impactvise co-founder Adrian Peyer ("AP") recently sat down with LexTalk World to chat ESG's importance to today's legal market, and what impactvise sees as the biggest opportunities for law firms and in-house legal departments in the near future. A few highlights from the interview are transcribed below.

 

Is ESG (Environment, Social, Governance) an opportunity or a threat for law firms and in-house legal departments?

 

AP: Sustainability and ESG factors are becoming evermore mainstream - in much of the world, non-financial ESG disclosures are quickly becoming requirements for listed companies. And culturally, it’s moving from mere compliance to something bigger, as stakeholders across the spectrum are looking for accountability and action from businesses to solve some of the world’s biggest challenges.

 

As companies look at their own house, they are also looking at who they work with - that is, their individual supply chains. And lawyers are a key part of this supply chain meets value chain - lawyers, attorneys, legal teams and firms sit at many of the decision points a company has to take, whether that’s on an operational, financial, compliance, or human resources level.

 

Accordingly, lawyers have an opportunity to positively influence business decisions and step up for action. Nowadays, legal advisors can no longer simply provide by-the-books legal counsel. You also have to walk the talk yourself as a lawyer, so this is a bit of a shift - you are not only required to be a great technical advisor, but the law firm itself has to look inwards and ask itself, “How do we behave? What are our values, and how do we play into this value chain?”

 

This is where I think the opportunity lies - for a law firm to say, “Hey, look, we’re not only great advisors, but we’re moving in the same direction as you, our client,” - which will ultimately build a closer relationship with that client. The threat is more for those who don’t move or act in this space, who over time may lose out on some of the business because their clients will ask for some of these ESG metrics and actions that a law firm may not be able to substantiate. And if you don’t move up, then you’re going to move out of the value chain over time. How is data playing into the assessment of ESG performance of law firms?

 

AP: So I think if you look at data you have two angles: first, you have the data you host and deal with from your clients, and second, and an area which is playing an increasingly important role, is how you report your own actions and policies - in particular, for ESG. Here, you really have to become much more transparent - something that’s probably a bit difficult for many of the law firms, from a culture/behavior perspective. With ESG, especially, transparency is key - not that you have to unveil confidential information regarding your client, but rather how you report on what actions you take and how you manage your own ESG actions.

 

For these ESG transparency efforts, the key is the need to somehow get to a common standard. What we’ve done at impactvise is not create a new standard, but rather based our evaluations on the WEF Stakeholder Capitalism metrics, and tailored it to the legal market. We take publicly available information - we’re not sending out questionnaires - because we want to push transparency on how law firms are acting and reporting with respect to these issues.

 

We at impactvise are here to reinforce the message that there is an increasing expectation for law firms to report on certain things, specifically with how they are acting with respect to being a sustainability-focused business. At impactvise, we collect the data at scale (we’ve now assessed more than 700 law firms across the globe) and make it comparable. With our ESG report card, we can score them objectively - and that’s the basis for making objective decisions on how to engage with a law firm. How can in-house legal departments enhance their law firm selection process to include ESG?

 

AP: The answer to this is two-part, as it’s important to consider both the law firms themselves and then the clients they represent - principally, those organisations engaging the law firms as service providers (or “suppliers”).

 

On the one hand, you have law firms, which are big or small corporations or partnerships in and of themselves, which means they have a responsibility to serve not only their clients but their employees, who are demanding more and more clear statements and taking a position on how they view certain topics. One easy example of this is a firm reporting on GHG emissions, or its diversity & inclusion goals - there are many topics you can report on how you deal with it.

 

On the other hand, the in-house departments at client companies and corporations are starting to use these metrics in their selection of law firms. When I was an in-house General Counsel at a major multinational corporation looking to retain a law firm, I certainly looked, firstly, of course, at the cost, meaning the total fees related to engaging a particular firm, and then at their skills - i.e., are they any good? But, more and more, in-house teams are looking at whether the behavior and the values of a law firm align to those of their own company. That’s the new thing, and the biggest new opportunity for in-house counsels. Boards and management teams are tasking selection committees to include ESG data, not just fees and skills. As a GC, you can position yourself internally as a thought leader through demonstrating that you take these factors into consideration, building the credibility of your own company’s strategy because you are selecting partners based on similar values

 

How can lawyers up-skill their ESG knowledge? And laymen, more generally? AP: If you look at lawyers first, certainly, legal professionals and advisors need to understand the relevant rules and regulations - the basic functions you would expect from a lawyer. ESG is such a moving piece, and there is lots of uncertainty given regulation is moving, trying to catch up with stakeholder pressures, be it from society or investors, on companies and corporates.

 

You now have to think ahead and anticipate what’s coming next. I think that's now becoming true not just for lawyers, but for everyone - that you cannot just look simply at what's current, where the current regulations and laws stand and how be compliant with it. Rather, at this stage, you have to look ahead and say, “So what's next? What’s the movement, and where is this going, and how can I anticipate some of the trends and regulation that will come up?”

 

That's where the upskilling comes in - you need to understand where this ESG and sustainability pressure is coming from, and where the societal movement is headed. There is much more behind this than just investors putting pressure on companies. The climate crisis is one aspect, certainly, but this is a broader shift concerning things we all need to deal with - that is to say, none of this is something one company can deal with alone. I think if you get a good understanding of where it is coming from, where this might be going, and how you can play your part in it, I think that's where you can really effectively upskill.

 

Case in point: that’s why we at impactvise have designed our programme with the business school INSEAD. I mean, they're very well known for their business education - so why do we partner up with them for a lawyer's programme? It’s for exactly those bigger reasons - to say, look INSEAD understands business, they see this movement, and they have the professors and the academy but also the practical experience - and that's what we want to share with the lawyers in our sustainability program. What’s unique about this programme is that you're not learning “Regulation 101,” but you will understand where this is coming from and where this is going and how this can help you be a strategic partner to your own organisation and your clients.

 

How can the legal industry move from compliance to contribution? AP: So I think that it is building a bit on what I said before - that you can be compliant nowadays by just sticking to the rules, but that I think that there is much more lawyers can do. If you look throughout history, many lawyers have been passionate about doing good and making a difference. There's already a cultural institution of pro bono work performed by lawyers, but this is only one aspect; I think what ESG brings along is something that is much more holistic.

 

If lawyers really understand ESG as the opportunity we believe it is, they are then able to advise the client on not just doing option A because it’s the legal fulfillment, but also offer up option B or option C for consideration, which, if you look a bit further ahead, will likely be expected from society. We believe informed advisors will be able to credibly point to paths forward that acknowledge likely developments, avoiding a short-term fix that will likely mean having to do things again in the future to comply with oncoming regulations or expectations. Lawyers have a unique position now to influence the decision makers with offering choices beyond “legal or not legal.” There, you can make a contribution - that’s where we as lawyers can really have a positive impact.

 

That’s truly the passion of myself and the co-founders of impactvise, to say, look we've seen that lawyers can make a positive contribution, but you have to act, you need to get out there, and you need to be fully embedded not only in the legal aspects but also in the business strategy. To be a partner and to have a seat at the table. Of course, you’re wearing the legal hat but really, you know, you’re looking into the future. And I think that's where lawyers can really make a difference. Being a lawyer is still something many people aspire to, and there is a growing recognition that there's a huge opportunity out there for them to help the economy to transition to a more sustainable economy.

 

You can watch the entirety of the interview on LexTalk World's YouTube Channel.