Emerging Markets: Environmental, Social & Governance

Originally published by Chambers | Associate on 04.14.22
esg-bwMore than the sum of its parts: Get an inside look at a practice that’s changing the world, one letter at a time.

In 1996 Life Magazine published a story titled Six Cents an Hour, alongside a photo of a young boy sewing Nike soccer balls in Pakistan. The article caused quite the storm in the US, casting light on the exploitation and poor labor conditions faced by workers in developing countries. With the company initially denying responsibility for the conditions of factories it didn’t own, public pressure eventually led to reform. Nike set up a system to remedy the poor treatment of those in its supply chain, and it prompted a number of companies in similar industries to follow suit.

26 years on, the world is quite different. Of course, millions of people continue to live and work in poor conditions around the world, but in many ways, the campaign signaled the beginning of a new era in which companies would be held to much higher ethical standards. “More and more companies at least maintain that their values align with ESG principles,” Wolf Konstant, senior consultant at Whistler Partners, explains. “What’s shifted now is that shareholders and clients are holding these companies to their values, and ESG is the way they implement that.”

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“...we’ve seen other niche practices blow up in this way, with ESG poised to be the next big mover.” [Wolf Konstant]



Put simply, ESG is the criteria used to assess the environmental impact, social conscience, and ethical governance of a company. “We think of ESG as a framework for looking at a company and how it deals with related issues,” says Mary Beth Houlihan, ESG & impact partner at Kirkland & Ellis. “The public itself is demanding accountability to understand how values are implemented at the corporate level and where money is being spent,” Konstant adds, highlighting that “we’ve seen other niche practices blow up in this way, with ESG poised to be the next big mover.”

Environmental, social and governance issues affect almost every element of legal practice. For Bryan Tollin, legal counsel at Emerson Collective, the focus of lawyers in the sector is all about bringing the practices of their clients in line with ESG concerns: “If you come at it from a board level, the role of ESG lawyers is to help devise operational policies that achieve ESG goals, within the parameters of a company’s overall strategy.” Indeed, this is something that Carmen Lu, counsel in the corporate department at Wachtell echoes: “As someone with a background in corporate governance, there’s a number of management-level questions around how you implement these processes, not just to mitigate ESG-type risks, such as climate change, but also to look at the opportunities, because there is so much capital being diverted to ESG-oriented investments.”

Mary Beth Houlihan
"Our ESG group was set up because our clients are now expected by investors, customers, and other stakeholders to go beyond legal compliance in areas such as diversity, climate change, and supply chain management.” [Mary Beth Houlihan]


The intersection of policy and legal compliance

Houlihan remarks that historically, “some ESG issues have fallen under the banner of legal compliance. However, our ESG group was set up because our clients are now expected by investors, customers, and other stakeholders to go beyond legal compliance in areas such as diversity, climate change, and supply chain management.” Indeed, many of the ESG issues companies face might not be purely legal. Jonathan Drucker, senior consultant at Whistler Partners and former general counsel of Godiva Chocolatier and Polo Ralph Lauren, tells us that “for a lot of these issues, you might not have legal liability, but the fallout from a reputational point of view is very damaging.”

As is often the case, however, things might not stay the same way for long. Houlihan anticipates “more regulation on the horizon,” highlighting that “things like climate risk and supply chain issues are increasingly an area of focus for policymakers. Companies across sectors and geographies face new, evolving, and often overlapping regulatory requirements across multiple jurisdictions.” Indeed, for Lu, there are early indicators of a significant shift in the landscape: “In terms of what we are seeing at the federal level, there is a drive towards implementing ESG disclosure regulation from the SEC.” In January, the Biden administration put out an executive order titled Tackling the Climate Crisis at Home and Abroad, which included an agency-wide push to incorporate environmental issues into their decision making. As Kathleen Mon, head of in-house at Whistler Partners puts it: “What’s interesting about ESG, is that it’s at the intersection of policy, law, and governmental compliance. It’s a really unique space.”

“Millennials are becoming the largest investing cohort in the US economy, and a massive percentage of them see ESG as the number one priority in managing their portfolios.” [Bryan Tollin]


An investor-driven market

However, ESG isn’t just about ethics and making the world a better place. It also makes business sense. As Sean Burke, founder of Whistler Partners, emphasizes: “In the US, it’s very investor driven. It’s investors saying: we are not going to tolerate or invest in companies that are using child labor, or burning down the Amazon forests.” In many ways, ESG can be thought of as a method by which to screen potential investments. For lawyers working in ESG, advising clients on how to mitigate these risks is a big part of life as an ESG attorney. “I do a lot of work advising clients – particularly boards of directors – on what investors and other key stakeholders are focused on,” Lu explains.

For Bryan Tollin, a changing generation of investors are making their voices heard: “You have to deal with the reality that millennials are becoming the largest investing cohort in the US economy, and a massive percentage of them see ESG as the number one priority in managing their portfolios.” This, Mon argues, has changed expectations: “It’s going to create a new de facto baseline for how companies need to operate going forward.” Indeed, the very fact that ESG compliance is driven by investors is something that many see as cause for optimism: “At the end of the day, money makes things happen,” Mon remarks. “You see firms focusing on this because it can be profitable. It’s no longer one or the other, you will be making money because you’re doing good.”

