The role of law session 1: Driving the transition to sustainability

From the perspective of a policy maker, Juan Costa opened the discussion by describing how it is important to recognise two things when it comes to the role of law in driving sustainability.

Firstly, we need to look to how our world is governed. Despite the way we look at the world having changed since the COVID-19 Pandemic, the way we govern it has not. There is no global government. There is no single regulator in charge of global needs, who is addressing the environment and social challenges we are facing. We have a multitude of actors establishing different rules and developing best practices for the global economy, such as international organisations, industry, associations and global businesses. However, local regulators are failing to keep pace with such overwhelming global challenge, such as the climate crisis.

Secondly, we need to appreciate that that the concept of value is changing. The way we measure political and business success has changed. Over the past 30 years, the concept of value has evolved from purely financial metrics to other dimensions of value, including intangible value, ecological value and social value.

The combination of both factors leads us to the conclusion that there is a gap between the 'legal licence' (which enables business to operate) and evolving societal expectations (which are much broader than the legal licence and are only partially reflected within it). This gap is called the 'social licence', and to address it, lawyers and businesses need to work together by developing standards, frameworks and best practices. This form of self-regulation will allow us to embrace the changing concept of value and keep up with evolving societal expectations, whilst still enabling business to operate effectively.

From the perspective of a junior barrister, Margherita explained how the law is often seen in strict contrast to politics.

There is an institutionalised belief that controversial topics should be left to democratically elected politicians. Even in the European Court of Human Rights, decisions in the sustainability space are deferred to the contracting states. As unelected officials, there is a strong argument that lawyers should not take an active role in policy making, particularly on issues which are increasingly seen as partisan.

However, Margherita argued that lawyers and judges have a prominent and entirely legitimate role to play in the transition to sustainability:

"This will be one of the most challenging and most costly tests that humanity faces. It is essential that lawyers and judges are sufficiently climate literate to ensure that their advice, their advocacy and their decision-making is capable of upholding the rule of law and of holding decision-makers to account, perhaps in particular in ensuring that funds, especially public funds, are used lawfully and rationally to transition to a more sustainable future."

When asked how he sees the role of law in making an impact and driving sustainability, Matt described how lawyers typically have four levers at our disposal: i) laws and regulations; ii) litigation; iii) contracts; and iv) legal risk governance.

"We have until 2030 to change the world and yet it took 685 days for the Environment Bill to get through Parliament. Compared to this, it takes one day for a contract to make a difference."

The Chancery Lane Project works on the basis that if contracts are drafted to include climate aligned clauses, under an 'opt out' rather than an 'opt in' system, the economy can be shifted and legislators can become more ambitious.

Archana supported Matt's sentiments by arguing how every company who wants to survive needs to care about sustainability and the environment.

As an example, Archana explained how a hundred years ago there were no accounting standards and yet businesses today would not dream of engaging in a deal without accounting standards. Once you are aware of the value something brings, and the risks associated with failing to address that something, you begin to recognise and prioritise that thing a lot more.

Currently, only 5% of private equity focuses on responsible investing. However, as a global sector, private equity employs over 20 million people who work with around 40,000 portfolio companies. There have not been enough 'hard' regulatory and legislative processes which allow fresh capital to focus on ESG. Therefore the solution should be embedded in a company's legal documents to encourage entrepreneurs to look through the sustainability lens right from the off. "It is similar to a child learning a new language – if they incorporate the practice from the very beginning, it will come much more naturally later on."

Juan Costa argued that the standards and practices of economic activity need to develop alongside these legal developments. There needs to be a shift from the current situation, where consuming is wasting the environment, to a new market where ecological capital is profitable. This shift will only take place when businesses start making money by creating ecological capital and where protecting and growing the environment and natural capital is a business on its own.

To enable this shift, Juan Costa argues we need: 1) better information; and 2) new price signals. On the first point, the market economy needs more information from the public sector in order to understand the environmental and social impact of our activities. On the second point, new price signals are needed with different tax rates depending on ecological footprints of the products, to reflect the impact of our activities. These new price signals would enable consumers to start paying taxes for sustainable things, which create prosperity and employment, rather than paying for products and processes which are destroying the environment.

To help drive this change, lawyers need to be more proactive and vocal about what we need from the public sector and what it is currently failing to do for us.