32.1 Introduction
Investigations relating to environmental, social or governance issues are not new; however, during the past decade, the interest in ‘ESG’ (a term thought to have been coined by a 2004 UN Global Compact study[2]) has grown, and ESG factors have become important criteria for investors to identify material risks and, increasingly, growth opportunities. With more attention on risk and reward, ESG investigations are on the rise. These are now often led by lawyers because of the growing legal and regulatory implications and the sensitivities that are often involved. We look at some common features and challenges of investigating these issues, and how to approach them in effective ESG-related investigations.
32.2 ESG issues and investigation triggers
Over a number of years, ESG has fast risen to the top of board agendas, with companies more aware that failure to address these matters can be detrimental to their businesses legally, financially, operationally and reputationally. Global events such as the covid-19 pandemic, #MeToo, Black Lives Matter and increased climate change activism have turned the spotlight onto ESG practices such as whistleblowing arrangements, diversity and inclusion, employee well-being and environmental crisis management.
ESG issues have gained traction in global policy discussions, an example being the UN Climate Change Conference (COP27) that took place in November 2022, with a focus on measuring and tracking ESG performance. Investors and investment managers, among other stakeholders, look to ESG criteria to assess whether businesses are attractive propositions and the level of ESG risk they carry, and there is growing external pressure from governments, regulators and international organisations to do so. Business leaders are increasingly accepting the need to proactively identify their own ESG standards, against which stakeholders will hold them to account. Building compliance frameworks to meet those expectations and considering response plans are just some of the ways that companies can mitigate ESG risk.
But what are ESG issues and when do investigations into them arise? What falls within ESG is evolving, and the intersectionality between the three factors is increasingly recognised; however, the three components of ESG have been distinct issues for some time and can be broadly defined as follows:
- Environmental: There is increasing pressure on companies to take on more responsibility for their role in environmental impacts. The environmental criteria by which a company might be judged include its use of energy and water, how it uses raw materials and deals with its waste, and how it interacts with the natural world. There is progressively more law and regulation being made in this area, including mandatory reporting obligations. Businesses are responding to these obligations and to activist investors by setting climate change and other environmental targets against which they can be held to account. An ESG-related environmental investigation can differ from a ‘traditional’ environmental investigation[3] as the focus is not only on scientific and technical assessments of root cause and impact, but also on the company’s potential culpability, its actions and what can be inferred about its governance.
- Social: The reference to ‘social’ factors typically encompasses both the positive impacts businesses have on society and how companies remedy negative impacts or harms. The inclusion of the ‘S’ reflects the increased expectation of stakeholders to demonstrate that they have a positive impact on people and communities, and that action is taken to prevent, mitigate and remedy negative impacts on people. This stakeholder pressure, together with the serious reputational damage, financial loss, operational disruption and legal liability companies face if they are involved in human rights abuses, either directly or through their value chain, means that some companies are taking voluntary steps to reduce harm and negative impacts on people and their rights, increase positive impacts and report steps and outcomes on a voluntary basis. Mandatory reporting[4] and, potentially, due diligence obligations on workplace behaviours and culture, diversity and inclusion of the workforce, employee well-being and the accountability of executives drive further corporate change – and increasingly, high-profile employee whistleblowers hold employers to account when external disclosures do not match the lived experience at the organisation.[5] Fresh regulatory initiatives to protect employee well-being (e.g., the EU proposal for the ‘right to disconnect’,[6] and similar existing free-standing domestic legislation) may provide another basis on which employers might, in due course, be held to account.
