Reflecting on anti-corruption, environmental protection, and reasons to be optimistic about the ESG buzz
The buzzwords “Environmental, Social, and Governance” (ESG) have taken on renewed energy of late, stirring hope in some and scepticism in others. The ESG umbrella covers a very wide range of themes, including one that has been core to FRA since our founding – anti-corruption. Anti-corruption is a key part of any honest conversation on good corporate governance, and we wanted to expand that conversation to learn more about corruption’s ultimate connection to and impact on environmental and social concerns.
FRA’s Women’s Network recently invited a small group of colleagues and clients in London to a virtual conversation with investigative journalist Clare Rewcastle Brown. Best known for her uncovering of the 1MDB scandal, Clare walked us through the roots of her investigation, which in fact stemmed from her efforts to protect the forest and indigenous communities in her birthplace of Sarawak, Malaysia. Our conversation led us to reflect on three reasons to be positive about the direction of today’s ESG buzz.
1. More Clarity
Businesses need clarity to understand what is required of them and where they fall short in order to address ESG-related risks within their operations and in their supply chains. As ESG metrics standardisation starts to mature, these metrics will provide companies with greater clarity on risks and areas to focus on, as well as a mechanism for benchmarking its own efforts.
2. Better Transparency and Incentives
The more large corporations are exposed to higher reputational and compliance risks relating to ESG concerns – e.g. stemming from global supply chains, business networks, customer reach – the more they will be incentivised to implement proper controls and reporting to demonstrate compliance. For example, companies in the logging business are now encouraged to contribute to the wellbeing of the indigenous communities displaced as a result of the logging activities and also to plant new trees in areas where they have been felled.
3. Intensifying Regulatory Scrutiny and Enforcement
Institutions that fail to take action or become unwitting facilitators of non-compliant activities will also find themselves under the spotlight as scrutiny and enforcement intensify. Financial institutions can play a part by evaluating potential ESG concerns when financing businesses. Financial crime compliance teams should familiarise themselves with common red flags indicative of such activities, and take into consideration the impact of activities such as the illegal logging trade and human rights abuse as part of their KYC procedures.
Clare’s journey from the forests of Sarawak to what became one of the world’s largest anti-corruption enforcement matters is a concrete example of how the diverse issues that fall under the ESG umbrella are truly integrated with our fight against white collar crime and corruption. We know first-hand the increasingly complex web of financial and non-financial risks our clients face, and our conversation with Clare was a useful reminder of the opportunity we have as advisors to help companies effect positive change.
FRA associate Ken Hui contributed to the research for this event and blog post.