Defending Against ESG Litigation: Best Practices for Companies
ESG litigation has been around for a while, and it has always been an important part of operating a business. However, in recent years, it has become a much bigger part of nearly every operation.
Not only are there plenty of organizations looking to initiate legislation over perceived ESG issues, but the ESG requirements being written into contracts and partnerships are much more sophisticated and specific than they once were.
As such, you need to implement quite a few changes into your business compared to what was expected years ago if you want to protect against allegations, claims, and ultimately, finding yourself in a courtroom.
Here is our in-depth guide to defending against ESG litigation and the practices every business professional should adopt, today.
What is ESG Litigation?
Before we get into the practices you need to implement, you really need to understand exactly what ESG litigation is. At first glance, it might seem like just another way to target companies, or you might not fully understand it. It does have its purpose, though.
ESG stands for Environmental, Social, and Governance. In layman’s terms, it’s a form of litigation that allows companies to be held responsible for things they might do that go against social expectations and damage communities, individuals, or other important facets of life.
This isn’t a new concept. Especially when it comes to the “environmental” part of ESG. There have been groups, and the infrastructure required for those groups to act, holding companies accountable for their actions for decades. Think of situations where companies have spilled large amounts of toxic waste into waterways or didn’t upgrade their machinery to meet new and improved eco-friendly standards. Headlines would pop up about those companies being sued or otherwise forced to change their ways instead of their reckless acts being swept under the rug.
The women’s work rights issues in the nineties and early 00s also put ESG front and center. That’s how companies were scrutinized for promoting less-qualified men over more-qualified women, paying women less for the same job, and similar things that needed to be worked out in the American workforce.
How Has ESG Litigation Changed, Today?
ESG litigation has changed a lot. As we said, it has been around, and it has achieved a lot, but it was fairly limited.
In recent years, ESG litigation has been taken to the next level, and we’re seeing a major uptick in cases and claims.
Now, instead of just tackling hot-topic workforce problems, ESG litigation is covering a broad spectrum of issues. Things such as sexuality and gender correlating to hiring patterns, racial discrimination concerns, eco-friendly concerns, and even the messaging and branding of a company and how those things impact communities are all various topics that might trigger ESG litigation, and there are far more oversight groups paying close attention to ensure that every possible problem is scrutinized to the fullest.
Why Does ESG Litigation Matter to You?
In the past, it was easy to defend against ESG litigation. For the most part, you simply avoided doing things that were widely considered wrong. You got rid of your company’s waste appropriately, treated your employees fairly, and maybe did volunteer projects to aid your local community. As long as you were generally trying to do good as a company, there wasn’t much to worry about.
That is not the case anymore.
As ESG has become more complicated, there are far too many aspects of it for you to defend yourself against for you to simply meet a baseline level of decency. You need a complex, comprehensive strategy, and the tools necessary to implement it in full, if you are going to properly protect your company from ESG litigation.
This isn’t an attempt to highlight ESG litigation as a negative thing, either. In many ways, it is absolutely necessary for holding companies that genuinely do negative things accountable. However, with its complexity, it’s more likely that you might accidentally do something that warrants a claim, or you might be falsely accused of breaking a social expectation worthy of litigation.
On one hand, you want to implement the strategies we’ll be talking about today to ensure that you’re doing the best you possibly can to maintain a company with an amazing reputation and dedication to service. On the other hand, you also want to implement these practices to protect you against unwarranted litigation or misunderstandings, as well.
Even if you think your company is currently upholding every ESG obligation, you still need to change things up and bolster your defenses.
Practices to Defend Against ESG Litigation
Now that you have a solid understanding of what ESG litigation is and some of the implications behind it, it’s time to start talking about the actionable steps you can take to defend against it and ensure that you’re operating your company in accordance with it.
You’ll notice that some of these are incredibly simple changes, while others require a much more extensive overhaul of your current business model. In either case, each one is incredibly useful, and you should move to implement it as fast as possible.
1: Know What’s Expected of You
This is probably the simplest change you can make, and it was the only thing you truly needed to do decades ago. You can start by simply knowing what is socially expected of your company.
There are easy things. Such as not doing things that impact the environment in unnecessary ways, paying your taxes appropriately, having fair hiring and internal promotion standards, and generally operating your company in a professional and fair way.
However, there are a lot of other, far more specific, things to worry about, now. Get to know exactly what you’re expected to do as a business, and work toward implementing any changes that are necessary.
2: Avoid Public Backlash
This is a big one, and it’s not always possible in the modern world. However, you should avoid public backlash as much as possible. Even if you’re attempting to meet every ESG requirement you know of, drawing the ire of ESG organizations looking to scrutinize you will typically result in some sort of claim being made, and it is rarely worth the effort to combat that claim when you can simply avoid it in the first place.