- Governance: Governance factors determine, for example, how a business is controlled and overseen by its board and senior management, assesses and manages its risks, makes decisions, obtains and acts on staff feedback, remedies shortcomings and is structured. Of the three ESG factors, governance issues may seem less prominent, especially when set against the urgency of climate change or severe human rights abuses; however, a corporate’s environmental or social failures can often arise where good governance is lacking. Good governance factors can range from accurate and transparent company reporting, to employee engagement (including grievance and collective consultation mechanisms, and whistleblowing arrangements). Allegations of poor corporate governance[7] or of bribery and corruption underpin a number of high-profile ESG failings. Poor governance can also result in, or amplify, the effect of bribery and corruption failings or failings in a business’s supply chain, among other things. The quality of corporate governance not only has a bearing on whether incidents occur but also how effectively they are investigated and remedied.
Against this backdrop, there are many potential triggers for investigation – both internal and external. Salient examples include the following.
32.2.1 Environmental disasters
Events such as an oil spill or the collapse of a dam can trigger investigations into the adequacy of the risk management processes businesses put in place to prevent them or into disclosures made relating to the risk of environmental harm.[8]
32.2.2 Supply chain issues
The complexity and global nature of supply chains render them vulnerable to bribery and corruption, and human rights abuses, that often entail labour abuses, but can also include negative impacts on other human rights, including rights related to health, food, land or water.[9]
32.2.3 Displacement of communities
Many large-scale infrastructure projects displace communities. The social impact can be severe and can trigger huge pressure from non-governmental organisations (NGOs) and others to conduct investigations.
32.2.4 Discrimination, harassment and culture
Alleged incidents of workplace misconduct continue to trigger investigations. Poor culture in all or part of the business, including where employees feel unable to speak up, can manifest itself in many ways, such as in discriminatory behaviour[10] or sexual harassment allegations.[11]
For regulated entities in the financial sector, non-financial misconduct (and more broadly, a non-inclusive culture or environment) is increasingly seen as a failing by regulators. For example, in letters to remuneration committee chairs, the UK Financial Conduct Authority (FCA) has emphasised the importance of culture and accountability – and ESG – to incentivisation and rewards,[12] and the UK Financial Reporting Council has also published a guide entitled ‘Corporate Purpose and ESG’.[13] The FCA and the Prudential Regulation Authority are also expected to address non-financial misconduct (e.g., sexual harassment) in their forthcoming consultation paper on diversity and inclusion in financial services. The FCA has made it clear that culture remains central to its supervisory model and that it wants employees in financial services to feel they are psychologically safe to speak their minds and to raise concerns.[14]
32.2.5 Greenwashing
Investigations of allegations of greenwashing, namely the mis-selling or misstatement of the sustainability credentials of a company or its financial products or performance,[15] are on the rise. This has been the subject of growing regulatory scrutiny.
In the United Kingdom, the FCA opened its consultation on sustainability disclosure requirements and investment labels in October 2022.[16] While the final rules had been slated to be released in the first half of 2023, the FCA announced a delay in its publication owing to the volume of feedback received during the consultation.[17] The UK Competition and Markets Authority (CMA) published the Green Claims Code in September 2021, requiring companies to be able to substantiate any environmental claims they make about their products.[18] In January 2022, the CMA commenced a compliance review of environmental claims made in various sectors, starting with fashion retail.[19] The number of greenwashing-related complaints received and upheld by the UK Advertising Standards Authority and advertising regulators in other jurisdictions has also increased in recent years.[20]
In the United States, the Securities and Exchange Commission (SEC) formed a task force in March 2021 to proactively identify misstatements in ESG disclosures by public companies and investment managers, and announced three sets of proposed rules and disclosure requirements in the first half of 2022, furthering anticipated enforcement in this space.[21] The SEC’s final climate disclosure rules were expected to be finalised in late 2023.[22] Unsubstantiated claims regarding the nature of ESG-focused funds are of interest to regulators because many charge substantially more in fees and other costs than non-ESG funds, and financial institutions offering such funds are increasingly subject to scrutiny leading to investigations and fines.[23] In Australia, the Australian Securities and Investment Commission has likewise announced a stronger enforcement focus on climate risk disclosure and has started to commence legal proceedings against funds and financial institutions.[24]
32.3 Legal and regulatory frameworks
As with any investigation, a key step is ascertaining the standards against which the subject matter will be assessed. These can be particularly complex in the ESG sphere. While there will be clear legal obligations engaged in some investigations, in others, companies may need to look at both ‘soft’ and ‘hard’ law commitments. Although not legally binding, soft law is typically prominent in the design and execution of ESG investigations, as companies seek to demonstrate not only strict compliance with law or regulation, but also transparency and a more comprehensive understanding of ESG issues. Internal standards (including corporate policies and procedures), and the company’s external statements and disclosures, may also be relevant benchmarks in investigations (and reputational management may need to be employed).
