Risk management and ESG: Conflict management

Section 99a of the Danish Financial Statements Act stipulates that companies in accounting classes C and D must account for their social responsibility in their annual reports. The requirements and demand for such reporting of non-financial ratios is a trend that is evolving rapidly. Both investors and analysts are increasingly demanding these figures. Reporting of ESG key figures is therefore not only a regulatory issue but is increasingly a commercial issue that companies should focus on and be at the forefront of. In that way, the company will be attractive in the market, taking into account the key figures in its risk management.

In addition to companies and authorities, the increased focus on ESG key figures is also seen among consumers where the sustainability of products and companies is high on the agenda.

The increased focus means for companies that greater accuracy and transparency must be demonstrated when reporting and using ESG key figures in a marketing context as the figures may be of crucial importance for business with customers and business partners. The discrepancy in the figures or the information behind may entail a significant risk of claims and sanctions from customers, business partners, or competitors. Companies should take such ESG key figure risks into account in their internal risk assessment and in their contracts and other documents originating from the company, just as any regulatory factors should be included in the company's own risk assessment.

Under the Companies Act, company management has a duty to identify significant risks in the company's operations. The management should therefore be aware of the increased risk associated with the use of ESG key figures as the management may incur personal liability for failure to identify and properly handle these key figures.

The increased relevance of ESG key figures may result in an opportunity for companies to profit from their sustainability. However, it also entails a risk for the company and its management in the event of a discrepancy between the information provided and the actual figures. Managing such risks in the company's operations has become part of the management's risk assessment.

Companies should therefore have a special focus on ESG key figures both internally and externally in relation to reporting, and in terms of living up to business partners' and customers’ expectations.

At Lundgrens' litigation department, our assistance includes identifying and regulating risks when using ESG key figures, as well as assisting with dispute resolution with customers, business partners, and authorities.