Environmental Social and

Governance Perspectives
Implications for compliance professionals
Foreword
The meteoric rise of ESG – environmental, surprisingly, has accelerated these concerns,
social and governance – requirements within and as 2022 gets underway in earnest, it is
businesses is arguably without parallel in exciting to anticipate the impact of ESG within
recent history. Seldom has an issue so rapidly firms over the next twelve months.
ascended to the summit of boardroom
agendas. What is clear is that any organisation that
spurns the chance to include ESG factors
And, if regulatory expectations are anything to into risk assessments (or fails to use them as
go by, ESG is in no danger of disappearing any competitive advantage) is not only behind the
time soon. curve but also, as our contributors explain,
exposing themselves to an unnecessary degree
Those expectations, however – though outlined of uncertainty and risk.
by legislators and regulators, and discussed
within many industries – derive not from the Identifying risks and opportunities goes to the
boardroom but from the general public. It is heart of what ESG is all about. For compliance,
those individuals and groups that have given it is about harnessing the potential of ESG to
voice to concerns around ESG issues that not only protect the business but provide a
represent the catalyst for change. healthy platform for growth. ESG is the latest
and perhaps most potent tool at compliance’s
What is most striking about the rise of ESG is disposal; something that can truly illustrate how
just how quickly political, public, regulatory and compliance is a function that enables a business
organisational priorities can shift. In its former to flourish, while remaining alert to any threats
guise as corporate social responsibility, it would that could jeopardise its success.
be fair to say that, for most firms, it was not the
number one concern. This is no longer the case The following contributions reveal why ESG is
today, and its growth should act as an example so important, unpack the ways in which firms
of why it is so vital to stay abreast of industry can harness its potential and examine the
and societal developments. pitfalls of neglecting it. At its heart, ESG is about
openness, transparency, responsibility and
ESG’s rise mirrors the emergence of several doing the right thing. It is also about ensuring
divergent strands that have made headlines a firm is in the best possible position going
over the last five years – climate change, forward. All of these factors should strike a
social justice, diversity and inclusion, culture, chord with anyone looking to steer a business in
sustainability. The pandemic, perhaps the right direction.

Pekka Dare Rhodri Kettle

Vice President Global Lead, GRC
International Compliance Association International Compliance Association
 Environmental Social and Governance Perspectives

The emergence of ESG

What we
know today as
‘sustainable
finance’ was
something of a niche
subject until the Paris
Accords brought it
Martine Boogaerts into the mainstream.
EMEA Law and Compliance Chief of
Staff and Wealth Solution Line Lead

The financial services sector has a for climate activists, or idealists who
unique role to play in the response to could afford to prioritise investing in
climate change and in addressing ESG ‘green’ over financial returns, has since
issues. That role, as well as the sector’s moved to the top of the agenda for
responsibilities around sustainable regulators and investors alike.
development, became clearer after the
2015 Paris Accords, which included a Since governments alone are
key objective of making financial flows unable to finance this transition, it
consistent with the transition to a low- has fallen to the private sector to
carbon economy. bridge the gap. To bring this about,
though, financial markets need the
What we know today as ‘sustainable right regulatory framework. And
finance’ – the provision of finance to indeed, the introduction of regulatory
investments taking ESG considerations measures to promote sustainable
into account – was something of a finance has steadily gained
niche subject until the Paris Accords momentum in recent years, to a point
brought it into the mainstream. What where the output from the EU alone is
may have seemed like an esoteric topic hard to keep up with.

‘Since governments alone are unable to finance this transition, it

has fell to the private sector to bridge the gap. To bring this about,
though, financial markets need the right regulatory framework.’

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 Environmental Social and Governance Perspectives

Compliance professionals in financial

services have to get to grips with the
increasingly wide-ranging and complex
requirements that these new regulations
impose on their organisations

Such measures range from in relation to ESG performance, as well

transparency requirements to as contribute to the design of new
mandatory disclosures to prudential financial products and services to meet
rules, linked to a taxonomy which the expectations and ESG preferences
defines what is a sustainable of clients, whether large institutional
economic activity. investors or retail customers.

