How green is your lawyer?

In a recent Climate Action Tracker study, half of the corporations surveyed acknowledged that they had no concrete plan for realizing their net-zero carbon emissions pledges. Moreover, not a single country among the 187 that signed the Paris Climate Agreement is on track for emissions reductions. Houston, we have a problem.

With everyone jumping on the environmental, social and governance (ESG) bandwagon to meet the United Nations’ Sustainable Development Goals, it is important that countries do more than just sign international accords with lofty promises. And corporations need to do more than virtue-signal. Even the Securities and Exchange Commission has provided ESG disclosure rules, which are being opposed in court. Not surprisingly, the scramble to be “ESG compliant” has continued in earnest. And so has the greenwashing — the practice of faking credentials and fabricating goal achievement in meeting ESG standards. For example, Deutsche Bank has been accused of greenwashing. So have KLM Airlines and a number of others.  

Greenwashing is not just companies passing off their ESG credibility. We must guard against competence greenwashing, too. It is time to jettison the inevitable opportunism and instead build a cadre of experts with real ESG chops — a much-needed step to help guide this journey towards ESG compliance. This means that we need to make sure our lawyers and legal advisers are green.

Law students, lawyers and judicial administrators are an important part of the solution, but they need to upskill. This is a great opportunity for law schools and continuing legal education programs to help fill in the gaps of knowledge. The marketplace is calling for these new competencies as law firms look for experts who understand ESG rules of engagement to help their clients. ESG-related litigation is expected to rise significantly. With increasing compliance requirements and consumer demands, there is much pressure on corporations. It is no surprise that Industry 4.0 is calling for Law 4.0-equipped lawyers to do its work. Moreover, it should not be about how much money big law can make from ESG, but what is its impact. 

There are a number of ways that ESG is fast becoming important for the legal and investment sectors, not just industry. ESG regulations are coming down the pike, even if the recent Supreme Court ruling against the Environmental Protection Agency softens these. Corporations must lead by example, particularly if they want to meet their net-zero commitments concerning carbon emissions. They must include ESG clauses with their partners, suppliers and customers and ensure that their respective supply chains add value, not add to climate change. Examples of ESG-related clauses include energy efficiency, carbon emission targets, and fair and equitable labor practices. 

Corporate lawyers also need to develop proper disclosures about a company’s ESG practices and credible monitoring mechanisms to best track their progress. Due diligence should involve practices beyond the environmental concerns that we face in areas like harassment prevention, protection of other essential labor rights, and enlightened corporate governance such as board diversity and reducing the gender wage gap. After all, ESG involves human rights, not shareholder rights. 

Corporations use ESG criteria in their new breed of requests for proposals and the contracts that they execute. A newer corporate structure — the B Corporation, a for-profit corporation recognized by many U.S. states that is driven by both mission and profit — is a promising vehicle to promote ESG goals. Investment funds provide “social choice” options for their clients and they continue to introduce ESG filters into their investment decisions. These are good steps but corporations must do this as part of their core business strategy, rather than simply checking a box on a compliance form. 

Finally, to train the ESG trainers and ensure quality across the board, there needs to be accreditation of ESG auditing and advising functions. It is not just lawyers or financial auditors, but also interdisciplinary teams made up of environmental scientists, labor relations advisers, data experts and ethicists who are required here.

Green lawyers and other professionals with rigorous ESG certifications must earn their seat at the table. A new social contract is being drafted for the 21st century at a legislature and corporate boardroom near you. It is neither the maligned Green New Deal, nor the polluted days of old, but a middle path. As Kermit the Frog once sang, “It’s Not Easy Being Green.”

James Cooper is a professor of law at California Western School of Law in San Diego. Kashyap Kompella, CFA, is president and CEO of RPA2AI Research and visiting faculty at the Institute of Directors.