Sustainability: compliance with ESG criteria can safeguard companies from creditor insolvencies

Marta Sagalá, Senior Associate at RocaJunyent, has written the following article published in El Jurista diary about how institutional and private investors are increasingly demanding that companies comply with certain ESG criteria in order to access investment, even limiting, and even preventing, financing options if they do not comply with certain standards.

Failure to comply with ESG criteria can expose the company to legal and regulatory risks. In particular, non-compliance with environmental and occupational safety standards, for example, can lead to substantial fines and penalties.

Likewise, lack of transparency among shareholders and third parties can erode confidence in the market, with the usual consequences that can result, such as loss of talent, supplier contracting, customers, access to credit, etc.

All of this, in addition to damaging the company's image, can compromise its economic and financial situation, undermining its viability, and may even lead to its insolvency, with its administrator and even its general manager being responsible for all of this.

Although the Consolidated Text of the Insolvency Act does not include non-compliance with the ESG criteria as a cause of guilt, the fact is that this could be understood as mismanagement by its administrative body, which could be included in the presumption of guilt provided for in Art. 442 TRLC, which stipulates that ‘the insolvency proceedings will be classified as culpable when in the generation or aggravation of the state of insolvency there has been fraud or serious misconduct by the debtor, or if so by its legal representatives and, in the case of a legal entity, by its administrators or liquidators, de jure or de facto, general directors, and by those who, within the two years prior to the date of the declaration of insolvency proceedings, have held any of these conditions’.

Specifically, imprudent or careless conduct on the part of the management body in the observance and application of ESG standards could well result in gross negligence, which could give rise to bankruptcy liability if, as a result, the insolvency of the company has been generated or aggravated.

For all these reasons, as the management body is the most responsible body of a company, it is vital that it becomes aware of the new duty that it is required to fulfil, i.e. to ensure sustainability through the application of ESG criteria, both to guarantee the viability of its business and to avoid possible liabilities.

Access to the full article  (available in Spanish)