Compliance professionals in financial

services have to get to grips with
the increasingly wide-ranging and
complex requirements that these ‘Such measures range from
new regulations impose on their transparency requirements
organisations. They should also
recognise the excellent opportunity to mandatory disclosures to
these regulations provide for prudential rules, linked to a
compliance to add value. taxonomy which defines what is
Compliance, for instance, can deliver a sustainable economic activity.’
guidance on the new non-financial
disclosures that firms will have to make

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 Environmental Social and Governance Perspectives

‘The demand for useful, comparable and reliable data on ESG

performance is still outstripping supply.’

Clearly there is still some way to regulators and legislators must

go and time is short. The demand work together across borders and
for useful, comparable and reliable adopt achievable international
data on ESG performance is still standards.
outstripping supply and this will
probably only change when data and Perhaps the term ‘sustainable finance’
ratings providers, as well as agencies, will eventually disappear, as ESG
are regulated to the same degree as standards and their integration become
financial services firms. To be truly more mature, and sustainability
successful in supporting the financial becomes the norm.
flow to that low-carbon economy,

‘Perhaps the term

‘sustainable finance’ will
eventually disappear, as
ESG standards and their
integration become more
mature, and sustainability
becomes the norm’

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 Environmental Social and Governance Perspectives

How to develop an ESG mindset

The most important priority for

compliance in the weeks and months
The creation ahead is in developing an ESG
of an ESG mindset. It is something that cannot
be done on an ad hoc basis, nor will
mindset will only it derive merely from a handful of
develop within training sessions. On the contrary, it
is a serious issue that requires time,
the parameters of a forethought and organisation.
carefully set education
ESG must be considered
plan that covers every holistically; it should cover every
individual and facet of an organisation and be
department within as in depth as possible, allowing
employees to understand the
a firm. dangers and opportunities of ESG.
The whole supply chain must be taken
into consideration, for instance, and
it should be acknowledged how every
department in a firm can be affected.

From CSR to ESG

An ESG mindset has historically
been difficult to acquire. Even when
‘corporate social responsibility’
was in vogue, such areas were not
covered as training topics. Indeed, it
was something that few dealt with, was
often driven by HR and was not a major
training concern. The creation of an ESG
mindset will only develop within the
parameters of a carefully set education
plan that covers every individual and
department within a firm.

‘Understanding supply chain

peculiarities, knowing where
things can go wrong and
Dr Constantine Kiritsis, FICA
Founder, StudySmart recognising what we can do
and Compliance as professionals to tackle ESG
concerns are paramount.’
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 Environmental Social and Governance Perspectives

Thinking of a company’s value chain, where all departments

– procurement, operations, HR, marketing, etc. – need to
work in sync and protect each other is a terrific starting
point from which to begin to absorb ESG issues.

Setting the tone-from-the-top

Research by PwC in 2021 found that environmental issues
such as climate change, and social issues such as racial
injustice and inequality, can affect a company’s capital,
long-term growth prospects, and ultimately, its viability.
The role of the board is thus crucial, and setting the tone-
from-the-top, especially in governance areas, is one of its
key priorities.

Enhanced ESG disclosure is a trend that is only

going to intensify in the coming years as regulators
respond to rising concerns about the impact
of environmental and social issues on business
operations and performance. Again, the holistic
approach ensures that every area is captured; climate
change, social justice and financial crime issues are all
equally important and a holistic approach in training
professionals and creating a mindset for ESG is the only
one that provides a clear overview of each area.

Corporate culture

‘An ESG mindset requires a cultural change that

cannot happen overnight. Culture develops
organically over time, and it requires diligence
and knowledge to embed ESG principles into a
firm’s culture.

For professionals to design products and services with

their end in mind – and to ensure that they are cognisant
of all the risks across the supply chains with which their
firms do business – thorough, targeted and practical
training is required.

Only then will ESG rest on a solid foundation across the

organisation, allowing a strong culture to develop.