In some areas, such as human rights, there is a relatively advanced benchmarking framework for companies – against which knowledgeable stakeholders will also expect a company to assess its conduct. In other areas, the applicable standards will be less clear: the company will need to come to a view on what frameworks it will apply, while considering the likely expectations of stakeholders (particularly where corporate standards have been publicly expressed). This lack of clarity, and the potential for a mismatch in expectations, makes ESG investigations particularly challenging.
32.3.1 Hard law
A vast amount of domestic legislation and regulation has underpinned each of the ESG pillars for several decades. For example, the broad frameworks underpinning environmental protection in the United Kingdom are well established.[25]
Further legislation and regulation focused on corporate involvement in ESG issues has been developing on both sides of the Atlantic.
- In the United Kingdom, this includes a duty on directors to promote the success of the company, including by having regard to a series of factors promoting ESG objectives.[26] In December 2020, the FCA introduced a rule requiring premium listed commercial companies to make disclosures consistent with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD – see further below), or explain why they are not able to do so. This requirement was further extended to standard listed companies in December 2021.[27] The FCA has further indicated its intention to update these climate-related disclosure rules to draw on the International Sustainability Standards Board (ISSB – see further below) standards.[28] In April 2022, regulations came into force extending mandatory climate-related financial disclosure reporting aligned with the TCFD framework to certain larger companies and limited liability partnerships.[29] As regulators respond to investor and consumer concerns regarding good governance, a number of corporate obligations have been, or are expected to be, implemented, including individual accountability regimes, such as the Senior Managers and Certification Regime for certain regulated entities in the United Kingdom, under which the regulator expects ‘firms to have clear roles and responsibilities for the board and its relevant sub-committees in managing the risk from climate change’.[30]
- In the United States, regulations are used at both the federal level and the state level, such as the Californian legislation requiring companies to disclose the extent of their due diligence with respect to human trafficking and slavery in their supply chains.[31] Other rules prohibit the importation of certain products made using forced labour in its supply chains, thereby necessitating that companies undertake appropriate due diligence to ensure compliance with these rules. For instance, the Tariff Act of 1930 (as amended by the Trade Facilitation and Trade Enforcement Act of 2015) empowers US Customs and Border Protection to detain imports of goods when information reasonably indicates that they were made with forced labour.[32] The Uyghur Forced Labor Prevention Act (UFLPA) meanwhile creates a rebuttable presumption prohibiting the importation of goods mined, produced or manufactured in Xinjiang, China, or by entities on the UFLPA Entity List.[33]
To comply with these requirements, companies may need to carry out investigations, for example, to identify whether the company is involved in negative human rights impacts or as part of its due diligence to assess its environmental impacts. Moreover, the company may, during the course of preparing to comply with reporting requirements, identify that it has failed to properly disclose on ESG matters. This, in turn, may trigger an investigation into the failure to have proper processes in place or, in some cases, the need to report the decision, progress or outcome of an ESG investigation under the applicable rules.
32.3.2 Soft law
Soft law standards and principles provide a framework for companies seeking to advance their ESG credentials. There are two broad categories that are most likely to be relevant when conducting an ESG investigation: consensus-based international standards and principles, and voluntary standards and principles.
