‘Stakeholder capitalism’ dates back over 50 years, though for someone of my age it has distinctly Blairite overtones. It means defining a company’s purpose as creating long-term value, while not maximising profits at the cost of other stakeholder groups including suppliers, staff and local communities.
The latest iteration of the concept is ‘ESG’ – Environmental, Social, and Governance – the initialism du jour for business practices that strive to achieve more than profits and a high share price.
I doubt ESG flies with Liz Truss, but no matter. It is no less vogueish in the law than in the FTSE 250, though few law firms are publicly quoted. HSBC’s latest legal business briefing discloses that one in three law firms with turnover exceeding £18m now has an independent ESG committee to advise the main board. One in four has a ‘Net Zero’ target – up from one in six a year ago. It will be one in two by 2024.
This is less to do with an outbreak of tree-hugging than hard-nosed business sense. A third of clients cited by the same HSBC survey are now routinely assessing a firm’s environmental policies and targets when deciding whether to work together.
Last year another survey found that one in three FTSE 250 companies is now using ESG plans when calculating executive bonuses. I reckon this will catch on in the law. Last week we reported that Linklaters is pledging bigger bonuses for helping the magic circle firm become more diverse and inclusive. There is no reason why ‘billable credit and recognition’ cannot be given for other ESG activities. This would also be a valuable recruitment tool too, at a time when competition for talent is acute.
E is just one of the three initials, but Environment does seem to be the principal ESG driver. The Law Society has already published a climate change resolution, and is currently working on guidance on how to take climate change into consideration when advising clients and providing legal services. There will also be guidance for SME law firms on how to calculate and set a net zero strategy. Fair enough. Large firms and small would, after all, burn together.
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