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 Environmental Social and Governance Perspectives

The importance of acting now

Each company
is on its own ESG
journey, with its
own goals and
strategies. But without
compliance, ESG
cannot be integrated
successfully.
Amy Matsuo
ESG and Regulatory
Insights Leader, KPMG

An effective and fit-for-purpose central to ESG activity, including ethical

compliance programme must address standards, responsible sourcing and
current and future compliance risks – consumer protection.
many driven by heightened awareness
of ESG issues – and the role of the chief A mature ESG programme incorporates
compliance officer is evolving to meet the compliance department, showing
those expectations. that an organisation values ethics and
clearly understands compliance’s role.
ESG makes business better: its
strategy has shifted from doing Compliance officers must, in turn,
what is good for stakeholders, understand a firm’s ESG approach, how
e.g. the community, consumers it is integrated into strategy and how
and employees, to a business and to report key metrics to best perform
risk focus that identifies and their oversight duties.
assesses associated value, risk and
Headlines related to ESG have
opportunity.
broadened public awareness and
It’s about creating value that mitigates raised stakeholder expectations for
risk, builds stakeholder trust and companies to commit to, act on and
delivers competitive advantage, and report their initiatives. As firms take
requires engagement across the steps to meet those expectations,
firm. The compliance officer’s role is they must understand that
heightened interest increases risk.

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 Environmental Social and Governance Perspectives

• Public statements and pledges Our message to companies is to act

about ESG must be matched by now. Key considerations include the
actions. Failure to follow through need to:
increases reputation risk and
threatens stakeholder trust. • integrate decarbonisation and
other ESG considerations into the
• Inconsistency between ESG- core business strategy
related marketing disclosures,
such as product labels or financial • harness the power of technology
returns, and actual results could lead convergence to build trusted
to a perception that the disclosures information systems, and
are misleading, unfair or deceptive.
• deliver trusted reporting
• Aligning with vendors or to support transparency for
companies that do not hold to shareholders, regulators and
fundamental ESG tenets, including the market, demonstrating
employee health and safety, measurable progress in corporate
community development, pollution commitments.
prevention and business ethics, may
result in increased reputational risk Each company is on its own ESG
and exposure to charges of labour journey, with its own goals and
exploitation, bribery, corruption and strategies. But without compliance,
other violations. ESG cannot be integrated
successfully. Ultimately, the compliance
programme has to rise to meet those
evolving risks and opportunities.

‘ESG encompasses
broad strategies
and risks. For that
reason, it’s critical to
assess compliance
risks and bring ESG
front and centre of an
effective compliance
programme’.

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 Environmental Social and Governance Perspectives

Upskilling the key to successful ESG

ESG matters are high on financial

sector regulators’ and investors’
Ultimately agendas and are increasingly
everyone across important factors to a growing
number of customers, counterparties
a firm is going to and employees. The financial sector
need to be upskilled has a vital role to play in helping the
economy adapt to a more sustainable
and to work in a long-term future.
slightly different way.
Why is ESG important?
Companies that appropriately
address social and environmental
factors create opportunities for
long-term value creation.

Diversity and inclusion, human rights,

executive pay and transparency,
human capital, health, environmental
impacts, responsible decision making
and other material ESG aspects should
all form a key part of any robust
business strategy and governance
framework. Those firms that are
perceived as not acting appropriately,
will, going forward, find that they
become less attractive to stakeholders.

From working with clients, we are

seeing that those firms that carry out
robust ESG and climate assessments
typically find the potential impacts
are wider and deeper than they
originally envisaged. The assessments
are usually a catalyst for action and
provide a platform for the successful
management of ESG issues and risks.

Firms can also take advantage of

the opportunities afforded by these
assessments. The generation of long-
Gloria Perez Torres, FICA term sustainable returns is dependent
Financial Services Manager upon understanding likely economic
and social changes, having robust

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 Environmental Social and Governance Perspectives

ESG needs to be driven from

the strategic level, and officers
responsible for climate and ESG
risks need to be able to support
boards in setting out a clear
strategic approach to handling
ESG impacts and opportunities

and transparent strategies to respond to them, and strong governance to deliver

those plans.

