GLOBAL: An Introduction to Litigation PR & Communications

ESG: Gains, Risks, Claims and Reputations 

With different regimes across the globe, Environmental Social and Governance (ESG) consists of an ever-growing raft of reporting standards that measure a business’s social and environmental impact. Among a forest of acronyms, one upcoming example of EU ESG legislation is the Corporate Sustainability Due Diligence Directive (CSDDD). This will oblige corporates to identify and, in certain scenarios, prevent, end or mitigate their activities if these have a negative effect on the environment or human rights.

A key consequence is that the data gathered can then be used by many stakeholder groups including investors, employees and customers, to make decisions about how they engage with the business. This makes it a vital tool for companies seeking to differentiate themselves from competitors. Many brands’ identities are grounded on moral principles such as ethical sourcing, championing particular social stances, or a commitment to human rights. ESG can therefore be seen as a way to formally highlight these commitments.

Gains 

ESG undoubtedly provides opportunities for many businesses, alongside the costs of compliance. It can enhance the credentials and reputation of a brand among external stakeholders, bolster recruitment and morale, and encourage financial investment. Not to mention the fact that, at this stage in human history, it is vital that there is an increasing focus on existential questions around sustainability.

ESG stories are incredibly powerful in meeting the threshold of what makes an attractive story for the press. This is particularly so when companies are exposed for not taking their responsibilities seriously. There is increasing backlash from consumers around ‘greenwashing’ attempts by companies, in which their environmental credentials are overstated in advertising and marketing campaigns. The UK’s Competition and Markets Authority is currently investigating how products and services that claim to be ‘eco-friendly’ are being marketed and whether consumers are being misled. A consumer backlash undermines any positive attention and gains that the company hoped to generate. It leaves a general bad taste and erodes trust between company and consumers.

A similar dynamic can be seen in ESG compliance. Any corporate that seeks to promote compliance with ESG regulation in order to grow its business, and later found to not be compliant will be depicted as the villain by the media. Whether through failing to take the obligations seriously, or through allegations of duplicity, aspersions can be cast about a company’s culture, competence or otherwise.

ESG news stories and the legal claims that follow them can strike at the heart of an organisation’s values. They affect what employees, customers, clients, business partners, investors and the public think of them. Further, the nature of such stories – an unfolding scandal that could expose serious wrongdoing – will excite any journalist’s sense of curiosity and is likely to encourage additional investigation into other aspects of the company. An innocent or negligent misstatement that is uncovered by a journalist could lead to a full investigation of a company’s supply chain, potentially exposing issues that the company was unaware of.

Risks 

So, how do corporates guard against legal and reputational risks arising from potential ESG litigation? The optimal approach is prevention. Businesses need to have robust internal systems to prevent errors appearing in public facing material. They should be aware that a supplier may provide false information when asked about its working practices, a form may be incorrectly filled in, or other unforeseen circumstances can make previously accurate declarations false.

While a robust legal strategy is vital it is not enough. A strong and complementary public relations strategy is of equal importance. The court of public opinion moves faster than the court of law. By the time an ESG litigation makes it to trial a verdict is likely to have already been handed down in the press. In a worst-case scenario, a company may find out about an upcoming article only days before the intended publication date. This is hardly the time to be scrambling to find a crisis and litigation PR agency. A proactive approach to risk management includes a long standing relationship with a specialist PR agency. This allows the agency to become familiar with the company’s products, services, marketing and key personnel. That in turn will save time and build resilience in a crisis communications situation where time and good decision making are of the essence.

Company leadership teams must ensure a comprehensive strategy is prepared ahead of potential crisis. Working with lawyers and experts in reputation management and litigation public relations can provide an insight into what could occur. ‘Wargames’ that simulate a media crisis can stress-test a company’s existing procedures and highlight areas of weakness. These can then be addressed ahead of a future ESG crisis emerging.

Claims 

If an issue comes to light internally, it is also vital that external communications strategies are considered and, if necessary restructured, as soon as possible. A reputational ESG crisis might arise when a media investigation breaks in an international publication. This could happen when a company is running an advertising campaign which seeks to capitalise on their ethical credentials. Uncovering apparent hypocrisy adds legs to a story and increases the chance of further follow up coverage. External and internal communications need to be in lock step at times like this. Employees need to be kept informed as far as possible. They will not take kindly to hearing about the crisis from the media, and will be more likely to provide information to journalists if they feel they have been blindsided by the company.

Reputations 

If an ESG issue becomes litigious, transitioning from a crisis footing to a longer-term litigation public relations strategy is critical. While the lawyers focus on winning the case in court on the facts and the law, the PR firm needs to handle the information that can become public during the lifecycle of the case, in particular through discovery (US), disclosure (UK), or similar processes in other jurisdictions. A single, off-hand email could, if read out in a live case, suggest a pervasive culture of wrongdoing, for example.

The matter value in a case may be in the low millions, but if information comes to light in the litigation that wipes hundreds of millions off a company’s share price, a victory in court would be of scant comfort. Public hearings can serve to reopen wounds in the media, and journalists have the protection of absolute privilege when reporting allegations aired in open court. A clear strategy must be put in place early in the case with a view to ensuring consistency of communications and messaging throughout. It is impossible to control the media coverage during the lifecycle of a case, but presenting a strong narrative from day one can make a major difference in how it is perceived.

While the opportunities afforded to companies by ESG programmes are clear, so too are the risks. A public litigation, or even a regulatory investigation, can critically damage a company’s reputation and undo years of hard work in building trust with its stakeholders. As no corporate is immune to the myriad ways in which noncompliance can occur, it is vital to ensure that senior leadership are as prepared as possible to deal with this – legally, with messaging and in the measures needed to protect reputation.