This largely comes down to practicing step number one, but it can get more complicated than that.
3: Work ESG Defense into Daily Operations
ESG defense isn’t something that you can simply talk about in a board meeting, hire somebody to cover, and call it a day. You must make it a natural part of your daily operations. This means shifting some of your worker practices, taking extra precautions, and overall formulating a strategy that will take your ESG defense beyond the boardroom and into real practice.
A good ESG defense includes all of your employees, the technology you leverage, and the way you operate your business. By leaving any part of that system out of the loop in favor of quick, paperwork-based, solutions, you are still at risk of dealing with ESG litigation both warranted and not.
Luckily, the changes necessary usually aren’t anything major if you’re already operating your business in an ethical manner. Typically, small changes such as ensuring hiring practices and patterns mirror societal expectations, making sure employees are meeting the company’s environmental standards when they operate machinery and materials, ensuring consequences and rewards are being handled in a fair manner, etc.
If major changes are required to meet the expectations of the public, that’s typically a good sign that the company isn’t operating as it should in the first place.
4: Understanding Contractual Requirements
ESG is no longer just an expectation from the public. Now, it is written into a variety of contracts. You might be required to have certain hiring standards, portray a specific brand value, or otherwise do something related to ESG because of a partnership contract. If you don’t understand those contractual obligations, you can very easily break your contract and warrant ESG litigation to be brought against you.
Again, ESG requirements are highly specific, now. You might do everything that would traditionally make a company a socially acceptable business, but an ESG requirement in a contract might require you to maintain a certain brand value. If you forget that, you can have a claim against you.
It is absolutely necessary to understand not only the typical business side of things when signing contracts but to also understand the ESG requirements and every possible way that you might infringe on that contractual agreement. Sometimes, it’s trickier than it initially seems.
5: ESG Knowledgeable Negotiators
This goes along with our previous tip. Contracts are a major part of any well-developed business, and every time a contract is made, whether it’s for a new supply line or a full-on merger, you will likely need a negotiator. Business contracts are seldom ready to be implemented immediately with both sides in agreeance.
It’s important that the negotiator you have in charge of the contractual negotiation is well aware of ESG and your company’s strengths and weaknesses in the ESG department. Otherwise, you can end up contractually obligated to do things that go against common ESG requirements, or you might end up agreeing to meet requirements that go against your company’s values or basic capability to meet such requirements.
Having an ESG-knowledgeable negotiator in charge of handling contract negotiations will ensure that you are entering contracts you’re capable of living up to, and it will keep you from entering situations that are almost certainly going to make you fail.
The negotiator should also have a deep understanding of the specific ESG values and capabilities of your company. Since they’ll be negotiating on your behalf, they should understand what your company is capable of.
6: Don’t “Greenwash”
In the modern day, there is a major focus on being eco-friendly. Customers love it, and it helps you avoid ESG litigation. This is essentially ensuring that your business’s practices are good for the environment, or at the very least, you are doing everything you can to prevent being a nuisance ecologically to local communities.
There’s a problem with this, though.
As the “green” movement developed, many companies started to make false claims, or they misrepresented their business operations to appear “green” without actually caring about what they were doing to the environment.
This type of underhanded behavior is an easy way to end up in court over ESG issues. In the modern day, it’s called “greenwashing”. You have to watch how you’re marketing your company and leveraging the “green” actions you’re taking. If you are dishonest, or it comes off as disingenuous, someone will likely take issue with it. Once that happens, you will probably find yourself facing backlash or a lawsuit.
7: Don’t Overstate Your Dedication to Causes
Whether you’re passionate about the environment, gender issues, race relations, a political stance, or whatever else, you cannot overstate your dedication to that cause. This ties in with our previous entry, because it all comes down to giving customers an accurate depiction of your company’s values.
When you overstate your stance on certain hot topics, you open your company up to scrutiny. Few companies that make such exaggerated claims actually live up to the claim.
8: Make Practical Steps to Review ESG Claims and Concerns
You’re busy. You can’t possibly look at every concern, both warranted and not, and give them the due diligence that they deserve. ESG claims are complicated, and you very well can be in the wrong; even if it’s due to some marginal error.
You need a professional team in charge of reviewing such claims and making sure that claims are legitimate, worth fighting, or are otherwise things that can be worked on.
Get More Help with ESG Litigation
If you’re a bit overwhelmed with the modern ESG landscape, but need to protect your company from ESG claims, contact Litigation Legal Insight. Our team can help you create an ESG strategy that protects you, and we can be a valued partner if you do need to fight ESG litigation.