To ensure that adequate resources and sufficient skills and expertise are devoted
to managing the financial risks from ESG and the climate, compliance officers will
need to upskill quickly to strengthen their professional skills and competencies in
specific areas related to ESG and climate change risk management. But it won’t
stop there – ultimately everyone across a firm is going to need to be upskilled and
to work in a slightly different way.

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 Environmental Social and Governance Perspectives

ESG readiness assessment Given that financial services should

be at the forefront of climate
The UK’s FCA and PRA are and ESG risk management, this
is worrying. However, through
focusing on developing their discussions with clients, we have noted
own approaches and strategies that focus on ESG and the climate has
to ESG. From 2022, relevant PRA increased massively during the last
quarter of 2021 and we expect that it
and FCA regulated firms need will continue to grow in 2022.
to make disclosures meeting
BDO’s survey also revealed that many
the recommendations of the firms recognise the need to change,
Taskforce on Climate-related with 25% pledging to go to carbon
Financial Disclosures (TCFD). neutral or achieve net-zero operations,
and 31% identifying that there
If they don’t, they’ll need to was a high risk of losing business
explain why. if they failed to meet acceptable ESG
standards over the next five years. This
indicates just how important ESG has
become for some businesses.
Yet a survey of UK mid-market
Our own discussions with regulated
businesses carried out by BDO found
firms have exposed some distinctions.
that not all firms have made sufficient
Beyond those focused on green/ethical
preparations to meet the expectations
branding, it is typically firms that
set out by regulators.
offer longer-term credit, investment
opportunities or property related
insurance that are prioritising ESG.
Over half (58%) of
38% 58%

This may reflect the fact that in these

financial services areas, ESG risks are much more
tangible, transparent and easier to
firms are not yet assess. Insurers, in particular, have
prioritising ESG made constructive progress and are
risks. relatively advanced in their approaches
to managing climate change risks
compared to other sectors within the
financial services industry.
Further, ESG
was seen as the
highest priority
for only 38% of
respondents

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 Environmental Social and Governance Perspectives

ESG in 2022 Whilst some barriers reported by our

clients relate to tool limitations, the
lack of data and quantitative metrics,
ESG matters will require one of the most important challenges
significant board attention relates to knowledge and expertise.
in 2022.
Upskilling and education is central
to shaping the way we address the
challenges climate change and
Senior executives will need to consider other ESG issues pose. Risk officers
how issues of corporate purpose and will need to acquire the relevant
ESG relate to their firm’s strategy, and knowledge and skills, and align with
what opportunities and risks arise from the right values, to help build more
increased ESG stakeholder attention. sustainable and resilient business
However, for many regulated firms, strategies that meet the needs of their
assessing ESG risks and reporting stakeholders wherever they operate.
on their sustainability performance
is a challenge.

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 Environmental Social and Governance Perspectives

Not a tick-box exercise

Embrace diverse
perspectives.
Look for
creative
ideas outside of the
corporate world.
Group-think often
makes businesses
unaware of the
opportunities and
impacts beyond
their bubble.

Micael Johnstone
Co-founder and Director, Wading Herons

ESG is now mainstream and far more strategy can also be a cornerstone of
than a compliance or tick-box exercise. a thriving and risk-resilient, modern
Having been the niche preserve of organisation.
institutional investors and pension
funds for more than two decades, In the rush to be seen to be doing
we’re now at a stage where every something on ESG, many big
major business is talking about it. organisations have often eroded
Done properly, ESG can make a value by making grand claims
significant contribution to tackling without backing them up with
the major social and environmental real changes to the way they do
crises of our time. A well-thought- business. This has led to accusations
out and properly implemented ESG of greenwashing, stakeholder uproar
and legal disputes.

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 Environmental Social and Governance Perspectives

Key elements to an authentic ESG Strategy:

1
The E, S and G are intrinsically interconnected. ESG can’t just be
broken down and solved in isolation or by a dedicated department.
Leading companies are now learning to think systemically.

2
Listen to your employees and give people agency. Your
people are best placed to identify barriers to change and give you
authentic feedback on the lived experience and culture within
your organisation. Build trust by encouraging vulnerability and
collaboration to share and tackle problems and develop new
solutions and products.

