As more law firms and corporate law departments embrace ESG factors, their use has become even more important to investors, consumers, and shareholders
Most recently, law firms and their client companies have been adjusting their long-term growth strategies to more fully address environmental, social, and corporate governance (ESG) issues, particularly to help organizations improve their own sustainability and communicate their societal impact.
ESG factors and the data metrics surrounding them are becoming even more important today, specifically to help investors, consumers, and shareholders, navigate how law firms and companies are thinking about their long-term growth in a non-traditional way.
One of the first moves of ESG into the mainstream conversation with shareholders was when Larry Fink, CEO of BlackRock, stated in 2018 that: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Further, in May, the Blackstone Group asked for the first time that management in companies controlled by Blackstone’s private equity arm regularly report on ESG matters to their boards.
Moreover, employees and consumers from younger generations have influenced societal thinking around ESG topics. Even the “older” Gen X demands more transparency from employers and is particularly mindful about their moral philosophy and moving the needle forward in making the world a more eco-friendly, diverse, and equitable place.
Becoming a developed ESG company
Shamina Singh, Executive Vice President of Corporate Sustainability at Mastercard and Founder & President of the Center for Inclusive Growth, the philanthropic hub of Mastercard, has been focused on ESG for years. “We should all be in the sustainability business,” Singh says. “ESG needs to be core to how a company views its growth strategy and how it supports the communities in which it does business. At Mastercard, we’ve worked to make inclusion, innovation and trust core to everything we do.”
For those companies that are just starting to consider their ESG commitments, especially smaller and midsize companies, Singh recommends several steps they can take, including:
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- Play to your strengths —Find what your company does best and use that to advance ESG goals within your business on a commercially sustainable basis, Singh advises. Mastercard has been leading on financial inclusion for over a decade and last year, after reaching a milestone of bringing 500 million people into the digital economy, raised that goal to one billion people and 50 million small businesses by 2025. Our business thrives when everyone can reach their potential, she adds.
- Mobilize your network — Singh recommends working with partners and customers to drive collective action for scale and long-term impact. For example, Mastercard and its partners are supporting the company’s nearly 3 billion card holders to take climate action in all kinds of ways – from equipping them with cards made from sustainable materials, to providing digital tools that help them make mindful spending choices, to contributing to forest restoration.
- Approach ESG holistically — Companies should not think of ESG as three distinct elements; instead, they must incorporate all three in the work they do, Singh says. Mastercard issued a $600 million sustainability bond this year that incorporates both green and social projects with the view that healthy communities, a healthy planet and a thriving economy all go hand-in-hand. Mastercard did this because management believes the only sustainable growth is inclusive growth, marrying all three parts of ESG.
- Seek guidance internally and externally — Asking questions about what your company should be communicating as an authentic message to your clients and consumers is one of the first places to start. Be mindful of incorporating your legal counsel early on to help from regulatory standpoint and to explain what is doable for your company and what is not.
- Be proactive in how to use your assets — As example of accelerating progress towards sustainability goals, Mastercard started linking compensation for its most senior executives (EVPs and above) to Mastercard’s ESG initiatives and to three global ESG priorities: carbon neutrality, financial inclusion, and gender pay parity. This was done, Singh explains, to help the company be proactive with ESG goals instead of reactive in crisis.
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Looking ahead
ESG is not going away any time soon for organizations no matter their size. In fact, it will continue to develop as a board-level issue, especially since many — if not most — of the risks faced by companies today are increasingly off-balance sheet challenges.
Indeed, 80% to 90% of the value of a company could be off balance sheet,” says John Sensiba, CPA and Managing Partner of the accounting firm Sensiba San Filippo. “The potential liability and risk that you have by not embracing diversity are not shown on the balance sheet; so, failing to adequately address diversity — and other ESG topics — in all its forms, could be a significant detriment to enterprise value.”
In fact, client demand is a major driver in how many law firms decided to create formal ESG practices groups, according to Sensiba.
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