While at least some of the public company investment world is focused on or interested in ESG, the fact is that ESG criteria can be applied to every business (public and private), governmental entity, nonprofit, and other organization, and also to every industry and profession. I have written previously, for example, that governmental entities, education (schools), medical/medicine, and some nonprofits would be well-positioned to apply and report ESG criteria as a means of demonstrating how other public and private businesses might go about doing the same, while perhaps at the same time raise community and public awareness and expectations and reducing the need or push for legislation. In the end, unless ESG becomes overly or too expensive and starts to not insignificantly negatively impact jobs, I expect that we will have both additional mandated legislation and regulations, and increasing community and public awareness.
The discussion in this blog post is about law firm ESG, applying ESG to law firms, and rating the ESG at your law firm. For reference and a useful discussion about ESG criteria, I have copied and pasted below my December 29, 2020 blog post titled ESG and the “E” and the “S” and the “G” – ESG + Sustainability + Climate Action.
With respect to law firms, and for that matter also for other service and professional service businesses, governmental entities, nonprofits and other organizations (including, for example, education/schools and medical/medicine, I would view the “S” and the “G” and “Sustainability” to be the most challenging and important. That is not to suggest that the “E” and the “Climate Action” are unimportant, but merely to recognize that in service and professional service type organizations, such as law firms, people, governance, services and related risk management lift the organization and keep it operating, sustainable and perhaps growing.
Let’s look at “S” for a law firm. Some law firms and partners or owners are satisfied to operate their own practices and have a reduced interest in associate and mid-level experience attorneys, other than to the extent that those worker type attorneys support the partners or owners. Typically that type of firm also will not provide much in the way of mentorship, development, guidance, allowing involvement, or at some point upward mobility opportunities (including little dissemination of information that would help provide direction in those areas). Whether and to what extent to provide “S” to associates and mid-level experienced attorneys is a partner and owner choice. Without much “S” the firm and its partners and owners still can do well, but in my view not as well as they could by providing “S.” “S” also relates to community involvement – again, without community involvement the firm and its partners and owners still can do well, but in my view not as well as they could. See below from my December 29, 2020, blog post examples of some possible “S” criteria. In the context of law firms and the atmosphere and opportunities that are present two words that come to mind are mental health and inclusiveness, both of which are related to both “S” and “G” criteria. You might be aware that there has been a general increased focus on mental health in the legal profession and at firms, and this increased focus started pre-COVID. The following is a link to a post on the California Lawyers Association page discussing a new, recent study about attorney mental health and wellbeing (including the extent of stress, anxiety, drinking and depression) https://calawyers.org/california-lawyers-association/california-lawyers-association-and-the-d-c-bar-announce-results-of-groundbreaking-study-on-attorney-mental-health-and-well-being/.
Let’s look at “G” for a law firm. Some of these topic areas also relate to the firm atmosphere and environment for associate and mid-level experience attorneys, including, for example, whether and the extent to which they are allowed and encouraged to be involved in the governance or growth or marketing of the firm. Importantly, “G” also relates to the relationships and interactions of and between the partners and owners, and to other “S” criteria. Lack of governance, or inadequate or improper governance, and definitely bad governance can or will negatively impact the entire firm and its longevity, whereas “good” governance will have a positive impact. See below from my December 29, 2020, blog post examples of some possible “G” criteria.
Finally, for the purpose of this post “sustainability.” Law firms come and go, grow, or shrink or stagnate, but they and the legal profession and market are always changing. Laws change. The demand for legal services change. The competition changes. The people with or at the firm change. The abilities of the firm change. Sustainability involves “S” and “G,” the experiences, abilities, strengths, weaknesses, personalities, and hard work of the attorneys and other people at the firm, services and practice areas that are and that can be offered, the ability to personally reach and communicate with clients and prospective clients, and collaboration and working together.
I have not covered “E” or Climate Action – those can be topics for another post, and with comments and suggestions by other people relating to law firms and service and professional service businesses and organizations. As, for example, you may have seen recent articles discussing “E” as it pertains to cryptocurrencies, certainty law firm “E” extends beyond the use of paper and ink, office energy use, waste, and recycling.
Obviously the above discussion is not intended to be a treatise – certainly many attorneys and other people who work or who have worked at law firms, and at other service and professional service organizations, could add considerably more discussions. Immediately below is the copy and paste of my December 29, 2020, blog post.
