Risky business – the danger of doing less

As part of our ESG summer school series, this week we look at possible ESG risks for your organisation. There is no “silver bullet” solution to most of the below, and each organisation will have its own priorities in terms of risk management, but here are some suggestions where you could make a big difference to the future of your organisations’ ESG risk exposure:

• Is there process for checking the way ESG claims are made and managed? – most people want to do better, and are trying to improve their organisations ESG credentials. A consequence of that is more statements being made about ESG credentials and achievements. However, misstatements or errors in reporting can cause real issues, and create exposure to litigation or claims – do you have a process in place for checking, vetting & verifying the ESG claims being made? If not, creating one could be both defensive (weeding out statements which overstep) and an opportunity to encourage more (properly considered) ESG-related statements and profile raising. For those organisations operating in sectors with legal requirements around ESG reporting, there is a need to take this element particularly seriously – do you know if your organisation is subject to legal obligations around ESG and what you are doing to comply with them? If not, make it a priority to check.

• Is ESG on the radar for the board and senior management? – for most people, by now, the answer to this will be “yes” (it is, after all, quite hard to ignore!). The better approach might therefore be to consider whether it is getting sufficient consideration or whether more could be done. For example, do the directors and senior managers need more training on the scope and extent of ESG issues or the potential impact those issues may have on the business? Are the directors aware of the interaction between ESG and their directors’ duties, and are decisions being made in a way which protects them from ESG-related claims (which are on the rise, including at least two separate attempts this year to take high profile derivative action claims through the English Courts)?

• Do you know which ESG issues are most important to your organisation? – what matters most will differ from organisation to organisation (and, to some degree, from individual to individual). One way to approach this would be to do an audit with your HR or social media teams around trending topics within your business or customer base. They might also be able to provide some insight around the impact of your organisation’s ESG profile on recruitment opportunities or the ability to win new business. Another would be to speak to different parts of the business about where and how ESG considerations are impacting their day-to-day (potentially doubling-up as an opportunity to reconnect with different parts of the business, creating collaboration and interaction opportunities beyond ESG).

• Have you considered where ESG-related claims might arise? – does your organisation have listed / publically traded shares, potentially making it susceptible to shareholder activism or those with an ESG-related agenda buying shares in an attempt to access legal routes to bring claims? Does the rise in litigation finance and claimant-side group litigation law firms present a particular challenge for your business – are you in a sector which places you on their likely target list? There is only one direction of travel for ESG-related claims, and the challenges they present (particularly if they take the form of complex, high-stakes group litigation) need to be considered sooner rather than later if you are to avoid being caught off guard.

• What is the response plan if something goes wrong? – not just from a legal perspective (where the answer will hopefully be to seek input from an experienced legal team to assist you in protecting the organisation’s position and dealing with any claims…), but also think about internal communications and statements which will need to be made to the markets, your customer base etc. Greenwashing claims are on the rise, and they can present organisations with PR issues as well as (if not more than) legal challenges. A plan will need to be changed and adapted to meet an actual situation or challenge when it arises, but the process of creating a plan and having a starting point is essential.

• Do you need to check the insurance? – before embarking on a summer holiday, most people check their travel insurance (you might want to do that too if you haven’t already…). Given the rise in risks and claims associated with ESG, you may need to check whether your current insurance portfolio gives you enough coverage (pay particular attention to any directors & officers insurance). If cover is not sufficient, take steps to improve that position going forward. As with all insurance products, make sure appropriate disclosures are being made to avoid the cover being invalidated later.

For more ideas from this series, check out our other blogs on:

• assessing whether your ESG and business policies are fit-for-purpose 
• setting targeted ESG objectives at a team level
•  the benefits of setting up internal networks.

ESG has increasingly become an integral part of the corporate and investment world as companies strive to improve their approach for tomorrow’s world. Our specialist team is fully engaged in developments in this area and is working with a wide range of businesses and other organisations to support their approach to ESG. Comprising of lawyers working across practice areas in our international offices, the team provides a wide spectrum of advice – helping clients to understand their responsibilities and identify where risks and opportunities may lie. Find out more about the team and where it can support on our ESG page.