32.3.2.1 International standards and principles
The most notable of the consensus-based international standards and principles are the UN Guiding Principles on Business and Human Rights (UNGPs). The UNGPs detail processes known collectively as human rights due diligence, which involves a company taking steps to identify, prevent, mitigate and account for how it addresses its potential or actual adverse human rights impacts, as well as processes to enable remediation of impacts the company has caused or contributed to. These processes have been applied beyond human rights, being incorporated in the Organisation for Economic Co-operation and Development Guidelines for Multinational Enterprises (OECD Guidelines), for example, which prescribe a due diligence approach applicable in all areas where businesses can be expected to act responsibly (for example, the environment). In June 2023, the OECD Guidelines were updated to include a chapter dealing specifically with the environment and containing guidance in relation to steps companies should take to manage environmental impacts.[34] Those carrying out ESG-related investigations increasingly consider whether the key precepts of the UNGPs and OECD Guidelines have been met in the conduct being investigated.
Further, the International Financial Reporting Standards Foundation’s (IFRS) global ESG reporting standard was issued by the International Sustainability Standards Board in June 2023. IFRS S1 contains disclosure requirements in relation to companies’ sustainability-related risks and opportunities, while IFRS S2 deals with climate-related risks and is to be used in conjunction with IFRS S1.[35] The IFRS has further published a comparison between IFRS S2 and the TCFD, which concludes that the IFRS S2 requirements satisfy those of the TCFD.[36] The IFRS plans to produce further standards on additional sustainability topics in due course.
Ultimately these international standards will need to be adopted in domestic law by jurisdictions or be a voluntary standard that companies adhere to alongside any mandatory regulatory reporting. For example, the UK government has announced its intention to create the UK Sustainability Disclosure Standards, which will use the IFRS as a baseline.[37]
32.3.2.2 Voluntary standards and principles
Prominent voluntary ESG regimes at an international level include the Sustainability Accounting Standards Board and the Global Reporting Initiative (GRI). GRI is an independent organisation based in the Netherlands aiming to provide a common language for organisations seeking to communicate their ESG impacts. It creates accountability by allowing investors to see whether companies are enacting environmental conduct standards. Companies volunteer to be held accountable to evidence their good ESG practices.
There has also been a proliferation of standards relating specifically to the reporting of greenhouse gas emissions, such as the Greenhouse Gas Protocol, and the TCFD. Created in 2015 by the Financial Stability Board, the TCFD has developed a framework to help public companies more effectively disclose climate-related risks and opportunities through their existing disclosure processes. The TCFD sets out a reporting framework based on a set of consistent disclosure recommendations for use by companies to make their climate-related disclosures more transparent and comparable, covering four different categories: governance, strategy, risk management, and metrics and targets. An analogous market-led initiative, the Task Force on Nature-related Financial Disclosures, has developed a risk management and disclosure framework on nature-related risks and opportunities drawing on the TCFD approach.[38]
Specific jurisdictional standards and principles, such as the UK Corporate Governance Code, may also apply. The FCA requires all companies with a UK premium equity shares listing to annually report on their application of the Code – on a ‘comply or explain’ basis, which includes setting out where they have not applied it – effectively making it part of company law for those entities. These rules have been overhauled to include fresh targets for board diversity – seen as a core indicator of a healthy corporate culture from an ESG perspective – and further revisions to reflect expanded ESG and sustainability reporting proposed by the Financial Reporting Council (FRC) in July 2022.[39] A consultation was launched by the FRC in 2023, proposing to further strengthen certain areas, including the role of the board and audit committee in ESG reporting. Private companies are encouraged to apply the Code, but do not have the same reporting requirement.