3
Embrace diverse perspectives. Look for creative ideas outside of
the corporate world. Group-think often makes businesses unaware
of the opportunities and impacts beyond their bubble.

4
Close the ‘say-do gap’. If ESG statements aren’t lived they can
be seriously de-motivating and do more harm than good. Many
organisations talk a good game but employees’ day-to-day
experience and the work they do doesn’t feel aligned to ESG claims.

5
Get uncomfortable and be bold. Real transformation and
progress feels uncomfortable. If it’s not then it’s likely you’re not
really changing things. In the rush to embrace ESG (and monetise
it) companies are often unwilling to explore barriers to making a
positive impact in the world.

6
Give people time. Time to think about how your ESG strategies
relate to their work or part of the business, but equally importantly
time away from emails and meetings. Making time for rest and
self-care drives creativity, ideas, and innovation.

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 Environmental Social and Governance Perspectives

ESG and the extractive industry

Working for
a company in
the extractive
industry, I have
been forced to ask
myself where I see
the opportunity
for change. Ian Moolman, MBA, CCEP-I & FICA
Ethics & Business Integrity Manager

As the latest buzzword, you’ve no doubt There is best practice reporting

read or at least know something about guidance available such as SASB
ESG. But what’s the story behind it? (looking from the outside in to the
The abbreviation is today used liberally business) and GRI (looking from
in many if not all business discussions the inside out of the business).
around the world – but how many of Transparency is key.
us fully understand what it means and
what it is intended to achieve? You’ve likely heard of or seen David
Attenborough’s climate change talk
Many policies now upheld and at COP26 in Glasgow late last year,
promoted in firms have an ESG root: in which he voiced a last-ditch plea
waste and recycling, human rights and to save our planet. Such events give
governance policies, and so on. Viewed sustainability greater weight and
in this light, ESG isn’t quite the novelty visibility. And this is reflected in the job
it seems; it is merely the grouping market, with sustainability finding a
together and elevation of familiar terms way into most roles out there.
into a single abbreviation, focusing on
the non-financial reporting side of a Reality, it seems, is finally dawning.
business, specifically sustainability. Each of us, as well as the organisations
in which we work, must drastically
reduce our carbon footprint. If not, the
repercussions are disastrous for our
‘Sustainability may or may not be planet, for future generations and for
crucial to the role you perform in us as individuals.
your firm. But it is, nevertheless, To try and address this issue, ESG came
very quickly becoming into the fold, helping blend a multitude
of approaches available in the private
preeminent.’ and public space. This joined-up

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 Environmental Social and Governance Perspectives

thinking means that governments support functions, finance, ethics and

globally are now acting fast and compliance, legal and HR. TPRM is
working together in an attempt to about company culture; an integrity
reverse decades of negligence towards driven culture managing your third
our shared home. parties. Third parties remain a big risk
for business, if not the biggest.
From a personal perspective, working
for a company in the extractive
industry, I have been forced to ask New ways of thinking and
myself where I see the opportunity culture
for change.
Recycling in the extractive industry
Third-party risk management is also a pertinent topic. The amount
of waste generated in the extraction,
The resources sector and responsible crushing, refining, melting and casting
sourcing are intertwined. To put it process is enormous. Today, Glencore
bluntly, people want to know where is a good example of a company trying
their stuff comes from. So what does to find new ways to rectify the errors
this mean practically? of the past. And we must continue to
uncover the means of minimising the
amount of waste produced, to recycle
it and to find a use for it – not to
‘It means being absolutely dump it. A good example of proactive
certain that our supply chain is thinking is the EU’s Waste Shipment
free from any unwanted aspects Regulation – Regulation (EC) No
1013/2006 – which introduced stricter
such as sanctions, modern rules on waste disposal.
slavery and child labour. This
Finally, underpinning it all, there’s
includes the crucial aspect of culture. Employee health and
knowing your supplier’s supplier.’ wellbeing will be vital to ensuring that
ESG policies are fully and correctly
How far to check upstream remains implemented.
a big question, as there are no
hard-and-fast rules regarding when
checks should cease. What is best ‘After all, if employees are not
practice for proper third-party risk
management (TPRM)? Here, it’s wise to cared for, how can we expect
think of depth and/or the number of them to care?’
suppliers. One should also be mindful
of ensuring things like thorough
recordkeeping (manual vs. automated), These issues are just some of the
enhanced due diligence, training, aspects of ESG which will undoubtedly
contractual clauses and transparency. grow in importance. That is why ESG
reporting, using metrics and software,
TPRM involves the heart and soul is crucial, so that stakeholders have a
of a business: its people – from clear and concise picture of with whom
those on the frontline in marketing they are dealing.
and sales and procurement, to the

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 Environmental Social and Governance Perspectives

ESG in financial services

Financial services
firms will play
a key role in
transitioning to a
low carbon future.
Hayley Williams
Head of Risk Projects & Sustainability

Businesses and their financial backers red for humanity’ as the world grapples
have a vital role to play in addressing with the enormity of the task to hit
the major economic, social and carbon net zero by 2050.
environmental issues that are facing
global economies today. ESG challenges Financial services firms will play a
are significant, their impacts wide- key role in transitioning to a low
reaching through society, and many carbon future, underpinned by green
require a rapid response. On the social financing initiatives and proposition
side, the Covid-19 pandemic has development to support corporate
impacted many small businesses customers in reducing the emissions
and individuals, exacerbating existing of their businesses and consumers to
social inequalities and requiring the reduce emissions from their homes
financial services industry to respond and vehicles.
with a suite of support measures. At
the same time, firms continue to look
internally at support for colleagues,
helping them adapt to new ways ‘This is not to forget wider
of working, improving health and environmental issues
wellbeing, and building a more inclusive
and diverse workforce that represents surrounding biodiversity (i.e. the
today’s society. unprecedented rate of species
On the environmental side, a leading loss), waste and natural resource
global body on climate science, the management, which remain of
Intergovernmental Panel on Climate high importance.’
Change (IPCC), has warned of a ‘code

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 Environmental Social and Governance Perspectives

For risk and compliance • Firms must also consider

professionals it can seem how their governance and risk
challenging to know where to management processes relating to
begin, to think how our roles should sourcing and supplier management
adapt to meet these new demands. may need to evolve, as businesses
Acknowledging that the part we play continue to work towards greater
in embedding ESG will continuously supply-chain transparency in
evolve in the coming years as we environmental and social areas
learn and grow is the starting point,
and recognising that in our collective There is no room for ‘greenwashing’
toolkit we have important skills that (i.e. exaggerated or misleading claims
will be required in this new world. of environmental commitments) in this
future, as discerning stakeholders with
a keen awareness of environmental
• New regulatory rules and and social issues, and much greater
guidance will generate demand for information at their fingertips, will
compliance specialists hold such firms to account.
• Disclosure requirements will
evolve, requiring supporting Risk professionals have an important
controls, checks and balances role to play in ensuring that firms
are fully aware of the reputational
• S
ocial and environmental issues risk posed by such claims. Openness
will need to be further embedded and transparency will be key,
into risk management frameworks, supported by robust governance,
and these issues will continue risk management frameworks, and
to grow in prominence in risk information disclosure.
committees
• Continuous improvements in Ultimately, strong environmental
data and reporting, in areas such and social governance practices
as climate risk management, will make business sense – they are
be required to support future more sustainable, carry less risk,
decision making and align with the interests of the
firm’s stakeholders. ESG needs to
• Product governance processes be firmly embedded in the DNA of
will need to consider whether an organisation, driving every-day
new propositions are designed decisions integral to its purpose and
with environmental and social values.
issues in mind, to avoid reputational
risks arising

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 Environmental Social and Governance Perspectives

ESG trends – a Nordic perspective

Nordic countries are perceived by

many as forerunners in the field
A slew of recent of ESG. Respect for nature and the
scandals has outdoors is nurtured from childhood
in Nordic societies; Nordic countries
revealed that are founded upon democratic
Nordic companies principles and social justice is
fundamental regardless of political
have much to improve affiliation; and they are also perceived
in terms of ESG. to have low levels of corruption
and strong governance. Combined,
these characteristics make Nordic
companies ESG trailblazers.

From soft law to hard law

Yet a slew of recent scandals has
revealed that Nordic companies
have much to improve in terms of
ESG. Existing ESG efforts, as well as
incoming regulation, have to some
extent been founded upon voluntary
principles, and as a response to
misconduct and increased stakeholder
expectations. The introduction of
regulation will now challenge how
companies work and aim to further
advance ethical business practices.

Norway seems to be leading the way

in terms of ESG-related regulation
and, according to the OECD, has the
strongest regulatory framework for
anti-corruption in the region. Norway
was also the first Nordic country
to introduce human rights-related
regulation, and, in a survey conducted
by the Nordic Business Ethics initiative,1
Norwegian companies came out ahead
Anna Romberg, Ph.D, of their Nordic peers in terms of ethical
Executive Vice President business.
Legal, Compliance &
Governance, Getinge 1. Nordic Business Ethics Survey 2020, 2019 https://www.
nordicbusinessethics.com/nordic-business-ethics-survey-2020/
Accessed 2 February 2022

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 Environmental Social and Governance Perspectives

Competence shift Measuring success

of E&C teams and actual impact

‘Debate on who ultimately ‘Nordic firms will have to prepare

is responsible for ESG has for reporting on actual impact
been intense in the ethics and and for intensified scrutiny of
compliance (E&C) community their reported information.’
across Nordic countries over
the last year.’
Transparent disclosure of challenges
and roadblocks is also expected –
the era of only reporting on positive
Regardless of organisational impacts and storytelling is over.
responsibilities, the expectation is
that companies will implement formal Reporting on actual impact, however,
E&C programmes to demonstrate is a real challenge, at least according
proactive work. to 60% of E&C officers in large Nordic
multinational companies. The work
In the Nordic context, E&C teams are is to a large extent manual and a lack
usually very slim, with the majority of processes and system support is
of teams, including those in big reported as a significant challenge.3
multinational companies, having no Substantial investment has gone
more than five employees. Moreover, into building robust processes, and
20% of organisations with more systems and controls for financial
than 10,000 employees get by reporting purposes; the expectation is
with only one person.2 To fully that we should see the same within the
embed the emerging ESG agenda, area of ESG.
E&C teams will need to undergo a
competence shift and secure cross- Amidst increased regulation, there
functional collaboration to an even is a risk that the focus will be on the
greater extent than before to succeed. consequences of non-compliance
Close collaboration with research from a company perspective. This is
and development, purchasing, the case with corruption enforcement,
sustainability and investor relation where we tend to focus more on the
teams will be essential. reputational harm, penalties and fines
than on the actual victims from the
corrupt behaviour.

2. Nordic Ethics & Compliance Survey 2021 https://www.nordicbusinessethics.com/nordic-ethics-compliance-survey-2021/ Accessed 2 February 2022
3. Nordic Ethics & Compliance Survey 2021 https://www.nordicbusinessethics.com/nordic-ethics-compliance-survey-2021/ Accessed 2 February 2022

‘As E&C professionals, we must ensure that we have

the right focus and do not forget the real purpose of
regulation and compliance obligations.

21
 Environmental Social and Governance Perspectives

ESG as a journey

ESG is moving
away from being
a nice ‘add-on’
to a mandatory
Mushtaq Dost, FICA requirement.
Managing Partner, BDA
International Associates

ESG should not be taken seriously represent long-term thinking. The

merely because it is a fashionable pandemic is an example of a challenge
‘movement’ or a positive cause-related that touched upon each aspect of
initiative – it should be considered a ESG, and during these complicated
fundamental, crucial framework by times, we have seen instances of how
which companies can measure and thoughtfully deployed ESG strategies
report on environmental, social and have strengthened companies.
governance factors that affect business.
Consider, for example, businesses
Its existence actively facilitates that were immediately able to
measurable goods, offering a holistic support the health and wellbeing of
assessment of a company’s operations, their employees; those that had the
considering every aspect of its supply ability to help local communities and
chain. For businesses of all sizes and hospitals with donations or services;
for those who invest in them, ESG those that had liquidity and financial
is moving away from being a nice reserves on hand; and those that were
‘add-on’ to a mandatory requirement fully prepared technically and culturally
as legislators and regulators begin to have secure systems in place ready
codifying new rules. for full remote working.

