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Firms must better support clients’ climate risk journeys

Law firms should be prepared to answer questions from their clients about sustainability and ESG issues, argued one DLA Piper partner.

user iconLauren Croft 12 November 2021 Big Law
climate risks
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Rhys Davies is DLA Piper’s international sustainability and ESG lead and works with clients to develop and review corporate governance frameworks in order to meet international climate change standards and stakeholder expectations. Delivering a keynote as part of the Impact X Summit, held virtually this week, Mr Davies advised clients to expect more from their law firms in the era of climate change.

Speaking about climate-conscious lawyering, Mr Davies said that “the issue is not necessarily a lack of knowledge or understanding, it’s a question of intention and scale”.

He argued that climate-conscious lawyering is a concept that is increasingly being adopted by peak legal bodies across the world – and that there are a number of questions clients can and should be asking their legal providers.

 
 

“All of these pieces have several common themes; they call for climate-conscious advice to clients for an uptake on climate-related pro bono activities; for engagement with lawmakers and colleagues, for engagement with the UN sustainable development goals and climate-conscious workplace practices as well,” he said.

Mr Davies advised clients to ask their law firms how they can respond to climate change risks, how they can talk credibly about their business’s response to climate change, what they can do to “green their supply chain”, as well as what their firm’s carbon footprint is and what pro bono work they’re currently doing in support of the climate crisis.

“We know that sometimes, it can be difficult to initiate conversations with lawyers, and the idea is to give you some tools to really help get into the meat of what’s needed for the climate response,” he continued.

In relation to identification of climate risk, he said that businesses and law firms alike should be adhering to the recommendations set out by the Task Force on Climate-Related Financial Disclosures (TCFD).

“Fundamentally, the position in Australia is that if information about climate risk would reasonably be required to make an informed assessment of the risks of investing in or in relation to the ongoing performance of the listed entity, it should be disclosed,” he said.

“While we don’t yet in Australia have the regulatory framework that requires climate disclosure for certain entities in all cases, that’s in contrast to what’s being introduced in New Zealand and what’s coming in the UK – and is certainly being called for in Australia by the investor group on climate change. It’s nevertheless the case that businesses that are exposed to material climate risk can and should be disclosing that risk, and they should be doing so in accordance with the TCFD recommendations.”

TCFD encourages an approach that starts with an interrogation of climate risk in the boardroom, getting the governance settings right and working through development of metrics and targets, strategy and risk management.

“The most successful climate risk disclosures draw on collaborations across business functions, drawing teams from across the business to talk about how differences in chronic and acute weather events and policy responses to those issues affect the business,” Mr Davies added.

“So, in supporting clients to develop their approach – certainly in our approach to climate risk – we rely not only on lawyers but we draw experience from our business advisory team, which houses non-legal expertise from a range of complementary disciplines, as well as technical expertise.

“And we can’t lose sight of the fact that the grounding here must always be in the physical and social sciences. That’s always going to be what we’re trying to measure.”

Mr Davies added that climate risk exposure is an ongoing exercise – a marathon, not a sprint, as well as a jumping-off point for a range of other ESG issues. As such, firms should be thinking about how they can support their client’s climate risk journey long term.

Another issue businesses are increasingly facing, Mr Davis added, is greenwashing.

This is an issue prevalent in Greenpeace’s Hero to Zero report, released in October this year, which analysed Australian businesses’ climate change efforts and explored corporate “greenwashing”, as well as recommended that businesses follow the lead of companies like Woolworths, Coles, and Telstra, which have committed to switching to 100 per cent renewable electricity by 2025. 

The investigative report reveals that many of Australia’s listed corporations have made “net zero” and “carbon neutral” climate commitments, which have the potential to simply “greenwash” their image in place of making a true difference.

“While there’s relatively well-established guidance within the consumer goods sector, the focus in the UK, the US, in Australia, particularly around financial services, as well as the extensive regulation efforts in the EU, is really starting to create an environment of heightened scrutiny around climate-related green and sustainable claims of all flavours,” Mr Davies said.

However, he said there were a few common themes to be aware of.

“The first to bear in mind are attempts to quantify business impact on environmental and social matters, so that grounding in the physical and social sciences is critical,” he explained.  

“Simple, clear disclosures, established policies and procedures, and training across functional collaboration tools ensure that the statements made to markets, and to other stakeholders, reflect the operational reality.

“The point I would make here is that there is another conversation to be had with you lawyers, about how can we talk about what we’re doing credibly and recognising that disclosures are still disclosures, even if they’re climate-related or sustainability-related – and so need to be well-understood all the way up to the board level, along with the risks of making inaccurate or misleading disclosures.”

Furthermore, Mr Davies deduced that more conversations need to be had around reducing greenhouse emissions in order to truly make a difference.

“I’d encourage anyone to have those conversations with their legal services provider, any time you’re making a purchasing decision, have that conversation and ask what can we do in our contracts, what can we do in our legal documentation to actually help drive those emissions reductions that we all need to see,” he said.

“Legal advice is as much an input into and part of the supply chain for goods and services as anything else so as clients increasingly look to disclose their carbon footprint and as they’re increasingly being asked to reduce their emissions, they can and should request detailed information from their lawyers about their own carbon footprint.”

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