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Chinyelu Oranefo

Senior Associate, Cms

Quotation Marks
…sustainable finance encompasses new regulations, proposals and market practices aimed at ensuring the sustainability of our economy – by reference to climate change, biodiversity, social, or other factors…

Sustainable Finance: A new legal specialism?

Sustainable Finance: A new legal specialism?


Chinyelu Oranefo considers the new emerging hybrid between finance and sustainability

The world of finance has given lawyers much reason to develop specialisms. Few in the City would describe themselves today as general finance lawyers – rather, they specialise in real estate finance, project finance, or some other iteration to cater for specificities of the clients and sectors they serve. The emergence of sustainable finance leads this author to question whether there is cause for the growth of a parallel new legal specialism?

What is sustainable finance?

For this article, the term sustainable finance encompasses new regulations, proposals and market practices aimed at ensuring the sustainability of our economy – by reference to climate change, biodiversity, social, or other factors (commonly referred to as Environment Social and Governance (ESG) factors – however, please note that the author suggests that this term does not encapsulate all the relevant themes). 

Examples of these laws are the EU Taxonomy (that will form the starting point for an equivalent UK Taxonomy) – a ‘green list’ of environmentally sustainable economic activities in the context of the Paris Agreement objective to achieve net-zero by 2050. Other EU regulations, such as the Non-Financial Reporting Directive (NFRD) – soon to be extended by the Corporate Sustainability Reporting Directive (CSRD)) and the Sustainable Finance Disclosure Regulations (SFDR) – require disclosure of the environmental impact of businesses, their strategies and their products. Of course, we have left the EU, but these initiatives will still influence UK businesses with direct or indirect EU connections.  In parallel, the UK government is presently consulting with a view to implementing recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) with effect from 2022. 

The financial industry responded to this theme by developing new financial products such as the ‘green loan’ which funds specific ‘green’ projects – and the ‘sustainability linked loan’ – which supports a borrower in improving the sustainability of its overall business strategy. Some argue these products are an entirely new asset class, aimed both at addressing the ‘transition’ towards net-zero – and gradually developing the same level of specificity seen in other specialist loan markets.

Isn’t it just environmental law?

Well - no. From a legal perspective, it certainly isn’t crucial to understand the environmental legal landscape in order to advise your clients on sustainable finance. In my firm, lawyers in our environment, corporate, regulatory, employment, pensions, capital markets and banking teams have had to upskill on this subject. Our clients’ needs in this respect are a mixture of pure advisory, transactional and also ‘future-proofing’ with respect to how sustainable finance will directly and indirectly impact their sectors and industries. In most instances, the reporting or transaction has not been done before, and requires collaboration between lawyers, sustainability specialists, finance directors and others to analyse data, formulate strategies, draft disclosures, build models and – frequently – recalibrate commercial positions. 

Notwithstanding that some clients may seem more inclined to seek such advice from accountants, we are clear that the nature of the advice required is one of legally-based risk assessment, requiring the assimilation of a number of factors – including the legal landscape (existing and proposed), a knowledge of sector trends or market practice and, of course, having a deep understanding of our clients’ businesses.  Lawyers are also natural guardians of the reputation of our client, and in today’s market, reputation is key to success. 

The opportunity for lawyers

I am aware that many lawyers think there’s nothing special about sustainable finance, and others think it is a just a phase or a concept not relevant to them. Having been an observer in this space for several years, I’m continually surprised by the complexities of addressing the challenges posed by risks such as climate change. It should also be clear to all by now that sustainable finance isn’t going away – indeed, it will expand its applicability from large listed players to SMEs. So in my view, it is a question of whether or not we, as a profession, decide to create an institutional space for sustainable finance, embracing the opportunities that this brings to develop our relationships with our clients?

The legal industry might prefer to let others carve out their position as advisers in this new sustainable finance ecosystem, while relying upon lawyers like myself that simply develop an understanding of how sustainable finance intersects with their own practice as necessary. This is a valid approach. However, it seems to me that this is the time for a new breed of lawyer that understands the sustainable finance ecosystem in its own right, and can offer bespoke and dedicated support to clients navigating their transition journey through an evolving landscape rich in seams of new legal risk.

Chinyelu Oranefo is a Senior Associate (banking and finance) with CMS: