By Luke Baldwin, Co-founder, Nature Broking
Three weeks after the Clyde & Co carbon removal announcement, I received an email from a senior partner at a Magic Circle firm. No pleasantries, just a direct question: “Can we do what Clyde did?”
Since then, similar conversations have accelerated. Not inquiries about sustainability reporting or ESG credentials of course, because law firms have been doing that for years. Instead these are CFOs and managing partners asking whether they can apply the same accounting treatment Clyde & Co pioneered: capitalising carbon removal credits as balance sheet assets rather than taking an immediate P&L hit.
The tone in these fascinating discussions has shifted noticeably. Six months ago, carbon credits were viewed as an unavoidable expense tied to net-zero commitments. This made them polarising: something sustainability teams championed but finance directors quietly resisted because of the profitability penalty. Now in a surprising reversal, finance teams are leading the conversation.
What changed?
The Clyde & Co precedent
In November 2025, Clyde & Co announced a five-year initiative with Nature Broking securing carbon removal credits for delivery in 2038, when their SBTi-approved net-zero target requires addressing residual emissions. The structure itself wasn’t remarkable; forward-purchasing to hedge against projected price increases makes strategic sense when Bloomberg forecasts costs rising three to five times by 2038.
What captured attention was the accounting treatment.
Working with specialists Rethinking Capital, Clyde & Co applied IAS37 (Contingent Liabilities) and IAS38 (Contingent Assets) to recognise their net-zero commitment as a future obligation and capitalise carbon removal credits purchased to fulfil it. This represented the first major application of these accounting standards to corporate carbon removal strategies.
The financial outcome: sustainability investment that doesn’t suppress profitability and potential for asset appreciation if forward pricing holds.
For a sector where partner compensation is directly tied to profit per equity partner, removing the P&L penalty fundamentally changes the economics of climate investment.
What makes the Clyde & Co approach different (box out)
- Traditional Approach: Carbon credits = P&L expense → immediate profitability hit → CFO resistance
- Clyde & Co Model: Net-zero commitment = IAS37 liability → credits = IAS38 assets → no P&L penalty
- Financial Benefits: Asset appreciation potential (3-5x by 2038), insurance-backed valuation
- Strategic Advantage: Credible net-zero pathway without compromising partner profitability or client pricing
Why law firms are paying attention
The legal sector faces a specific sustainability challenge that Clyde & Co’s approach directly addresses.
First, client pressure is intensifying. Major corporates increasingly include sustainability criteria in RFP processes, and procurement teams are asking pointed questions about law firms’ own decarbonisation pathways. Vague net-zero commitments without credible delivery mechanisms are becoming insufficient.
Second, the notoriously onerous Scope 3 emissions—the indirect emissions from business travel, supply chains, and operations—represent the majority of most law firms’ carbon footprints. The hardest category to eliminate entirely, even aggressive operational improvements leaves residual emissions. The Science Based Targets initiative’s version 2.0 standards increasingly mandate carbon removal for addressing these residuals, not traditional avoidance credits.
Third, talent recruitment and retention increasingly depend on demonstrating genuine climate action. Associates under 35 are asking during interviews what the firm’s net-zero strategy looks like and whether it’s financially supported or just aspirational.
The traditional response—”we’re purchasing carbon credits”—immediately raises the follow-up question from finance committees: “At what cost to profitability?”
Clyde & Co’s model provides an answer that satisfies both sustainability and financial objectives.
The conversations I’m hearing
Perhaps unsurprisingly, the inquiries coming in aren’t uniform. Some firms are at early stages, asking whether their existing net-zero commitments meet the credibility threshold IAS37 requires for contingent liability recognition. Others have already engaged accounting specialists to assess whether their specific circumstances qualify.
One consistent theme: audit committee questions about asset valuation. Finance directors want to understand how carbon removal credits are valued, what insurance mechanisms exist to address permanence risk, and how auditors will test these capitalised assets.
This is where Clyde & Co’s decision to insure their portfolio through Kita matters significantly. When an underwriter puts capital behind project performance, it transfers risk from the organisation and provides independent validation that audit committees need to approve balance sheet treatment.
Another pattern: firms are modelling the forward-purchasing economics. If you know you’ll need carbon removal for 2038 residual emissions because of an SBTi-approved target, the question isn’t whether to procure, it’s when. Forward-purchasing while prices are reasonable hedges against future supply constraints and projected price increases.
Several partners have privately acknowledged that waiting until 2038 to procure what they already know they’ll need is risky speculation that prices will remain low when regulatory mandates arrive.
The broader implications
What’s emerging isn’t a sector-wide rush to replicate Clyde & Co’s exact structure. It’s something more fundamental: a recognition that the profitability penalty blocking substantial climate investment might be solvable through existing accounting standards properly applied.
Not every organisation qualifies. The accounting treatment requires demonstrating genuine commitment credibility. That means your net-zero target is board-approved, strategically integrated, and meets IAS37’s “more probable than not” threshold for recognition. Aspirational sustainability statements don’t qualify.
But for firms with substantive SBTi-approved targets and credible decarbonisation pathways, the framework exists. The question powerfully shifts from “Can we afford climate investment?” to “Have we structured it correctly?”
This reframing matters for the legal sector specifically because of how partnership economics work. When sustainability investment competes directly with partner distributions, it creates internal tension regardless of stated values. Removing that competition through balance sheet treatment changes the internal politics of climate action.
What comes next
The most interesting conversations are from firms asking what prevents them from doing it now rather than waiting.
The honest answer: mostly internal decision-making speed and willingness to be second rather than first. The accounting framework exists. Forward pricing curves provide reasonably reliable cost projections. Insurance mechanisms for permanence risk are available. Rethinking Capital has established the technical pathway for applying IAS37/38.
What’s lacking is simply precedent volume. Clyde & Co was first of the big law companies to embrace the opportunity. The firms now inquiring will be second, third, and fourth. Each additional adoption makes the approach more routine and audit committees more comfortable.
From my perspective working with organisations across sectors on carbon removal strategies, the legal sector is positioned to move faster than most. Law firms understand regulatory frameworks, have sophisticated finance functions, and face clear client pressure for credible climate action.
The question isn’t whether more law firms will adopt balance sheet treatment for carbon removal investments. It’s how quickly the second and third movers act, and whether being first created meaningful competitive advantage or simply cleared the path for everyone else.
Given the conversations I’m having, that answer may arrive sooner than many expect.
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About the Author
Luke Baldwin is co-founder of Nature Broking, which structured the carbon removal portfolio and forward-purchasing strategy for Clyde & Co. Nature Broking works with organisations across sectors to design and procure high-quality carbon removal portfolios aligned with net-zero commitments.
For inquiries: contact@naturebroking.com