ESG-related voluntary standards and principles can also be industry or sector-specific. For example, there are several financial sector voluntary initiatives, such as the Equator Principles, the UN Environment Programme Finance Initiative/UN Global Compact Principles for Responsible Banking and the UN Principles for Responsible Investing for investment managers and other investors. Similarly, the extractives industry is encouraged to look to standards, including the Extractive Industries Transparency Initiative, the Responsible Gold Mining Principles and the International Council on Mining and Metals 10 Sustainable Development Principles. In some situations, companies will need to apply standards and principles as part of a commercial relationship; for example, clients of the International Finance Corporation (IFC) are required to uphold the IFC Performance Standards.
Companies subject to an ESG-related investigation should review their adherence to any voluntary standards and principles that they claim to follow, to monitor and protect the integrity of their ESG commitments.
32.3.3 Corporate standards
In addition to hard and soft law obligations, corporate standards – policies, procedures, codes of conduct and values – are essential benchmarks for an ESG-related investigation. This is particularly the case where a company makes public its ESG commitments, indicating to stakeholders that these are the standards to which it will hold itself, its employees and its business partners.
An ESG-related investigation will frequently find that corporate standards, and systems and controls to meet them, are part of the problem. In all ESG-related investigations, but particularly those where governance is found lacking, there is likely to be the need to feed back into the business the conclusions of the investigation and actions for putting in place more robust corporate standards – and ensuring compliance with and effective monitoring of those standards – to address investigation findings.
32.4 Particularities of ESG-related investigations
The considerations relevant to traditional investigation as to the scope, claims to privilege, resourcing, available expertise, governance, engagement with relevant regulators and law enforcement, engagement with stakeholders, etc., also apply in ESG-related investigations; however, ESG investigations raise a number of additional considerations and challenges, some of which are set out below.
32.4.1 Triggers
Many of the triggers for ESG investigations, such as customer complaints, employees escalating concerns, employee surveys, whistleblowing reports, reviews by internal compliance or audit functions, or questions from regulators are common in any investigation; however, in ESG-related investigations, the range of stakeholders almost always extends further, and the ways issues can come to the fore are generally more varied. Numerous NGOs, consumer and employee groups, and the media have been actively exposing companies on ESG matters for some years, and investors, regulators, governments and policymakers now frequently join those stakeholders in applying pressure on companies facing ESG issues. Triggers may include enquiries by NGOs, internal leaks to NGOs or the press and political pressure. These triggers are less easy to predict and monitor, and companies may find themselves more at risk of being blindsided by the discovery of an ESG issue and under more pressure to provide a swift response.
In such circumstances, companies should ensure that they counter this with an effective communications strategy at an early stage. This may be part of a wider crisis management strategy in the context of significant matters – but in almost all ESG investigations circumstances will be relevant. Scoping is always important in the management of any investigation, but the scrutiny will likely be greater when considering whether it is appropriate for the company to investigate a particular ESG incident or to undertake a wider investigation (e.g., where a harassment incident indicates a more systemic cultural problem). An ill-advised press release that overpromises on the investigation may cause the company to lose control of the scope and set it up to disappoint stakeholders from the outset.
32.4.2 Investigator expertise and independence
The many and varied stakeholders involved in ESG-related investigations may take a keen interest in not only the outcome and findings of the investigation but also its approach and conduct.
ESG expertise is growing within companies, but for those lacking the resources of large institutions, it may be necessary to bring in specialists in the ESG issues at play alongside others experienced in conducting investigations. Inadequate expertise or insufficient resources will undermine the investigation’s credibility.
Independence can be particularly important in ESG investigations, which often deal with sensitive issues, and any real or perceived conflict of interest may cast doubt on the investigation’s integrity. Different degrees of independence may be implemented, from conducting the investigation internally with external legal advice, to instructing external counsel or another third party to lead the investigation. Whatever the approach, companies should be cautious in responding in the immediate aftermath of an ESG incident with a press release announcing a fully independent investigation. A stakeholder’s interpretation of ‘independent’ in this context might translate as an expectation that the investigation will be wholly conducted by a third party with no existing relationship, or likely future relationship, with the company or its investors. Where this is not case (e.g., when the investigation is a collaboration between the company and its external counsel),[40] it is important to be clear about the approach to ‘independence’ to avoid misleading engaged stakeholders.
