In our latest 60-second interview, Freshfields Bruckhaus Deringer’s global partner for client sustainability Tim Wilkins talks to The Lawyer about the effects of COVID-19 on the sustainability agenda, the expectation of standardisation and increased disclosure requirements around ESG, and three ways in which law firms can help further the ESG agenda.
What has caused the ESG revolution we are seeing today?
Sustainability has become a priority for GCs and the C-suite. Businesses understand the very real risk of climate change, not just to their physical assets, but also to customers, supply chains, and employees’ health and wellbeing.
The hardening of law and public pressure around human rights has also been crucial. The tragic killings of George Floyd and Breonna Taylor encouraged businesses to speak publicly about striving to make a positive, long-lasting contribution to racial justice and equity. Responding to human rights issues will continue to rise in importance to businesses through Regulations such as the UK Modern Slavery Act and the California Transparency and Disclosure Act, as well as customer demands to know the origin story of products. Social media spreads good and bad press fast.
There is growing awareness that businesses must participate if the UN Sustainable Development Goals are to be achievable, with one estimate that 80% of the financing needed must come from the private sector. Investors also want to invest in companies with sustainable futures, so being more sustainable can bring the benefits of cheaper financing.
Another motivator is the ‘G’ of ESG governance: transparency and disclosure. Good governance is being scrutinised both the public and customers, but also investors.
How has COVID-19 affected the sustainability agenda?
Sustainability has remained top of the businesses’ agenda for several reasons.
Companies are making long-term bets, such as investments in solar/wind power, which could not easily be limited in what would hopefully be the short time frame of the pandemic.
It’s increasingly clear that sustainable companies have been the relative ‘winners’ during COVID in terms of retaining customers and employees, who preferred businesses perceived to be operating for the long term and having their best interests at heart.
The stock performance of these companies increased because investors recognized that those companies had proven to be more robust during the pandemic. One reason for this was their more localised supply chains: advanced sustainability techniques using circular economic principles to not be as reliant on far-flung supply chains vulnerable to disruption. Locally sourced goods are also less disrupted by geopolitical movements.
Finally, the importance of the ‘S’ in ESG has come to the fore. Issues such as racial justice, health and employee wellbeing are so critical that businesses now include them in core strategy. If your business is not focussing on diverse employees and board members, and active engagement with the community of future and current customers and suppliers, that’s a threat to your business model.
How will ESG evolve in the coming years?
ESG will only grow in importance. Investors are vocal about the short-, medium- and long-term prospects for strong ESG companies, and have been pushing for more standardised tools to evaluate the success of their sustainability agenda.
We will see more standardisation, with businesses required to make disclosures around ESG. Businesses need to start planning for issues like climate change. But paying attention to ESG can also differentiate businesses among customers, for example by demonstrating efficient use of resources in products. Hopefully, this will also reduce cost and have a positive impact on the environment.
ESG will become as much of a part of a business strategy as any potential competitive advantage, including economies of scale, good branding or a strong employee base.
The world has seen the impact of global shutdowns on air quality and pollution, as well as the effectiveness of telework for many employees. The more corporations are perceived as social actors, the greater is the expectation of responsibility for addressing climate change, other environmental concerns and ESG issues in general.
What role can the legal industry play in furthering the ESG agenda?
Law firms should use our unique position in the business world and our special talents in three ways to further the ESG agenda.
First, we must look at our own house. This is across the ESG spectrum – from reducing our carbon footprint, improving our record on diversity and maximizing the health and wellbeing of our employees. On the environmental front, for example, we have recently announced plans to aggressively reduce our air travel, use of paper and eliminate single-use plastics. On improving our diversity record, we have public targets for improving hiring, retention and promotion of diverse employees across the firm.
A second focus, with even greater impact, is the work we do advising our clients in their own sustainable transitions. We advise clients on how to pursue sustainable outcomes for their core business strategies that improve the lives of their employees, communities and the overall health of the planet. This work is done directly on individual client mandates but also through ”impact collaborations” where we harness the power of multiple clients, together with government and academic actors to innovate broader solutions to the toughest sustainability challenges. An example of this is the New York Circular Economy initiative, which Freshfields convened with the private sector, government and NGOs to reduce the waste produced by the city while creating new economic and employment opportunities.
The third thing is through thought leadership. We produce a number of blogs, articles and webinars on sustainability topics to contribute to the broader dialogue in this face moving area. For example, my brother, Harvard Law professor David B. Wilkins, and I did a webinar on thinking about race, sustainability and social justice.
Who has been the biggest influence in your career?
Conrad K. Harper is a New York City lawyer, a retired partner at Simpson Thacher & Bartlett, a former president of the New York City Bar Association, and an emeritus member of the Council of the American Law Institute. He has been such a big influence because, from the beginning of his private law career, he has always emphasised the importance of lawyers being engaged in public work. He did this through becoming the first Black lawyer to lead the New York City Bar Association. He also moved in and out of private practice to take on roles in the US Government as the Legal Adviser to the US State Department.
He has always mentored young lawyers, whether at his firm or other firms, like myself. He taught me to appreciate that a lawyer’s role is broader than the specific matter on their desk; that matter always had to be tackled but the best lawyers never also lose perspective of the broader social purpose. My current role leading our Client Sustainability practice in many ways also merges those two worlds, striving to provide high level legal advice while also assisting clients with their ambition to become more sustainable and on the right side of history. In addition to my “day job” at Freshfields, I enjoy volunteering my time pro bono, including sitting on the boards of not-for-profits, including most recently becoming the Chair of the New York Public Radio Board.