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"With greater scrutiny surrounding where and how things are produced, supply chains and logistics are the areas most impacted by ESG.” [Jonathan Drucker]



So, where are we seeing companies implement these changes? Something that the Nike case brought to the forefront was the responsibility companies have to look beyond their own practices. Drucker emphasizes that “with greater scrutiny surrounding where and how things are produced, supply chains and logistics are the areas most impacted by ESG.” China serves as a good case study. At the end of 2021, Congress imposed new rules banning products made in the Xinjiang region over fears of the forced labor of ethnic Uighurs, a predominantly Muslim minority. The United Nations estimates that over a million people have been imprisoned in camps in the region, which produces a large number of cotton and solar panel products. Consequently, “there are many companies that have taken the decision to move their means of production elsewhere,” Drucker points out.


A standalone practice

Undoubtedly, climate change dominates the ESG focus in 2022. For Houlihan, who spent the first ten years of her legal career as an environmental lawyer, the transition from environment law to ESG was a bigger change than you might expect: “An environment attorney is really concerned with environmental liabilities that are currently in place under existing law. ESG is broader. Of course, it includes social and governance issues,” Houlihan explains, “but with respect to environmental issues, we are looking more specifically at future risks: where the company is going to be in two years’ time and how the energy transition might affect the company.”

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“E, as it's seen from an ESG perspective, is really a question of understanding what investors care about.” [Carmen Lu]



“Environmental attorneys are of course aware of the environmental issues affecting companies, but they operate on a more granular level,” Lu adds. “E, as it's seen from an ESG perspective, is often a question of understanding what investors and key stakeholders care about, and how a company manages the macro risks and opportunities with respect to its entire business.” As Kathleen Mon puts it: “For ESG, it’s not reactive, it’s proactive. You don’t get points for being minimally compliant; there is a real value to going above and beyond.”

What further separates ESG attorneys is that they are unlikely to specialize in any one of the three components. In such an incredibly broad practice, ESG attorneys have to touch on every aspect of it: “A team might be built out with one person focused on the environmental component, and another on corporate governance, but what will happen over time is that they will start picking up different skillsets from each other,” Burke explains. Lu affirms this: “One of the main challenges for ESG lawyers is learning how to expand their practice to accommodate ESG issues. You may not come from that background, but it's important to understand how ESG affects all elements of legal practice.”

For ESG attorneys, there will be exposure across the board to corporate matters, ranging from M&A deals to fund formation and sustainable finance. “I come from an M&A background, so I'm well versed in corporate governance issues,” Lu tells us, “but ESG goes well beyond that. One thing that I’m trying to get on top of is sustainable financing because it's a key growth area.” This is something that Konstant echoes: “One thing that you need is adaptability. A lot of lawyers are very regimented. They have their knowledge base, and they want to stick to that.”

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“At any given moment, there are two hundred fifth-year securities attorneys in New York, who are at the top 25 law firms. Only ten of them are ESG experts." [Sean Burke]


Breaking in

“At any given moment, there are two hundred fifth-year securities attorneys in New York, who are at the top 25 law firms,” Burke tells us. “Only ten of them are ESG experts. If you can be one of those ten, then that’s just going to be one more tool for you to go in-house or make partner.” In fact, transitioning into ESG opens a lot of doors, something that Konstant is quick to highlight: “If you’re looking to move into government or you want to move away from working for a for-profit corporation, this will distinguish you from a lot of other lawyers.”

For those looking to get a foot in the door, it shouldn’t come as much of a surprise that a good number of ESG attorneys come from human rights, employment, environmental, or corporate backgrounds. Indeed, with ESG touching on almost all aspects of corporate practice, having a varied deal sheet helps. “I think the first step is really understanding how ESG issues relate to your existing practice and building from there,” Lu explains, “I started off focused on M&A and corporate governance, so I saw ESG from a board level.” That being said, in such a new and evolving practice, there is room for a diversity of backgrounds, with “no one particular path needed to take to make that pivot.” One thing that is essential, however, is a demonstrable interest. For Houlihan, a lot of this comes simply from the fact that there is so much information to take on board: “You have to stay on top of all the issues and evolving regulations, so it helps to be passionate about it. In my free time, I’m frequently reading about ESG and listening to ESG-related podcasts.”

Burke highlights the similarities with those entering the Fintech space. “You might be a litigator at a firm in the financial institutions group, and develop an interest in Fintech, blockchain, and crypto. If you then start reading, studying, and writing papers, you’ll find that they’ll soon start pulling you in on deals where this comes up.” Given the novelty of areas such as Fintech and ESG, Lu stresses that “you need to be a self-starter who’s comfortable with a degree of ambiguity because there really isn't an established body of case law here – everything is in the process of being built.”


On the horizon

With a new generation of investors comes a new generation of young lawyers, whose scope to add value has never been higher. “I spoke to a very senior lawyer at Paul, Weiss, and he told me that he’s learning a lot from younger attorneys,” Drucker recalls, making clear that “as young people, you’re able to lend a perspective that they perhaps don’t have.” There are also opportunities to get the ball rolling long before you become an associate. “In law schools there are so many ESG-related courses these days,” Houlihan points out. “We have students coming in knowing a lot more than I would have coming straight out of law school, so it’s about making the most of courses on things like human rights, responsible investing, sustainability, and corporate governance.” As Drucker puts it: “My daughter’s a first-year law student, and when we talk, I encourage her to consider ESG, because it’s going to be an incredible opportunity for young lawyers moving forward.”



Topics: Sean Burke, Wolf Konstant, Chambers, Whistler Partners, Career Advice, Environmental, Corporate Governance, ESG, Emerson Collective, Kirkland & Ellis, Wachtell