32.4.3 Transparency, privilege and reporting
Companies may face pressure to be transparent about processes and their effectiveness to ensure accountability. There could be tensions between these considerations and legal risks for the business. Companies will often make – and be expected by stakeholders to make – transparency commitments, which might include, in an ESG-related investigation, the publication of findings, such as a written report. Transparency commitments may also be enshrined in law, with some jurisdictions requiring a degree of reporting on non-financial issues.
This may have implications for the company’s ability to claim legal privilege over documents produced as part of the investigation. A company intending to have the benefit of legal privilege will need to set up the investigation team according to the requirements of the relevant jurisdictions; however, while for internal investigations there are usually alternatives to publishing formal reports in order not to waive privilege (such as providing oral updates on factual findings), this may be insufficient to adequately respond to the various stakeholders in an ESG investigation, who may expect a written report. Companies often make reports on ESG issues publicly available as a result.[41] Companies will want to consider this at the outset of any investigation and not assume that materials produced along the way will necessarily be withheld from publication at a later stage.
32.4.4 Stakeholder engagement
Traditional investigations tend to be inward-looking and largely focus on the conduct and the consequential risks to the company. They often involve determining whether breaches or failings have occurred and identifying responsible parties. ESG-related investigations focus not only on business risk but also on risk to external parties affected by the conduct under investigation. Where there are external ‘rights holders’,[42] this will likely mean more engagement with potential victims, local communities, NGOs and others whose rights may be affected, or who speak for those affected, by the relevant issues.
ESG investigations can touch on matters that make stakeholder engagement very challenging. Investigations looking at possible infringements of human rights or environmental disasters will involve dealing with potential victims, and often whole communities, who have been deeply affected. Political tensions might also arise; for example, state-sponsored human rights abuses (e.g., in relation to forced labour) mean that a company with operations in certain jurisdictions can be at risk if it does not navigate an investigation carefully. Given these sensitivities, stakeholder engagement is a touchstone for each step of an ESG investigation. Engagement should be built into the investigation plan, and extensive interaction with external stakeholders such as rights holders and NGOs may be required.
Companies also need to understand that the existence of readily identifiable victims, rights holders and whistleblowers can change the dynamics of the investigation, and this frequently occurs in ESG investigations. Their rights will need to be carefully handled, including in interviews. This may involve a balancing of requests for anonymity and data protection issues against the need to put allegations to implicated parties and report to stakeholders.
32.4.5 Heightened business risk
Traditionally, most corporate investigations will carry reputational, financial, operational and legal risk for the company. ESG-related investigations are no different, but typically those risks can be easily heightened.
- Reputational risk: An ESG investigation that is not properly handled can result in a good reputation built up over many years being lost overnight.[43] Investors and wider society increasingly expect ESG factors to be taken into account by companies to guide governance, decision-making and strategy as part of responsible business conduct. Recent years have seen a rise in activist shareholders proposing or supporting resolutions requiring companies to adopt gold standards on ESG issues, or pushing for changes in corporate governance, as well as publishing score cards comparing companies’ ESG performance. These actions are often supported by consumers and NGOs, who may also call for boycotts, generate negative publicity through campaigning on ESG issues or put pressure on regulators to intervene and investigate allegations of ESG failures.
- Financial risk: As investors increasingly focus on, and publicly commit to, evaluating their holdings based on ESG criteria, failure to properly investigate and remediate ESG issues can deter investors, resulting in lower market capitalisation and access to capital. This is illustrated, for example, by studies in which a positive correlation was found between market capitalisation and the quality of a company’s ESG reporting.[44]
- Operational risk: Clearly, ESG incidents can lead to business interruption for the company or its supply chains. Where a misconducted investigation further damages a company’s relationships with stakeholders, such as local communities, this may, for example, have implications for local recruitment, or amplify the risk that groups take action to interrupt company business.
