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Organisational mediation as an ESG tool

Sustainability is one of the most pressing social and legal issues of our time. Companies can no longer be satisfied with projects that sound good from a marketing point of view. The EU objective is to look much more deeply into the sustainable performance of companies and to make it more transparent and comparable between companies in the same field. Large companies already have legal obligations in this respect for this year. It is a cross-cutting issue, including HR issues and, in principle, issues such as conflict management in the workplace. On closer examination, there are many similarities between the sustainability approach and organisational mediation. By Henrietta Hanyu and Roland Kölcsey-Rieden, lawyers (COLAW Lawyers Association).

Mediáció ESG Colaw Ügyvédi Társulás-

1. What is ESG and why should we talk about it?

The concept of sustainability was introduced years ago in the context of environmental protection and climate change, and it is no longer a topic that companies can ignore. Lately, we have been seeing more and more abbreviations such as ESG, CSR, or NFR, all of which are somehow related to the sustainable operation of companies.

The best known of these is perhaps ESG, which stands for environment, social and governance, and which is really about how sustainably a business operates and what it does to minimise the environmental damage and the negative impact on society. In order to collect this information, assess it and facilitate comparability, the European Union has established various reporting and screening obligations for companies. These have been transposed into national law and detailed rules for implementation are currently being developed.

It is important to stress that ESG is about much more than environmental protection or social responsibility. By the latter, companies have so far mostly meant projects such as renovating a nearby playground or painting the fence of a kindergarten. But ESG is a much more complex and new approach, with the expectation of getting a more realistic picture of how companies operate, how sustainable they are and what they are doing to be sustainable.

Although this topic was originally conceived from the perspective of capital markets and investment, ESG - in particular the social and governance dimensions - goes beyond the financial aspects to include issues such as the impact of a company on society and people, the extent to which its business strategy respects fundamental human rights and the interests of those who come into contact with it


2. ESG as a new approach: the importance of sustainability in employment

The operation of companies most directly affects the people they employ, so even if it may not seem obvious at first glance, the topic also involves HR issues. Sustainable operations also imply that companies treat their workers well and sustainably, and that they also work with suppliers who operate to similar standards, respect human and workers' rights, and do not, for example, use child labour or exploit their workers for rapid growth and profit maximisation. If you think about it, this approach requires companies, like other resources, not to exploit labour in the short term, but to think in terms of long-term cooperation, which, to be truly workable, must be mutually beneficial for both parties. As a minimum, employers must comply with employment legislation, with particular emphasis on, for example, occupational health and safety, recognising that it is in their common interest to protect and preserve the physical and mental health of workers and thus maintain their long-term fitness for work.

Good long-term cooperation also requires employers to take into account the legitimate interests of workers in their decisions. Emotional needs cannot be neglected in this context either. Wage increases and benefits are no substitute for treating employees fairly, treating them as partners in different workplace situations and having an influence on decisions that affect them. These can significantly increase the employees' sense of security, well-being and satisfaction, thus helping to maintain good relations and working relationships.

3. Organisational mediation as an ESG tool

Employers therefore need to rethink their HR policies in order to comply with the ESG criteria. To do this, an important question to ask is what risks they face in terms of sustainable employment, the sustainability of employment relations, and what measures they can take to minimise them.

One such risk factor is the psychosocial strain on workers in the context of their work, which is becoming an increasingly significant factor as the nature of work changes, e.g. with the spread of screen-based work and teleworking. Perhaps less well known, psychosocial risks also include conflict. Everyone is well aware that conflict is a fact of life and that there is no organisation in which there is no open or hidden conflict. Anyone who has ever been in any kind of conflict knows how emotionally draining it can be to be involved in conflict and how much valuable time and energy it takes to deal with conflict, not to mention the damage that conflict stress can do to health.

Employers have both a legal duty and a responsibility to recognise conflict in the workplace and to take steps to prevent and mitigate its harmful effects. If we approach this obligation from the perspective of sustainability, it is easy to see that the means of dealing with conflicts are not the same. Indeed, if we operate our organisation according to the ESG perspective, we need to find a conflict management method with a toolbox compatible with this ethos and which is fundamentally focused on maintaining the working relationship and building workplace relationships to manage disagreements.

When comparing the theoretical foundations of the sustainability approach and the characteristics of mediation, many parallels can be drawn. Mediation (also known as mediation) is an alternative dispute resolution process based on democratic principles, whereby an independent, impartial third party, the mediator, helps the parties to resolve their conflicts and disputes in a way that is acceptable to all.A parallel with the sustainability approach is that the aim of mediation is also essentially to improve and maintain the relationship between the parties. In the process of conflict resolution, it is important to identify interests and needs and to help the parties to find mutually beneficial solutions to resolve their dispute so that their agreement is genuinely workable, enforceable and sustainable in the long term. In mediation, it is also important to show mutual respect, to listen to each other, to treat each other fairly, to treat each other as equal partners, and to empower each party to influence the issues that affect them, to take control of the solution, and of course to take responsibility for it.

In our view, the ESG approach requires that companies should seek constructive and long-term solutions to workplace conflicts, rather than forceful solutions, disciplinary measures or litigation, and that they should choose a conflict management method that is in line with this approach, such as organisational mediation.

4. What can we do to meet sustainability requirements?

The above shows the complexity of the issue and the fact that the transition to sustainability requires a fundamental change of mindset and thorough preparation. Employment issues, including occupational health and safety and conflict management, are only a small part of sustainable operations, but operating in accordance with ESG requires companies to analyse sustainability issues in such depth and to align their corporate policies with these principles and values. From an ESG perspective, it is also key that, beyond data collection and reporting, companies' actual operations reflect a sustainability approach. We believe that, for example, an important indicator of this will be how a company manages conflicts within the organisation, as well as whether it has employee representation and treats employees as partners. Companies that are genuinely committed to sustainability need to give real substance to these issues. This can be a stepping stone that differentiates a company from formally ESG-compliant competitors.

Both the complexity of the topic, but also the specific legal obligations and deadlines, justify that it should be addressed in more depth by company executives and HR managers now. Due diligence and related reporting for businesses of all sizes will be phased in from 2025, and importantly it is not limited to a single company but will affect the entire supply chain, meaning that sooner or later almost all companies will encounter ESG and related obligations in some capacity. It is therefore worth being prepared as soon as possible.

The information contained in this article is for information purposes only and reflects the professional opinion of the authors. The article deals with the subject matter in a non-exhaustive manner for the purpose of raising awareness and does not constitute legal advice.

Hanyu Henrietta and Kölcsey-Rieden Roland, COLAW Lawyers Association

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