Natalie Gerhardstein: From your perspective, what would be the impact of the Corporate Sustainability Reporting Directive (CSRD) on your corporate practice in Luxembourg ?

Justine Yansenne: First, I think it is important to note that this piece of legislation, like the SFDR, is part of the wider growth strategy of the EU when it comes to net zero transition by 2050, outlined in the European Green Deal.

I think that it is crucial for all players, but especially young lawyers, to be aware of the developments in the so-called ESG sphere. Climate change mitigation has moved up the priority ladder as a policy goal. For instance, the entry into force of the Sustainable Finance Disclosure Regulation has been a unique opportun­ity for our investment funds team here at Allen & Overy in Luxembourg to pos­ition themselves as experts in that area and to advise assets managers on how to comply with the additional transparency and disclosure requirements under the regulation with regards to the integration of sustainability risks.

Looking at the Corporate Sustainability Reporting Directive (CSRD), it is likely to have an impact for our clients and, as a result, for law firms in Luxembourg (although not necessarily for corporate practices). In brief, the CSRD will expand the scope of the existing Non-Financial Reporting Directive (NFRD) to include all ‘large’ EU companies (whether listed or not) and all EU and non-EU SMEs with securities listed on an EU-regulated market, with the exception of certain micro-undertakings and subsidiaries if their non-EU parent company is subject to equivalent obligations. This effectively means that Luxembourg holding companies that are listed entities in Luxembourg or elsewhere in Europe might fall within the scope of CSRD, unless they qualify as a micro- undertaking or have a non-EU parent company subject to equivalent obligations.

One of the main practical consequences for in-scope entities will be the obligation to include certain information on environmental, social and human rights and governance factors into their management reports. In particular, these entities will need to disclose what the impact of their activities is on such factors, and how they affect their development, performance and position.

The CSRD includes an extensive list on the exact nature of information to be disclosed. For example, management reports of in-scope companies will need to include a transition plan, outlining a set of actions and ‘time-bound targets’ aiming to ensure that their business model and strategy are compatible with the European Climate Law objectives. The report should also indicate whether such a transition plan is based on conclusive scientific evidence and contain updates on progress made in relation to these set targets. Reports will also need to include information on the due diligence process implemented by the company concerning sustainability matters.

In other words, in-scope Luxembourg companies will have to develop, among other things, a transition plan, if possible backed by tangible scientific evidence that includes clear targets. They will also have to deliberately work towards the targets they have set for themselves and possibly develop relevant due diligence processes linked with ESG matters. This will have to happen relatively fast as, in its current form, the CSRD is expected to enter into force as of 2024 after transposition into national law. I think this creates a new opportunity for a whole range of service providers to develop a specific expertise to assist these companies in assessing what their transition plan and due diligence processes should be and how to best implement them.

For lawyers, the key angle will be to help clients evaluate whether they fall within the scope of CSRD, as well as what are the practical and concrete implications on their business. In corporate law, it will mean, for instance, making sure that strategic decisions made by corporate bodies take into consideration relevant environmental, social and human rights and governance factors, and are properly documented as such. I do not expect a significant impact on the day-to-day work of corporate lawyers, but it is an opportunity to develop a set of skills to answer a demand that will most likely increase in the upcoming years. At Allen & Overy, we put in place an ESG group two years ago, targeted at delivering a cross-practice one-stop shop for clients seeking to evaluate the impacts of ESG-related regulations on their companies and operations.

Earlier this quarter, S&P Global predicted that a mergers and acquisitions rebound in 2023 would be unlikely due to the increased costs of financing. Others predict that, at least for tech companies, M&A deals will increase in volume. How do you see the trend for Luxembourg for the year ahead ?

That’s a really good question. Through the lenses of a young lawyer, there will be some changes in the M&A landscape. That is fact… Now, if we look at M&A globally, the trend is towards a decrease, and we’ve witnessed here there are slightly fewer international M&A deals. Firstly, as you said, due to the increase cost of lending and debt financing. Secondly, asset valuation is way more difficult because there is a lot of volatility in the market.

But here in Luxembourg, we’ve seen some clients are really innovative in finding solutions to tackle the debt financing problem. This is proof that the market is reactive, quick on its feet. So, in that sense, I don’t see a real impact yet because they can still make deals via these alternative sources of financing while still maintaining a good internal rate of return.

We’ve seen some clients are really innovative in finding solutions to tackle the debt financing problem

Justine Yansenne, Junior associate, Allen & Overy Luxembourg

Looking at domestic activity, it’s still going strong. Should a crisis actually hit, it will mean that some assets on the market will most likely end up being cheaper. This will provide opportunities for those that have the means to buy such assets. So there might be a pickup at some point. From what I’ve read, as well as from discussions with my partners, we will see, I think, a shift towards a buyer-friendly market.

