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March 7, 2022updated 08 Mar 2022 12:12pm

Climate accountability is coming for law firms

Like many service providers, law firms have played a major role in fossil fuel development while escaping much of the scrutiny around it. As they promote their ESG credentials, they are under mounting pressure to be more transparent about the deals they advise on – in short, their 'serviced emissions'.

By Liam Sharkey

Carbon-heavy: law firms advise on a far larger amount of fossil fuel transactions by value than renewable energy deals. (Photo by shotbydave / iStock)
  • Service providers such as law firms and consultancies are coming under increased scrutiny about the work they do for the fossil fuel industry. 
  • Despite law firms increasingly making net-zero pledges, they advance fossil fuel dependence significantly more than the energy transition. 
  • None of the 15 largest law firms by revenue say they are able to track and report carbon emissions for the projects they are involved in. 

Financed emissions has become broadly accepted as a key metric for understanding banks’ and investors’ contributions to the climate crisis: in short, the amount of greenhouse gas emissions associated with their loans or investments. This has not been the case for law firms, or indeed many other service providers that work with or for fossil fuel companies, such as accountants, consultants and insurers.  

Such organisations, which are vital to the carbon economy, have so far largely managed to avoid the scrutiny suffered by banks and investors. But pressure is growing on the legal industry to accept more responsibility for the impact of the work it does – whether that is providing advice to the developers of new coal, oil and gas projects or protecting the property of sanctioned Russian oligarchs. 

“Law firms constitute an indispensable pillar of support for the fossil fuel industry,” says Tim Herschel-Burns, a third-year student at Yale Law School in New Haven, Connecticut, who co-founded the Law Students for Climate Accountability (LS4CA) campaign group in 2020, which has done substantial research into this area. “When fossil fuel companies want to build new pipelines and refineries, law firms write the contracts, advise on the project financing, lobby public officials to roll back environmental regulations and defend fossil fuel companies in court.” 

Enter the concept of ‘serviced emissions’, which acknowledges that there is a difference between outright financial backing and less direct ways of providing support for business activities. 

Practically every large international law firm now has an operational net-zero target and a dedicated ESG practice to advise corporates on transitioning to a sustainable business model. They would be missing a trick if they didn’t, given the steadily rising focus on sustainability, the growing wall of capital allocated to such activities, and the rules governing them becoming increasingly complex.  

Yet these ESG advisory teams appear to operate in something of a vacuum, alongside colleagues who continue to work on damaging fossil fuel projects. Data is notoriously difficult to come by but between 2016 and 2020, the top-ranked 100 law firms in the US advised on $1.31trn worth of fossil fuel-connected transactions and defended energy companies in hundreds of climate-related lawsuits, according to LS4CA (see chart below). 

Applying pressure

LS4CA is urging climate-conscious companies – many of which are also setting their own ambitious net-zero targets – to wield their considerable influence over the law firms they employ. “Despite their high-minded rhetoric, [the] major law firms' approach to fossil fuel work has been almost entirely motivated by profit,” says Herschel-Burns. 

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Lawyers’ growing awareness of the reputational benefits of climate consciousness is evidenced by the creation of groups such as the Net Zero Lawyers Alliance (NZLA), which lists 23 member firms on its website. 

Much like similar initiatives for banks, investors and insurers, membership of the group is not dependent on stopping or cutting back on work with any type of client or project. (It should be noted, though, that it is not backed by the UN, like the other associations.) 

Allowing law firms to describe themselves as ‘net zero’ or ‘sustainable’ to prospective clients and students – as they continue to provide legal advice on the development of new coal and hydrocarbon projects – removes a major incentive for law firms to decarbonise their advisory work.  

Corporate in-house legal teams are showing awareness of the issues. The Association of Corporate Counsel’s 45,000 members are starting to ask its law firms for more ESG metrics, says Giuseppe Marletta, the organisation’s managing director for Europe. 

