The rise of environmental, social and governance (ESG) considerations has profound implications for the legal environment – and the need for professionals with the requisite skills. More and more companies are integrating ESG into their core business practices, and according to at least one survey, legal-sector involvement doubled from 2015 to 2018.

To give some idea of how fast this sector is expanding in business overall, PwC estimates that from 2017 to 2025, ESG mutual fund assets will grow at a compound annual growth rate of 8.5 percent to reach more than US$2 billion. Moreover, in recent years regulators in Hong Kong have stated that ESG is essential to maintaining the city’s position as a financial hub.

As just one example, in November the Hong Kong Securities and Futures Commission proposed changing the Fund Manager Code of Conduct to require fund managers to consider climate-related risks in their investment and risk management processes – this comes on the heels of mandatory ESG requirements in the Hong Kong Listing Rules.

It is clear that ESG is has become a key part of corporate and financial risk assessment. One of the main reasons is that there has been a huge increase in related regulation, both at national and international levels.

All this has led to a growing demand for ESG legal professionals – a demand that is likely to remain for the foreseeable future. A quick scan through HK job websites shows dozens of opportunities in the sector in the past few months alone.

Now, lawyers from a wide variety of disciplines are learning new skills so as to fit in with the ESG framework. There has been a rise of lawyers marketing themselves as ESG experts, largely in the investment funds area, as ESG commitments are often drafted into agreements between investors and the fund managers, but also across litigation, capital markets, regulatory, and corporate teams. Some firms are building specific teams to focus on ESG, either within one of these disciplines, or as a cross-discipline group. Many may also see it as an opportunity to “do good” alongside more traditional avenues such as pro-bono or CSR work. In addition, firms are being driven to consider their own environmental and social performances, leading to the emergence of new roles such as heads of sustainability, diversity and inclusion.

And the consequences of not ensuring ESG compliance can be devastating – culturally, environmentally and in terms of business. In 2020, the chairman of the Anglo-Australian mining giant Rio Tinto was forced to resign after his company blew up an ancient Aboriginal site in Western Australia to extract iron ore. The company was forced to reconstruct and rehabilitate the site out of its own pockets – and faces a potential fine far in excess of the value of the ore.

Clients are increasingly likely to require ESG services in light of the growing public awareness of the related issues, the fast-changing regulatory landscape and investor demand. The rise of assets such as green bonds and sustainability-linked loans has seen the need for lawyers who can advise on such matters, and there is little sign of it abating.

By BEN COOPER, Managing Partner, Ashford Benjamin Ltd.