Get your legal ducks in a row to contain a crisis - Katy MacAskill

Katy MacAskill is a Senior Associate at DentonsKaty MacAskill is a Senior Associate at Dentons
Katy MacAskill is a Senior Associate at Dentons
Be prepared for an ESG problem and the risks it brings, advises Katy MacAskill

Most businesses are likely to have crisis management plans for cyberattacks, data breaches or major health and safety events. Environmental, social and governance (ESG) issues now pose similar risks at the board level, potentially leading to adverse market reactions, regulatory interventions and lengthy litigation. Preparing for these scenarios by identifying significant risks and weaknesses, and implementing necessary actions, can mitigate the consequences of these issues when they do arise.

Often, an internal whistleblower, a concerned NGO or a journalist will first raise the alarm about potential issues affecting operations or the supply chain. The person taking the call must know how to activate a crisis management plan. Key team members must be identified to make crucial decisions and provide necessary support. Keeping the team small helps to enable a prompt response and control information flow. Early stakeholder or market notification might be necessary and external communication agencies can aid in early positioning.

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Every response depends on the precise circumstances in question. However, before gathering evidence, set the investigation scope and terms of reference. Reports prepared by lawyers may be covered by privilege, depending on the investigation’s purpose and jurisdiction. External legal and forensic experts can help gather information, and offer advice as the situation unfolds. It’s important to ensure that legal, operational and communication strategies remain coordinated.

Allegations of bribery or corruption could require self-reporting to the Serious Fraud Office. The Financial Conduct Authority may issue extensive information requests if a listed or regulated entity is involved. Maintaining a constructive approach with authorities is usually beneficial, but an understanding of the process, their powers and potential sanctions is important.

ESG litigation is rapidly evolving. In England and Wales, group litigation in respect of ESG issues is growing through the use of mechanisms such as Group Litigation Orders and representative actions, and this growth is supported by a robust litigation funding industry. Claims may be brought in England and Wales for breaches of local laws elsewhere, although defendants can challenge the appropriateness of the forum for such claims.

At the heart of these complex situations are individuals. Adhering to company policies and relevant laws when dealing with implicated individuals is crucial. If a factual inquiry is needed, consider how this interacts with any other internal investigation and be alive to overlapping issues of privilege and disclosure. Whistleblowers are often legally protected against dismissal or detriment due to protected disclosures.

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The most significant human impact is often in respect of workers within a company or supply chain. Engaging directly with them can be helpful in achieving a better understanding of their needs for redress and improved working conditions. Terminating contracts with suppliers may seem sensible, but local NGOs could offer alternative solutions to improve worker conditions or positively impact the local environment if that is the true source of the issue.

The range of risks can appear overwhelming, but it is important to map out what a full-scale ESG crisis could look like to prioritise and prepare.

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