- Legal risk: While follow-on litigation and regulatory enforcement is a very real risk following many investigations, ESG issues attract a lot of attention. Increasing political and societal interest means additional prominence of ESG incidents in the media; there has been a rise in shareholder activism and NGO use of litigation to seek corporate accountability;[45] claimant firms and funders are active in the space; and regulators will likely feel they need to be seen to be taking action. To take climate change as an example, in recent years shareholders have pursued claims for failure to adequately report climate change risks, as well as for breach of directors’ fiduciary duties to take the risks seriously in their decision-making. NGOs bring strategic claims for ESG failures,[46] as well as supporting alleged victims in bringing claims. This can have knock-on effects beyond mere legal risk, as demonstrated by a recent paper published by the Grantham Research Institute on Climate Change and the Environment, which found that climate litigation generally had a negative impact on firm value, thereby also giving rise to financial risk.[47] Businesses have faced increasing litigation in respect of non-financial misconduct, in particular harassment and discrimination allegations in the wake of #MeToo and Black Lives Matter. Increased claims by employee whistleblowers alleging that they have been subjected to a detriment or dismissal as a result of an ESG-type disclosure (for example, that a company is greenwashing products) are anticipated. Key to mitigating legal risk is to consider it from the outset, including awareness that the content of the investigation might feed, and be disclosed in, claims or enforcement actions in the future. Clear boundaries on the information produced and to whom it is circulated during the investigation will assist in containing material produced, as will communications protocols giving those privy to relevant information guidance on what communications are and are not appropriate.
While control over the external environment to mitigate the risk is more difficult, companies can take steps in advance of an incident occurring to encourage employees to raise issues internally before they escalate into business risk or are leaked to shareholders, the media or NGOs: promoting a strong internal ‘speak up’ culture; having efficient grievance and whistleblowing processes; engaging with staff at all levels; monitoring the effectiveness and outcomes of grievance processes; and appointing a non-executive or supervisory director with responsibility for engagement on these issues. Once the investigation starts, regular engagement with stakeholders will be important to try to minimise any dissatisfaction with the outcome and the likelihood of stakeholders needing to resort to other mechanisms, such as the courts, to seek remedy and redress.
32.4.6 Remediation
It is important from a governance and stakeholder engagement perspective to track recommendations and actions arising as the investigation progresses. But consideration of remediation is not something that can be left to the end of an ESG-related investigation. While remediation follows many investigations, the sensitivity and high-profile nature of ESG issues mean that there will likely be a very strong expectation that an ESG-related investigation considers remediation as part of its recommendations, and so the thinking on remediation will need to be progressed alongside the investigation.
This is particularly the case with societal issues, where frameworks such as the UNGPs require businesses to offer or participate in remediation where they have caused or contributed to adverse human rights impacts. Under such frameworks, regardless of whether businesses have caused or contributed to negative impacts, they are expected to design and implement grievance mechanisms and reporting channels to facilitate prompt and effective identification and resolution of potential future issues, as well as mechanisms to evaluate their own performance in this regard. Moreover, what constitutes remediation is, in the context of ESG incidents, broader than simply monetary compensation, and can include apologies, restitution, rehabilitation, injunctive relief and guarantees to guard against repeat instances in the future. In some cases, remediation may include disciplinary sanctions, which must be handled sensitively and appropriately to balance appropriate investigatory action with employment law requirements to mitigate future risk.
Some ESG issues may not be quickly remedied, and statements around remediation need to be realistic; failure to act on commitments could result in further scrutiny or criticism. Similarly, remediation may require actions by third parties (for example, within the supply chain), where practicalities and contractual arrangements may hinder swift remediation.
Courtesy : https://globalinvestigationsreview.com/guide/the-practitioners-guide-global-investigations/2024/article/environmental-social-governance-investigations
