If you’ve been following our ESG series, you’ll have an understanding of how ESG is shaping the industry’s future, and be equipped with the essential knowledge to ensure your firm or business is compliant with ESG regulations. But what if you want to go over and above with your ESG offering? To do the best you can for the environment and the society you exist in? Even position yourself as a moral or thought leader? Then read on; this article aims to outline the ways in which you can go the extra mile with ESG.
First, it’s worth addressing why you should go further; implementing these additional measures will require time, dedication, and money in a lot of cases, and many businesses will have stakeholders to convince or incentivise before they can take action.
One large point in favour comes from a meta-analysis of 1000 studies conducted by Rockefeller Asset Management. This study examined the relationship between ESG and financial performance, and it found a positive relationship between the two for 58% of the corporate studies focused on operational metrics such as return on equity (ROE), return on assets (ROA), and stock price. 13% of these studies showed neutral impact, 21% showed mixed results, and only 8% showed a negative relationship between ESG and financial performance.
The findings were supported by a meta-meta-analysis (a study of existing meta-studies) which also found consistent positive correlations between ESG and corporate financial performance. In addition to these findings, one of the key takeaways from this analysis was that ESG disclosures on their own do not drive financial performance. This suggests that it is not enough for companies to do the bare minimum in regard to ESG; to see the full benefit of ESG measures on their finances, a company must engage meaningfully with ESG and work to provide a convincing offering.
Also of interest is a study by First Insight which investigated consumer spending habits for Gen Z shoppers. The study found that 62% of Gen Z shoppers prefer to buy from sustainable brands, and 73% are willing to pay more for sustainable products. It also found that Gen Z and millennials are the most likely to make purchase decisions based on personal, social, and environmental values.
There is even evidence that ESG factors can affect employment. Cone Communications found that 76% of millennials consider an employer’s sustainability agenda before making career decisions, whilst research by The Society for Human Resource Management found that companies with robust sustainability initiatives experience a 55% improvement in employee morale, and a 38% increase in employee loyalty compared to companies with weaker programmes. The same study also found 43% increases in public image and business process efficiency.
Based on the above research, it’s clear that it is worth investing in a robust ESG strategy; it can affect businesses at all levels, from profits and consumer habits to who wants to work for you, how happy your employees are, and how well your company is perceived. Now that the incentives are clear, let’s get into the ways you can go above and beyond basic ESG compliance.
One thing to consider is whether to utilise one of the numerous voluntary reporting frameworks that exist outside of the compulsory requirements. For example, the GRI (Global Reporting Initiative) framework is the most popular of these, with 73% of the world’s 250 largest companies using GRI for their ESG reporting.
The GRI standards enable any organisation to understand and report on the economy, environment, and people in a comparable and credible way, increasing transparency on their contribution to sustainable development. An additional benefit is that the standards are relevant to stakeholders such as investors, policymakers, and society in general, thus allowing your business to build trust, accountability, and legitimacy. The standards are built as a modular set, which allows an organisation to build a holistic picture of their material topics, impacts, and how they are managed. The set consists of three parts:
One of the primary benefits of voluntary reporting standards is that they allow businesses to identify their problem areas and areas that compulsory requirements emphasise less. This is useful to target risks which may have a negative impact on their business and thus build a more comprehensive ESG strategy. For example, a supermarket chain may want to focus on environmental aspects such as packaging materials and waste, social aspects like labour standards, or governance aspects such as business ethics.
The main drawback of voluntary standards is the sheer volume of them; there are around 14 popular frameworks and an estimated 600 globally, so this begs the question – with so many to choose from, how do you pick which one is right for you?
In an article on ESG frameworks, IBM outlines five useful ways of looking at frameworks and deciding which is best for you.
If you really want to demonstrate your commitment to ESG principles, then you should consider becoming a B-Corp. Run by the non-profit organisation B-Lab, B-Corp certification is a globally renowned designation indicating that a business is meeting high standards of verified performance, accountability, and transparency on ESG factors such as employee benefits, emissions, and supply chain practices. To achieve certification, a company must:
In addition to being rigorous, the assessment can be time-consuming and costly. It took 15 months for Freeths, 18 for Cripps and Brabners, and 2.5 years for Ampa. There is an initial application fee and an annual membership fee which varies depending on a firm’s annual revenue. The work is also never done, as companies must undergo the verification process every three years in order to recertify; this ensures that B-Corps are committed to continuous improvement and can never rest on their laurels following certification.
While this is a lot of effort, the flipside is that you will have inarguable evidence that you are committed to ESG principles, and be much better positioned to reap the benefits of a robust ESG strategy discussed earlier. There is also an opportunity and necessity within the legal sphere for more firms to lead the way and begin a cultural shift towards more responsible and comprehensive ESG practices.
To date fewer than 100 legal service providers globally are accredited as B-Corps, with only eight of these ranked in The Lawyer UK 200, and only one of them is ranked in the UK top 50. If market leaders in the top 10 took the B-Corp plunge (particularly those with strong US and international ties) it could create a domino effect within the global legal industry leading to immeasurably better environmental and social practices by firms, and by extension influencing their clients to do so and bettering the world as a whole.
If this sounds a little too ‘pie in the sky’ then consider this; in an annual statement, the CEO of Blackrock – the world’s largest asset management firm – outlined how climate change will impact the way his business is run. He announced a number of commitments including “corporate action on sustainability, disclosure of related risks, subscription to science-based emission reduction targets, and a reconsideration of the sustainability of current investments.” This led to a variety of mega-corporations demonstrating increased commitment to environmental causes; Microsoft announced its intent to become carbon-negative by 2030, BP said it aims to offset all of its emissions by 2050, and Jeff Bezos pledged $10m to fight climate change. So remember, market leaders can effect massive change. Or in other words: the leader sets the tone for those that follow.
If you’re not ready to make such a drastic change, there are still many ways to improve your ESG offering in a meaningful way; below are just a few examples to mull over.
In working to hit net zero, you’ll often come across the term ‘scope 3 emissions,’ which are a company’s indirect emissions arising from business travel, employee commutes, and the usage, purchase, and transport of supplier goods and services. On the supplier goods and services front, we can look to Pinsent Masons for an example of how to deal with polluting suppliers; rather than terminate contracts with suppliers, it launched a free net-zero programme to help them reduce greenhouse gas emissions in line with science-based net zero targets. This not only benefits the firm, but helps guide other businesses into positive ESG practices.
Firms can also implement a responsible travel policy initiative to help slash emissions. For example, firms have promoted initiatives such as rail travel over short haul flights, using services like Zoom instead of in-person meetings, and creating staff electric vehicle schemes. There are even unique ideas like Eversheds’ car park scheme, which only allows staff to use the onsite car park if they carpool with another employee.
The encouraging news is that UK firms are leading the way with ESG policy. Recent data from the SBTi reveals that 29 of the Top 50 UK law firms have verified science-based net zero targets, totalling 113 near term, long term, and net zero goals. Of these 113 goals, 74 include scope 3 emissions targets, and most firms have set a target to achieve net zero by 2040. Clearly the climate is changing within the UK legal industry around ESG policy, with more firms working hard to provide a convincing offering. Getting left behind at this stage may result in missing the benefits of a strong ESG strategy; better financial performance, consumer spending habits, employee morale and loyalty, public image, and most importantly, a better world for everyone. These reasons alone should serve as the catalyst to go the extra mile with ESG, to ensure that a better world is not just imagined, but realised.