“Companies are paying more attention to their external service providers, such as accounting or IT firms, to ensure that the services they offer are consistent with in-house initiatives and ESG objectives,” Marletta tells Capital Monitor. “The concept of serviced emissions is on the rise as a result.”  

However, unlike in other sectors, no firm is reporting such data yet and no benchmarks exist for comparison. 

Reporting set to rise

“It is inevitable that law firms will be required to show a demonstrable commitment to environmental sustainability, and we are already seeing this in requests for proposal [RFPs] and ongoing supplier management requirements,” says Nicolas Patrick, head of responsible business at law firm DLA Piper in London. “Firms that are not delivering on their own internal sustainability objectives will find it difficult to be recognised as credible advisers in this space.” 

A small number of law firms – including DLA Piper, the third-biggest globally by revenue – say they have recruited specialists to better understand the environmental impact of their work. Yet when Capital Monitor contacted the 15 largest firms by revenue (including DLA Piper), not one said it was able to track and report lifetime carbon emissions for the projects they were involved in.  

Nicolas Patrick of DLA Piper says it is inevitable that law firms will be required to show a demonstrable commitment to environmental sustainability. (Photo courtesy of DLA Piper)

Lawyers privately argue that serviced emissions are not comparable to financed emissions, given that their firms’ role in, for instance, new fossil fuel projects is simply to ensure developers conform to local regulations. But their advice is, nonetheless, essential and thus influential: such projects could not proceed without this legal advice. 

If measuring and reporting lifetime serviced emissions is too difficult, a climate lawyer speaking on the condition of anonymity says law firms could simply pursue exclusion policies, like those employed by banks. But no major firms do publicly. 

Alyssa Auberger, chief sustainability officer at law firm Baker McKenzie, says her firm has not made a decision to stop working with energy clients “because we think that the way we can make the greatest impact as a global law firm is by actively engaging with companies across all industries on their energy transition strategies and wider sustainability goals – and not only those who have already transitioned or committed to transitioning.  

“Companies finding the transition the most challenging may benefit most from active engagement by their external lawyers,” adds Paris-based Auberger. 

Falling short on sustainability claims?

But this is not enough, says Herschel-Burns. “If any law firm can show us that their work for fossil fuel companies consists of sitting down with them and figuring out how they can become a renewable energy company by 2030, we'll reassess our approach,” he says. “But, by and large, that's not what law firms do for their fossil fuel clients.” 

In fact, firms like Baker McKenzie continue to promote their fossil fuel project work alongside their widely touted sustainability commitments – it is a member of the NZLA, for instance. The firm makes reference on its website to work conducted for Rosneft, the supplier of natural gas to the Russian army, and describes seven “exploratory blocks” in western Siberia as a “relatively underexplored area with significant potential”. 

Even if one sets aside the ethical issues, many argue that advising clients to invest in fossil fuel infrastructure is imprudent given the growing concern over assets becoming stranded.  

Kristin Casper, general counsel at campaign group Greenpeace International, told the Financial Times in March last year it was only a matter of time before companies were sued for their contribution to the climate crisis and that law firm advice should consider the future risks of climate-related litigation. Climate litigation has risen sharply in recent years, with a growing number of cases targeting energy companies. 

Changing incentives

The law firms most involved in fossil fuel transactions point to their extensive and often groundbreaking work in renewables. Yet in the same time period, the value of fossil fuel deals advised on by the ten most active firms was some five times greater than the $170bn of renewable transactions they worked on. 

While these firms are integral cogs in the carbon economy, fossil fuel-related advisory work seems unlikely to be a strategic future revenue driver for them. As the economy transitions, the proportion of lawyers working on the most polluting projects is set to shrink. 

“Turning the background of your website green or talking about the 5% of billable hours you devote to pro bono work isn't going to cut it any more,” says Herschel-Burns.  

“Law firms have long misappropriated the idea that everyone deserves legal representation to deflect criticism of work that is motivated by profit, not principle,” he adds. “But the next generation of lawyers doesn't want to use its skills to advance climate chaos. We hope the industry will come to terms with this reality.”

 

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