Environmental, social and governance issues are topping the global agenda - Pam Coulthard

With Glasgow getting ready to host nearly 200 nations at November’s historic COP26 climate conference, it’s abundantly clear that ESG (environmental, social and governance) issues are topping the global agenda.

Pam Coulthard is a Senior Associate in Dentons Environment and Societal Practice Group
Pam Coulthard is a Senior Associate in Dentons Environment and Societal Practice Group

At the same time, as Scotland relaxes the tier system and companies across the country begin to emerge from the latest lockdown, those ESG considerations are emerging as an important item on the General Counsels’ (GC) list of priorities.

Given the human challenge of re-starting operations during a global pandemic, company stakeholders, from employees and contractors to communities and supply chains, have found their voice and expect to be treated fairly as the nation prepares for recovery.

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This is putting pressure on corporations to adopt and deliver high standards of ESG performance. However, with Holyrood and Westminster often at loggerheads, there has been something of a leadership vacuum in this area so companies are getting on with deciding on the way forward themselves.

GCs have a big role to play in this. Adopting rules and ensuring they are implemented is what lawyers do best. GCs have focused on the ‘G’ of corporate governance for some time, but the ‘E’ and the ‘S’ of ESG have now moved further up the agenda. To manage the legal risks that arise, they can adopt the technique of ‘Anticipate-Measure-Manage’.

GCs must think carefully about the social implications of how they manage the health, safety and welfare of an anxious returning workforce. Having done so, they put processes in place to measure health, safety and welfare impacts. That could take the form of boosting confidence through testing regimes and recording self-certification data. Having seen the risk and measured the response, the GC is equipped to manage any challenges arising from regulators questioning how businesses are handling employee claims for workplace-related illnesses.

Support for contractors

GCs also have to consider the societal impact of their companies’ past use of contractors, especially their treatment of casual labour in the gig economy. First, they need to make sure they have accurate data on this and then they can take steps to increase protections for health, wellbeing and job security. By doing so, the GC will get the company on the front foot when it comes to dealing with any challenges from consumers or investors who feel they are failing to apply the UN Sustainable Development Goals in their business.

Insolvency

As furlough comes to an end and the various government support measures are removed, business unit bankruptcies will increase dramatically. All good GCs will want to think through the social consequences for communities that depend on these enterprises. GCs can insist on programmes to re-train and re-equip redundant employees and also on follow-up measures to ensure the harm is limited, thus potentially heading off any pushback from consumers and NGOs.

Supply chain disruption

Supply chain disruption is becoming a real problem across the country due to Covid-19, the blockage of the Suez Canal and Brexit. This is another area of social impact where GCs can play a role in minimising the consequences for smaller links in the chain. By working with suppliers to identify problems early, they have a better chance of putting in place flexible solutions that work well. The GC can then measure the suppliers that have been supported as against those where relationships have broken down. By taking this longer-term relationship-based approach, GCs can manage the number of contentious claims that arise out of non-performance of contracts during the pandemic.

The climate emergency

Prior to COVID-19, commentators noted that environmental factors of ESG were emphasised over societal impacts. Many also questioned how ESG under-performance would bite in the form of legal liabilities. The pandemic has answered these questions as the human element of this global crisis has balanced the E and the S, and stakeholders are better-equipped to drive home legal responsibility for corporate mis-steps.

As their businesses restart operations, GCs should anticipate the environmental impact of emissions and broader sustainability issues, making sure that environmental and social performance is measured. This data will help the GC to manage any legal liability exposures that their company may be exposed to.

GCs that anticipate such scenarios will be well-placed to come up with solutions that help the resilience, reputation and, ultimately, revenue of their organisations.

Pam Coulthard is a Senior Associate in Dentons Environment and Societal Practice Group

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