As environmental, social and governance (ESG) issues become a priority for businesses the world over, sustainability and ESG planning are important considerations for SME law firms. According to the Sustainability Accounting Standards Board (SASB) who identify key areas of ESG risk by market and discipline, there are a number of concerns that SME law firms should be considering including environmental ones over power and resource usage, carbon emissions, issues around data security, diversity, equity and inclusion, employee recruitment and engagement, business ethics, professional integrity and governance.
Though these concerns may sound like they apply more to big business and large corporate law firms, more than 90% of global companies are SMEs, and are responsible for 60–70% of global emissions. In the UK, almost 50% of law firms are small firms and a further 30% are medium-sized firms.
As we look forward, here are six reasons why SME law firms should develop an ESG strategy.
To keep ahead of upcoming ESG and sustainability legislation
Although smaller businesses and smaller law firms are not yet specifically bound by ESG legislation, the landscape is changing quickly with the introduction of the new ESRS which will impact SME law firms and other businesses working for larger Europe based companies. All these businesses will be asked to submit detailed data on environmental and social performance. The UK mandatory climate disclosure, TCFD, is now transposed into UK law. SME law firms and other businesses supplying large UK firms will be required to supply detailed climate risk data.
To help recruitment and attract top talent
2022’s Global Student Survey by education company Chegg found that 39% of UK students see climate change as one of the top issues for their generation, and Gen Z employees attending job interviews are now regularly starting to ask about green credentials. Deloitte’s 2022 Gen Z and Millennial Survey similarly found that climate change and protecting the environment is the number one concern of Generation Z, and the number three concern for millennials. These generations in particular value employers that prioritise ESG because it demonstrates that the company is committed to making a positive impact on society and the environment. By 2025, millennials will make up around 75% of the total workforce. Law firms focusing on their ESG initiatives will be seen as more innovative and forward thinking and attract and retain the best talent.
To attract more clients and boost firm reputation
Top business executives are now committed to environmental sustainability, with more than 80% of business leaders concerned about climate change and are determined to take serious action. Customers prefer to select businesses with strong sustainability credentials, and this includes service industries such as law, even smaller law firms. Some UK law firms are already very much ahead of the curve and have become Certified B Corporations – a status which not only means that everyone can see they are serious about the environment, but will also ensure their firm is more likely to attract and win lucrative business in the future. Clients view law firms that prioritise ESG as more socially and environmentally conscious, and want to instruct and work with law firms that share their values. This alignment can foster trust between the client and the law firm and improve overall client experience.
To increase business profits
Successful sustainability planning by SME law firms requires reducing the duplication of work, the resources used and the energy used when running a practice. This not only contributes to cutting costs but supports increased productivity and profit. The right thing for people and planet can also be the right thing for business profit. The financial and environmental effects of digitalising paper documents in the legal sector – a study funded by the European Commission Low Carbon initiative and the Liverpool City Region – found that medium-sized law firms could save around £400,000 every year and reduce carbon emissions.
To create future opportunities
As we go forward and the upcoming ESG legislation starts to greatly affect sole traders and small businesses, commercial clients will be looking to their lawyers to support with the governance aspects of ESG and sustainability planning. There is an opportunity for SME lawyers to introduce extra ESG expertise to their suite of services and provide extra services to their business clients to support ESG planning.
To reduce risk of fraud and ensure compliance
Improved governance by SME law firms, as part of an effective ESG strategy, ensures compliance and helps protect against fraud. For example, the recent Bank of England Market Guide looking at CHAPS payments noted that using legal software with an effective document sharing portal can support a significant reduction in APP (Authorised Push Payments) fraud during property transactions by providing a safe alternative to email. Using this type of document portal may initially be seen as part of an efficiency drive, supporting good governance, but a huge added benefit is the potential reduction of APP fraud. Over half a billion pounds was lost to this type of fraud in 2022 alone. Using legal software to create efficiencies such as this helps the environment and also puts an SME law firm’s mind at rest that they are reducing the serious risk of data breaches and fraud.
Gareth Walker is CEO of LEAP UK
SME Law firms: Using technology to achieve ESG and sustainability goals