Advised emissions: Towards a climate-aware advisory ecosystem

What are advised emissions and why do they matter?

‘Financed emissions’ refers to the emissions that arise from projects funded by investment. ‘Advertised emissions’ describes emissions that are generated by encouraging increased consumption, particularly of high-emissions products. For lawyers, ‘advised emissions’ are the emissions that we support our clients to generate by providing advice to them. There are several phrases currently used for similar aims: identifying and measuring emissions that are associated with a business’ activities but not directly generated by the business itself.

While the terminology is still developing, there’s growing awareness that much of an advisory firm’s social and environmental impact is created indirectly. A firm may be very ‘green’ within its own operations, but this can be undermined by the impact of the work it undertakes for clients, undermining the firm’s own sustainability efforts. For lawyers, having a climate-aware practice is also becoming recognised as a necessary capability, especially for any aiming for trusted advisor status.

It’s clients that may hold the key to unlocking the potential of advised emissions. Clients have significant influence through holding their advisors to account on the matters they work on and whether they advise with the climate emergency in mind. This influence could create a virtuous cycle that drives the development of a climate-aware advisory ecosystem.

Climate-aware practice is essential for firms

Clients are under increasing regulatory and market pressure to demonstrate that their suppliers, including advisors, are taking a responsible approach to climate issues. The impacts of climate change are prevalent across a wide range of sectors and business functions, making it harder to exclude these from the scope of the retainer. In fact, the Law Society’s guidance explains that a firm’s approach to advising on climate legal risks should be considered in relation to solicitors’ duties and practice matters such as professional indemnity insurance. In this context, there are likely to be benefits for firms that engage with this agenda now, rather than waiting for something to be imposed upon them.

Viewed through the single lens of addressing the climate emergency, climate-aware practice might seem to demand ceasing to act for clients in the highest emitting industries. However, given the intricacies of established relationships and business models and the extent to which the products of those industries permeate every aspect of our lives means, even now, few are ready to take such radical steps.

Engaging with advised emissions is a way for lawyers and other professional advisors to transition alongside their clients to Paris-aligned practice, providing mutual support on that journey, and either bringing along or leaving behind those still off the pace. It can be a complex calculation – and sometimes it may simply be a case of saying no to the most obviously harmful projects – but committing to the concept of advised emissions and using it to inform practice is a powerful first step.

Despite these challenges, there is plenty for firms to get started on. Firms need to learn how to talk to clients about their climate goals and can begin requesting basic data, such as whether clients have net zero targets and transition plans. Afterall, how can a firm properly advise if they don’t fully understand their client’s objectives and how the business is impacted by climate issues?

Firms should assess the industries they are serving and their potential to decrease emissions, and consider current clients’ appetites for the low-carbon transition and the likely approach of clients in the future. This understanding can then inform the firm’s strategy and resource deployment and, where possible, help it begin to measure the firm’s contribution to the low-carbon transition through focusing on matters delivering lower emissions year on year.

Some firms are already cutting a path. Legal Charter 1.5 is an initiative from a group of law firms that have committed to creating a more climate-aware practice, including collaborating to develop a methodology for measuring their advised emissions. Clifford Chance recently announced that it would start screening new work for climate and human rights concerns. And inspiration could also be sought from other sectors, such as from Architects Declares’ practice guide which aims to provide a framework for small firms to build their strategy for a climate-aware practice.

Clients unlocking a virtuous circle

In-house counsel, particularly GCs and senior lawyers, inform the big decisions across the business, including the management of the increasingly complex risks associated with negative social and environmental impacts.

It’s hugely persuasive for law firms to engage with advised emissions when clients are asking questions about firms’ approaches to acting for high-emissions clients and matters. Similarly, it is a powerful message for a client reluctant to change their ways to find that more and more advisors are disinclined to act for them. But what does a climate-aware advisory service look like? How can clients identify firms that are willing to engage, or what should they ask of advisors to encourage them to do so?

For example, clients could ask:

• how the firm has incorporated the Law Society’s guidance on the impact of climate change for solicitors? This might be reflected in the firm’s approach to client onboarding and matter screening, assessing whether there are material risks of negative environmental impacts from proposed matters. It may also influence the steps the firm is taking to train its lawyers to identify and advise effectively on the climate implications for business.
• on what basis the firm would turn down instructions where the work is likely to create significant negative environmental impact? This may require some understanding of how the firm measures and weighs up the likely impacts of different instructions.
• whether the firm can provide examples of how it has used its expertise to support clients to improve their environmental impact?

In the future, it may become more important for firms to request data about clients’ climate goals and impacts, such as their net zero targets and whether they have transition plans in place. In time, clients may therefore also be able to ask firms what proportion of their clients are already implementing such measures.

Some lawyers are leading the way, such as through initiatives like the Legal Charter 1.5, or by being very transparent about their approach and values. For example, Bates Wells, the UK’s first B Corp law firm, has publicly pledged to work with more impact-driven clients and to decline to act where instructions are incompatible with its commitment to sustainable and responsible legal practice.

Shaping the bigger picture

Advisors also need to understand that global heating is part of a wider trend of nature depletion, which is affecting business by threatening the availability of the natural capital on which it (and society at large) relies. The Law Society acknowledged the implications of biodiversity loss for the legal profession in a report published in 2022. While this article explores advised emissions as a new concept to help us reach net zero, arguably the same principles could be applied to the consideration of the full range of environmental issues.

Although the terminology and practices around advised emissions are relatively new, clients should recognise the power of their influence and law firms must understand that they need to engage with advised emissions now, or risk being left behind. Ultimately, it will be collaboration between clients and advisors that will enable the development of a climate-aware advisory ecosystem, to support businesses in reaching net zero.