16 September 2020

A new methodology to help GCs deal with ESG issues emerging from the pandemic

Environment

By embracing stakeholder capitalism, GCs can boost the resilience, reputation and ultimately revenue of their organisations, argues Stephen Shergold

As companies emerge from the containment phase of the Covid-19 pandemic, environmental, social and governance (ESG) performance is emerging as an important item on the GC's list of priorities.

The market dynamic of 'stakeholder capitalism' was already on the way to becoming the prevailing socio-economic agenda, but the human challenge of re-starting operations during a global pandemic has accelerated this process as stakeholders, including employees, contractors, communities and supply chains, have found their voice. This is fuelling multi-faceted pressure on corporations to adopt and deliver high standards of ESG performance.

However, governments are not acting fast enough and in the absence of a single legislature telling them what to do companies are faced with the prospect of having to determine this for themselves.

GCs are central to managing this prevailing disruption – adopting rules and ensuring they are implemented is what lawyers do best. GCs have been focussed on corporate governance for some time, but the 'E' and the 'S' of ESG have now moved further up the agenda. In order to manage the legal risks inherent in this new dynamic, they can adopt the 'Anticipate-Measure-Manage' methodology.

Employee welfare

GCs must now anticipate the societal response to the way their companies manage the health, safety and welfare of an anxious returning workforce. Following this they can implement a system to measure health, safety and welfare impacts, eg testing regimes can be established and self-certification data recorded to underscore confidence alongside the business specific protections that are implemented. Having seen the risk and measured the response, the GC is now equipped to manage the legal liability risk that may arise from regulators questioning a business' approach to employees' claims for workplace-related illnesses.

Support to contractors

GCs must now anticipate the societal response from their companies' past use of contractors, particularly with respect to the unequal position of casual labour in the gig economy. Systems can then be implemented to measure the reliance on contracted labour. Increased protections, regarding health and wellbeing as well as job security, can be considered across this group of stakeholders and where possible they could be given equivalent treatment to employees. This will equip the GC to manage adverse stakeholder actions from consumers or investors based on the application of the UN Sustainable Development Goals.

Insolvency

GCs must now anticipate the societal response to closing bankrupt business units and the consequences for communities built around these enterprises. In imagining the broader societal consequences the GC can insist on programmes to re-train and re-equip redundant employees. This can be followed by measuring the development of new skills and the transition afforded to these communities, which will ensure that the GC can manage adverse stakeholder actions from consumers and NGOs.

Supply chain disruption

GCs must now anticipate the societal response to managing supply chain disruption and the consequences for smaller links in the chain. By working with suppliers to identify problems early, flexible solutions are given a greater chance of success. The GC can then measure the suppliers that have been supported as against those where relationships have broken down. Through taking a 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 observed an emphasis on the environmental factors of ESG over the 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.

GC's must therefore anticipate the environmental impact of emissions and broader sustainability issues as their businesses restart their operations, and then measure environmental and social performance. This data will empower the GC to manage the legal liability exposures that will hold purpose driven companies to account for their actions.

GCs that anticipate scenarios such as those mentioned in this article, as well as others across a range of areas, will be able to come up with solutions that significantly help the resilience, reputation and ultimately revenue of their organisations.

Stephen Shergold is UK head of environment at Dentons

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