ESG compliance as a central component of your corporate strategy
"ESG", an acronym for Environmental, Social, and Corporate Governance, refers to ethical guidelines and legal requirements that contribute to the sustainable development of companies and the economy. Compliance with these requirements, some of which are new, but also a focus on which existing regulations are fulfilled, is a basic prerequisite for companies to continue to be successful on the market. The actual implementation requires numerous individual measures, which are the responsibility of the management as strategic management decisions.
However, it is important to note that compliance with these ethical guidelines and legal requirements alone is not enough. Although the strategic implementation of these measures by the management forms the foundation for long-term market success, there is another important aspect that must be taken into account: public perception and social acceptance of corporate actions.
Impact of ESG on corporate reputation
Despite legally compliant behavior, companies can become the focus of public criticism if their actions are perceived as socially undesirable. This discrepancy between legal compliance and social expectation can lead to considerable financial losses, including reputational damage and competitive disadvantages. A striking example of such reputational damage is the luxury brand "Lululemon". It suffered a serious loss of image after problematic aspects of the Canadian brand's corporate culture were uncovered in a report in the Business of Fashion. Fourteen employees described a culture that does not welcome black people and minorities and reported the racial discrimination they had experienced. The call to boycott the brand on social media followed, which means that "Lululemon" will presumably have to make considerable marketing efforts and invest a lot of money to repair the damage. This and many other examples show that consumers increasingly expect companies to take a clear stance on social and environmental issues. A mere commitment to certain values is no longer enough! In value-oriented corporate management, corresponding actions by the company must be made visible. In addition, more and more companies are demanding that their contractual partners demonstrably disclose their compliance with ESG standards and legal requirements. Companies that do not meet or comply with these expectations risk long-term competitive disadvantages, loss of assets and the loss of customers and business partners. Failure to comply with ESG commitments can even lead to sanctions such as claims for damages, contractual penalties or contract terminations.
Liability risks
In connection with ESG, many companies are asking themselves the same question: What responsibility does the management have, to ensure that the company complies with ESG standards and what are the potential liability risks? The management or Executive Board is obliged to manage the company and protect it from harm. This includes the duty of legality, where it must be ensured that the company is organized and monitored in such a way that no violations of the law occur. Should violations of the law nevertheless occur due to faulty organization or inadequate monitoring on the part of the management, the latter is personally liable for the resulting financial losses. Liability is in accordance with the applicable regulations, such as § 43 GmbHG for GmbH managing directors or § 93 AktG for management boards of stock corporations.
ESG-Management: Fulfilling organizational and monitoring obligations transparently
In order to reduce liability risks, a holistic ESG strategy is required that includes clearly defined sustainability goals and strategies in line with the company's overall strategy To successfully manage ESG issues, companies need an appropriate and efficient organization at both Group and company level.
It is crucial that the management fulfils its organizational and monitoring duties in a transparent and verifiable manner. Precise documentation of decision-making processes with the help of digital tools is crucial for managing directors to adequately meet their burden of presentation and proof. It is also important to define clear responsibilities and establish corresponding task and role descriptions. Furthermore, tasks in the area of ESG should be delegated transparently, whereby attention must be paid to ensuring sufficient expertise in the departments.
Compliance management systems (CMS) are used as key instruments here. The German Corporate Governance Code (GCGC) sets standards for exemplary corporate governance and recommends that listed companies set up such systems. While conventional CMS are primarily geared towards the prevention of fraud, corruption, money laundering and insider trading, ESG issues should also be given appropriate consideration, as non-ESG-compliant behavior can cause considerable damage.
Conclusion
It is important to recognize that ESG compliance goes far beyond ideological lip service. Companies are increasingly being pressured by customers and business partners to comply with ethical standards, as violations can have serious consequences, even if they are not illegal. Managing directors of all types of companies are faced with the permanent task of implementing and monitoring the constantly growing ESG requirements. Continuous monitoring of their own compliance status and adherence to all legal regulations relevant to the company is essential. This is the only way to constantly monitor and ensure the company's legal security. Failure on the part of the management to take appropriate ESG measures entails the risk of personal liability for financial losses incurred by the company in the event of damage. However, the impact on the company's own reputation and that of the company should not be underestimated either.
Quelle: Handelsblatt: https://live.handelsblatt.com/haftung-der-geschaeftsleitung-fuer-esg-compliance/
Your contact
Do you have any questions about our consulting services or our compliance management software Eticor? We look forward to your message or call.
Project Manager Sales
Referentin Lieferkettenrecht
Legal Compliance Expert