Then there is all the work stream that will inevitably develop as a result of a potential storm happening. By this I mean restructuring work that will pick up as well, if there should be a recession heading our way. So I think it needs to be nuanced, but if anybody benefits from a crisis, most of the time it’s lawyers.

Any thoughts on the impact of fast-evolving legal techs on your practice in Luxembourg ?

Legal tech is a great tool, and every young lawyer should not only know that such tools exist but also be familiar with them and know how to use them on a daily basis. I think upcoming developments in the legal tech sector are something to look forward to as lawyers. If used well, it can contribute to making our day-to-day work easier and more efficient. I am also convinced that, on a higher level, being up to date with developments in that area is key for law firms to remain competitive in the market. At Allen & Overy, we are well aware of this and we are grateful for our head of risk and knowledge tech, Audrey Scarpa, who helps us make sure that we stay on top of any new developments. In addition, we have set up the Fuse learning lab that allows us to be close to best-in-class technologies and use them to deliver efficient advice where and when appropriate.

This reminds me of a debate we had in class during my master of corporate law at the University of Cambridge. The focus of the class was the future of the lawyer profession and legal markets as a whole. That debate was twofold: evaluating whether legal tech would ‘steal our jobs’ and whether Big Four accounting firms would take an increasing share of the legal market away from law firms. While I will leave the second point for another day, the conclusion was that legal tech would not ‘steal’ our jobs. On the contrary, it allows for our daily practice to become more bespoke. Provided we use it well, legal tech will allow lawyers to allocate their most valuable resource, their time and energy, to where they have the highest added value.

Do you anticipate a normal or rather depressed market for 2023? Are you confident vis-à-vis the future of your practice in this context ?

This is the 100mn-dollar question, isn’t it? Unfortunately, I do not have a crystal ball, but I read the financial press and will try to answer from the perspective of a young lawyer.

Looking at the global economy, I think a lot of indicators, such as rising inflation and the resulting increases of interest rates, point towards a slowdown (which has already started). The covid crisis, energy crisis and war in Ukraine obviously already had an adverse impact on the macroeconomic situation. Now, whether this slowdown will continue and for how long remains to be seen and is likely to be different from sector to sector. I am convinced that Luxembourg is well positioned to weather the storm. The same is certainly true for our corporate practice.

A first reason is that, despite what is going on in the global market, we observe that the Luxembourg domestic M&A market remains relatively active. This is currently keeping our team very busy. Other opportunities are arising, in particular in restructuring deals, which are equally relevant for our practice. A second reason is that, in my opinion, the economy of Luxembourg is well hedged against any crisis. Luxembourg has managed to diversify its economy since the implementation of the Ucits directive back in the days. Certain new sectors have thrived recently, such as the space industry, logistics and tech more broadly. Some sectors might, of course, be more impacted than others should the slowdown continue over a long period of time, but this diversification should allow Luxembourg’s economy to stay the course. Finally, Luxembourg benefits from a dynamic regulatory environment that allows the country to constantly attract new sectors of activities, thanks to its competitiveness. We observed this some time ago with payment service providers but also with fintech more broadly.

What do you anticipate will be the main challenges for young lawyers willing to start a career in Luxembourg in 2023 ?

The main challenges will remain first to choose their specialty and second to choose where to start their career in terms of type of firm and country. One cannot overemphasise the importance of internships to witness hands-on the concrete application of a given area of law in practice. Practice at a law firm differs widely from university, and this might or might not suit you. Several factors should play a role when choosing your firm and jurisdiction, such as job certainty, training, work-life balance and, last but not least, the atmosphere.

Luxembourg as a jurisdiction is in constant evolution, and there will always be opportunities for motivated, young talents ready to seize them. I would give Luxembourg a triple A, akin to its credit rating. Job certainty is somehow a given. Luxembourg is also really interesting for young talents as they can benefit from the presence and related standard of training of certain international law firms while also enjoying the advantages of a smaller-sized jurisdiction. In other words, while their training will, of course, be linked to a particular area of law, they will not be obliged to overspecialise either. For instance, in the corporate department of Allen & Overy, junior lawyers have the opportunity to work on a wide variety of files ranging from IPOs to pure M&A and PE acquisitions and advisory work. In my opinion, this is the best of both worlds and allows to build strong foundations to develop one’s career as a lawyer.

Finally, in terms of work-life balance, the country offers the opportunity to work on international transactions while being able to be in the countryside in a few minutes by car from the city centre. From my own experience and testimonies of some of my friends working in other jurisdictions, I would say the atmosphere in Luxembourg is quite unique when it comes to work-life balance. For instance, at Allen & Overy, we have fitness and yoga classes available five times a week and everybody, across all seniority levels, is encouraged to attend. I play rugby and have training twice a week, next to being a lawyer at Allen & Overy, and with a bit of organisation it works perfectly. We also have an active pro-bono committee, of which I am a proud member.