to new forms of overly burdensome regulatory, politically motivated social and environmental policies. To others, it remains a means by which a company’s moral and ethical behaviours can be judged and policed. Both interpretations present a clear danger and one where ESG could be erroneously swept away as part of a ‘culture war’. 

It’s time to take a fresh perspective. Any new definition starts with boundaries – in this case, establishing what ESG isn’t: 

• ESG isn’t corporate social responsibility (CSR) with a new label. CSR is discretionary; ESG creates real obligations, enforcement risks and financial consequences.
• ESG isn’t merely about compliance with legislation and regulation. Compliance is a given. ESG goes beyond compliance and tests whether governance, controls and evidence match what the organisation claims – and what stakeholders expect, which is beyond mere compliance.
• ESG isn’t optional. Companies can choose priorities, but they can’t opt out of climate, supply chain, workforce, data and governance risks. They need to make informed decisions and set strategic objectives on these business-critical issues.
• ESG isn’t virtue signalling. When public claims outpace operational reality, legal exposure risks greenwashing allegations, consumer and investor claims, regulatory scrutiny and loss of trust.

Reimagined, ESG is an integral part of management discipline: identifying what’s material, assessing risk and opportunity, and implementing a strategic direction overseen by good governance and underlying culture, controls and credible reporting that support long-term value.

Moving away from service-line thinking

Many firms have tried to package ESG like any other nascent practice area: form a team, build products that look attractive to clients and then seek to cross-sell it to existing clients who are buying another service. Treated as a service line, however, ESG risks being dismissed as mere branding, an optional add-on that rises and falls with headlines, politics and the latest fads. 

In addition, ESG doesn’t behave like a discrete practice discipline; there’s no such thing as ESG law. Indeed, because its very meaning is contested, some firms overpromise while others disengage. Neither helps. A more durable approach is to go to first principles: ask what is material to your client, over what timeline, and how does this change decisions, governance and impact on potential liability?

Material ESG issues, the business activities that have a social and environmental impact (on people and on the planet) and the effect these factors may have on the business will vary by degree from sector to sector. Each impact assessment will be unique. For example, for those clients in the financial sector, the factors that are likely to have a material impact are issues of conduct / integrity, consumer duty and data ethics; for manufacturers, supply chains, product safety and emissions; for tech companies, artificial intelligence (AI) and privacy governance; and for property developers, community and environmental. 

ESG should be used as an already-recognised umbrella concept to assist in judging what is material, help clients navigate the decisions and manage the legal risk and opportunities it creates. Essentially, it’s the consideration of factors within the terms of the retainer that will have direct and indirect impact on long-term success.

Developing a strategy for long-term success

Business leaders who have overseen a corporate failure will point to varying causes, both external (geopolitical and macro-economic conditions) and internal (fraud, regulatory failures, supply chain collapse, reputational shock, funding loss or a sudden shift in client demand). The cause is often seen as one that’s mystifying, unpredictable and beyond the control of management. 

While the trigger for failure may be unique, the underlying pattern is predictable: the organisation missed (or ignored) what was material, then lacked the governance, culture and strategy to respond. This is ESG in practice: identifying the factors that can impact enterprise value, then building the system to manage them.

The goal of any business is to create long-term sustainable success, with credible governance and a culture that delivers. When strategy, governance and culture align, businesses are resilient. When any of these three pillars are misaligned, they will eventually drift into crisis.

A useful way to think about ESG within this context is as part of a three-stage framework:

• Stage 1: materiality impact assessment. Identify the ESG factors that can materially move enterprise value or trigger liability or opportunity – across operations and the value chain – and prioritise them over the relevant timeframes.
• Stage 2: strategic objectives. Turn this into a series of strategic objectives, informed by operational capacity and performance, with identifiable targets, data points, reporting and compliance assurance.
• Stage 3: execution. A resultant sustainable strategy will be underpinned by governance (how decisions get made and are enforced, by authority, oversight, accountability and controls) and culture (how the behaviours and attitudes of people manifest in business practices). 

A successful strategy should support ongoing review and remediation, with continual reassessment of whether governance and culture remain appropriate for delivering it. It should therefore focus on the direction, the ‘why’ and ‘where’, and should avoid straying into overly prescriptive business planning – that is, the ‘how’ of implementation. This is the role of business plans, which should be refreshed depending on events and the experience / impact of decision-making. 

Even the best-designed strategy will fail for want of good governance and the ability to react and implement decisions, or be defeated by a culture that contradicts the strategic objectives of the business. Thus, ESG is not merely a matter of legal and regulatory compliance but the development of a sustainable strategy within operational reality. This is a client-centric commercial process where lawyers can play a highly valuable role in assisting the client, but cannot sell a one-size-fits-all solution. 

Embedding ESG into legal advice

By treating ESG as the central cog in the design and implementation of a sustainable strategy, the question changes from ‘what is your client’s ESG offering?’ to ‘what ESG factors materially impact the risk profile of this transaction, dispute, investigation or strategy for your client?’ The value lawyers can bring is in helping identify material impacts and providing solutions in situations where a non-financial issue (impact on people or planet, and impact on the business) may become a legal problem, then a business-critical one.

In mergers and acquisitions and financing, this may mean due diligence that protects value, considering supply chain exposure, modern slavery risk, environmental liabilities, data / AI governance and the credibility of sustainability disclosures. In disputes and investigations, this may mean anticipating greenwashing and human rights claims, consumer and regulatory scrutiny, and evidence / disclosure risk; in employment, culture, whistleblowing, and diversity, equity and inclusion risk; and in real estate, environmental responsibilities, building safety and other regulatory compliance.

The ESG acronym may in due time fade, but the drivers will not: legislative and regulatory compliance, capital market / lender expectations, supply chain transparency, workforce dynamics and climate / nature risk will remain, whatever the latest socio-political climate. Clients will still need help translating those drivers into governance, disclosure and liability management.

How law firms can operationalise the shift

• Lead with materiality. Help build a sector risk map for your client: what’s material, what legislation and regulations affect them, and what fact patterns trigger enforcement or claims.
• Embed the ESG lens into matter delivery. Add prompts to diligence, investigations and disputes triage, contract and board advice templates.
• Make commitments enforceable and defensible. Assist the client in turning strategic objectives into governance controls, reporting, assurance trails and contractual levers that survive scrutiny.
• Organise around outcomes. Link advice to cost of capital, deal value, licence to operate and litigation / regulatory exposure – not generic ESG narratives. 

Conclusion

If law firms treat ESG as a product, it risks being swept away by changes in the socio-political climate. Instead, it should be part and parcel of every sector / service line offering, a way of providing a value-added service to assist clients to make better decisions, reduce liability and build resilience. 

ESG isn’t a ‘nice to have’; it’s essential to long‑term success for clients – and the lawyers they instruct.