When the wind blows: businesses under pressure to cut carbon emissions are switching to renewable energy sources
When the wind blows: businesses under pressure to cut carbon emissions are switching to renewable energy sources © Sean Gallup/Getty Images

Law firms are racing to catch up with the financial sector’s embrace of environmental, social and governance (ESG) investing as they see the potential for deals and regulations aimed at combating global warming to deliver billable hours.

Nearly all the global law firms now have ESG or sustainability practices and the past year has seen unprecedented activity. From big dollar M&A deals to contracting work, the legal sector has recognised the need for ESG action.

At law firm Ashurst, lawyers are working with clients to embed a host of environmental clauses into contracts. In projects with construction clients, for instance, an increasingly standard requirement for contractors includes mandating an energy performance certificate (EPC) of at least an “A” for buildings, to prove they are energy efficient.

Other clauses require parties to meet certain carbon emissions targets, which, if breached, require a remediation fee donated to a selected environmental charity, the firm says.

“Clients are increasingly focusing not only on their own net-zero commitments but how that interplays with the customers and suppliers,” say Anna-Marie Slot, global ESG and sustainability partner at Ashurst. “The work that we are doing with clients — building ESG clauses into their contracts so that they can deliver on net-zero promises — will only increase.”

Ashurst is one of the dozens of law firms that have teamed up to create open-source contract clauses that deliver climate solutions. The initiative, called the Chancery Lane Project, has developed contract terms that encourage suppliers to adopt environmental targets to reduce a company’s indirect carbon emissions. It also offers “coolerplate” generic clauses to make it easier for lawyers to embed climate issues and net-zero targets into a contract.

Social media has exposed companies to public judgment of their ESG credentials, says Adrian Walker, a partner at Hogan Lovells and head of the law firm’s ESG practice. This can be reputationally damaging for those whose actions fail to match up to their promises.

There is also growing recognition that companies delivering on ESG commitments tend to outperform their competitors. “We are seeing a shift from ESG contractual provisions that require legal compliance, to those that drive performance,” he notes.

Bank of America research shows that, during the stock market plunge around the Covid-19 outbreak, ESG investment strategies outperformed by 5 to 10 percentage points in the US and Europe. Companies with lower ESG scores suffered bigger drops in their earnings per share.

Lawyers are also needed for corporate ESG disclosures, particularly as regulators are on the hunt for misleading claims, or “greenwashing”. Failure poses material risks, ranging from litigation to reputational damage, Walker says.

The European Commission is also rolling out a taxonomy for sustainable finance next year — a labelling scheme to help steer investment into green projects by setting out which activities align with EU environmental goals. “You have to report on the proportion of your business that relates to taxonomy-eligible activities at first and, in later years, on what is taxonomy aligned,” explains Vanessa Havard-Williams, global head of environment at Linklaters. “The detail is really fiddly.”

ESG is increasingly part of the due diligence process in mergers and acquisitions, too. Lawyers have seen “Weinstein clauses”, named after the disgraced film producer Harvey Weinstein, that require target companies to disclose allegations of sexual misconduct among their senior executives, according to law firm Wachtell Lipton.

Entire countries can be held to account, as well. Litigation firm Hausfeld worked with the charity Save the Children to intervene in the first climate change case before the European Court of Human Rights. Following deadly wildfires in Portugal in 2017, young people from the region challenged that countries were not doing enough to combat global warming.

ESG legal work has even stretched to antitrust law. The office of the EU’s head of digital and competition policy, Margrethe Vestager, has studied how competition rules could be changed to work with the EU’s green deal.

Dechert is now working on ways to tweak antitrust provisions to help businesses collaborate on climate change initiatives. “The need is clear for explicit guidance on what is permissible,” the firm says.

Case studies in best practice

Researched, compiled and ranked by RSGi. ‘Winner’ indicates the organisation won an FT Innovative Lawyers 2021 award

Sustainability and ESG

Swedish climate activist Greta Thunberg protests in front of the Swedish Parliament Riksdagen in Stockholm
© AFP via Getty Images

WINNER: Hausfeld
Lawyers at the firm are leaders in global climate litigation and they have drawn on Hausfeld’s expertise in children’s rights. The firm filed a petition with the UN Committee on the Rights of the Child on behalf of Greta Thunberg, the environmental campaigner, and 15 other young people aged eight to 17. This argued that state failures to tackle climate change violated the human rights of children. It also helped the Save the Children charity to argue for the rights of children in the first climate change case at the European Court of Human Rights.

Since 2018, Dechert has been part of a lobby pressing for changes in competition law that will allow sustainability initiatives to go ahead, such as ensuring farmworkers receive a living wage. This has involved working with the Fair Trade Advocacy Office, based in Brussels, and talking to European authorities. Dechert hosted events, offered analysis and introduced campaigners to government bodies. So far, the Dutch competition authority has published new guidelines and the UK and Greece will soon follow suit.

Latham & Watkins
The firm’s ESG task force worked with Anthesis, a global sustainability consultancy, on Risk Horizon, a due diligence tool that screens potential deals for ESG risks. The tool is now used by other law firms. Lawyers also helped data provider Standard & Poor’s to launch a climate index to assess equity securities against the goals of the Paris climate agreement. The firm is advising Microsoft on how to invest its $1bn Climate Innovation Fund.

Anna-Marie Slot, global sustainability partner at the firm, leads its 100-strong ESG/sustainability group, which aims to embed ESG principles in all the firm’s activities. Ashurst’s works includes advising Tritax Big Box, a logistics property specialist, on the first sterling green bond issued by a UK real estate investment trust and working with Lundin Energy, a Swedish oil and gas group, on refinancing with a $5bn ESG-linked loan. Ashurst has also launched ESG Ready, which provides latest information on regulations.

Addleshaw Goddard
The infrastructure and energy lawyers represented Southern Water, which supplies the south-east of England, in negotiations over an unusual collaboration with Portsmouth Water. Southern Water funded development for a new reservoir and secured access to new clean water supplies to ease shortages in the south-east.

Herbert Smith Freehills
The firm is a founding member of the Net Zero Lawyers Alliance, a coalition primarily made up of law firms, which aims to help the legal industry achieve net-zero carbon emissions by 2050. The firm’s own aim is to reach net zero by 2030. HSF is developing software to track and manage its carbon emissions. The firm also supports the Earthshot Prize, an awards programme for initiatives that help the environment.

The 12 partner firm has pivoted to focus on the “green transition” of its energy, mining and steel clients. It is working to kickstart the renewable energy market in Ukraine, including green hydrogen trading and energy storage, taking multiple projects through financing, licensing and regulatory approval as well as advising on corporate operations of renewable projects. The firm is also advising the Ukrainian government on a structure for tariffs and rewards to incentivise renewable energy production.

© Ritzau Scanpix/AFP via Getty Images

Pinsent Masons
Lawyers arranged the power purchase agreements for Tesco, which mean that the UK supermarket now uses 100 per cent renewable energy in its stores and distribution centres. The contracts enable renewable energy projects to secure financing more easily. The firm also supports Tesco with its sustainability strategy, including the installation of solar panels and advising companies in its supply chain.

The firm began a programme, ESG Accelerator, to familiarise its lawyers with ESG-related matters. It involved podcasts, training for clients and staff, and roundtables for the London-based firm’s senior leaders. Due to Linklaters’ expertise in areas such as carbon offsetting, the firm was made the sustainability specialist on the global law firm panel of Nestlé, the food and beverage company.

Researched, compiled and ranked by RSGi. ‘Winner’ indicates the organisation won an FT Innovative Lawyers 2021 award 

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article