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December 29, 2020, blog post
ESG and the “E” and the “S” and the “G” – ESG + Sustainability + Climate Action
ESG criteria refers to an organization’s environmental, social and governance policies, practices and processes, some of which depend upon whether the organization is a public corporation or business, private corporation or business, nonprofit, not for profit or NGO, governmental organization or entity, or a hybrid or mixed organization or entity. ESG criteria will also vary depending on the size of the organization or entity, its industry, and whether it primarily provides a service, a product or manufacturing, or a combination of both.
The following criteria can be used for reference; indeed, however, whereas applicable criteria have been set in some circumstances or for some situations, applicable criteria otherwise often remain in a state of change, discretion, suggestion or proposal, and choice. The various services that evaluate and rate ESG also each individually decide which criteria they will use. Indeed, the below listed possible criteria are intended to be fairly encompassing so as to promote thought and consideration, but are not necessarily in the whole a list of required criteria. Each organization and entity must evaluate its own requirements and circumstances.
Environmental criteria broadly refer to some or all of the following:
Resource materials and energy evaluation, selection, use, and discharge, management and conservation;
Environmental risks and management;
Waste;
Emissions;
Pollution;
Hazardous and toxic wastes and emissions;
Ownership and management of contaminated materials and land;
Treatment of animals; and
Compliance with laws and regulations.
Depending on the processes that are being used sometimes the environmental component of ESG can be the more clear-cut or direct component to identify and measure.
Social criteria broadly refer to some or all of the following:
The organization’s or entity’s internal and external relationships, values and culture and its adherence to and enforcement of values with employees and independent contractors in the workplace and work environment;
Its working relationship employees, independent contractors and in the workplace, with customers, with suppliers, in the community, and with other stakeholders;
Human capital, as it has been called – I don’t particularly like the term “human capital” as to me it sounds a bit faceless or depersonalized – instead I prefer something such as simply the category “People”;
Health and safety;
Well-being;
Diversity;
Opportunities provided, inclusiveness and equality, training, mentorship, advancement and advancement opportunities;
Talent acquisition and retention;
Social engagement and active involvement;
Discrimination;
Organizational openness and communications;
Organizational trust, integrity and reputation; and
Compliance with laws and regulations.
I view the social criteria component of ESG as being the more currently challenging component because of the very large numbers of criteria that people can argue are or should be included, and its sometimes difficulty of measurement or more subjective nature.
Governance criteria broadly refer to some or all of the following:
The organization or entity overall, and to its leaders and their actions and leadership including such criteria as:
Board and management roles, makeup, structure, policies, processes and practices;
Decision making;
Accounting methods and related transparency;
Shareholder engagement and shareholder rights;
Avoidance of unlawful practices, and legally or ethically questionable business practices;
Strong, transparent and enforced governance policies and practices;
Codes of conduct and ethics, and enforcement;
Board, executive officer and senior management diversity;
Measurement of corporate and organization performance;
Corporate and organization values, trust, integrity, and reputation;
Board oversight;
Accountability for actions;
Oversight of internal controls;
Oversight of compliance with laws and regulations;
Compensation;
Avoidance of unlawful conflicts of interest;
Information disclosure;
Corporate and organization sustainability;
Oversight of environmental, social and governance criteria;
The organization’s use of information and private information, and information and cyber security;
Protection of the organization’s assets including intellectual property;
Officer, director, and management openness to appropriate challenges, disagreement, and criticism, and the manner and processes for learning about, addressing, evaluating and debating, decision making, and resolving those ongoing occurrences and situations; and
Board and director structure, agenda setting, demeanor, meeting processes, independence, and adherence to prudent business judgment and diligent, active and proactive business judgment rule practices.
Whereas the above list of possible governance criteria might suggest that the governance component of ESG is more well-defined, I view the governance criteria as currently being perhaps the more challenging component of ESG because a large number of possible criteria can be identified but in practice the criteria that are recognized as being accepted tend to be less numerous, and as a group governance criteria still tend to be more vague, undefined and less agreed upon, and identification, evaluation and measurement of governance criteria also tend to vary more from organization and entity to organization and entity.
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Best to you. David Tate, Esq. (and inactive CPA)
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Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only
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