Compliance comfort with

governance ‘A challenge for compliance
Being a better organisation isn’t is that certain ESG concepts
purely about being ethical: it is also may well at first glance appear
about being prepared and having imprecise.’
sustainable business practices that

22
 Environmental Social and Governance Perspectives

‘Compliance has to ensure

that ESG-related disclosures
are fit for purpose, and that
any data used is relevant
and current.’

While debate continues on how to A recent wave of greenwashing

define and benchmark standards lawsuits against the cosmetics industry
for the ‘E’ and the ‘S’ elements, has highlighted how companies
the ‘G’ should be second nature to of all types that are advertising,
compliance, and a starting point marketing or drafting ESG statements,
from which to build a framework in or disclosing information, must pay
anticipation of more precise guidance extremely close attention to the
from regulators. language they use.

While there has been debate as to While there are numerous avenues to
where ESG belongs in an organisation, examine to ensure that ESG principles
governance issues are what are being upheld and accurately
compliance is accustomed to and is conveyed to stakeholders, the
generally pretty good at. underlying compliance programme
for minimising greenwashing
allegation risks is absolutely critical.
Reporting risks
These compliance checks should not
‘We believe that the biggest risk merely be a one-time programme;
rather, they should be ongoing and
(or opportunity) for compliance constant to ensure that with ever-
comes from the ESG ‘reporting’ evolving corporate practices, all
or ‘disclosure’ requirements.’ statements put forth are relevant and
not misleading in any way.

We remind our clients that while a focus

Here in the US, the Securities and on the billions of investment dollars
Exchange Commission has made it geared to ESG-oriented companies is a
clear that ESG is a top priority for compelling motivator, it is important to
2022, particularly ‘disclosure relating to see ESG as a journey, requiring a new
climate risk, human capital, including kind of engagement with stakeholders.
workforce diversity and corporate The road to sustainable growth is
board diversity, and cybersecurity risk’. simple — it’s about being a good
business socially, environmentally
and economically.

23
 Environmental Social and Governance Perspectives

Identifying ESG challenges

A lack of agreed
standards and
regulation in
the areas of
environmental and
social practice means
that measurement of
statistics is subjective.
Marjola Begaj
Founder, Mab Innovations Ltd

ESG, otherwise known as non-financial • There is no one, exhaustive

factors or intangible assets, is ESG list.1 ESG factors are often
increasingly gaining momentum. Today, complex and interlinked, and it
is the dominant element of an analysis can be challenging to classify an
process that identifies material risks ESG issue as sitting only under an
and growth opportunities within the environmental, social or governance
investment market. heading. These ESG factors can
often be measured (e.g. what the
Some consider it a type of corporate employee turnover for a company
social credit score, compiled from is), but it can be difficult to assign
data collected on specific metrics them a monetary value.
related to intangible assets within an
enterprise. But are those intangible • There is little discussion on the lack
factors import? The answer, of agreement on how to capture
undoubtedly, and as we see every day ESG performance.2
in business, is that they are. • Disclosure is a serious ESG issue.
It is well known that environmental
It is said that the aim of ESG is to risks created by different business
create long-term value and impact. activities have a potential or actual
Though we now possess much more negative impact on air, land, water,
awareness and information on ESG ecosystems and human health.
than we did during, say, the era of To measure and disclose those
Milton Friedman, its development is negatives is a challenge for firms.
in its nascent stages and there remain
many issues to be confronted.

24
 Environmental Social and Governance Perspectives

• A lack of agreed standards Positive steps in the right direction are,

and regulation in the areas of however, already taking place; there is
environmental and social practice today enormous consumer awareness;
means that the measurement companies are gradually making
of such statistics is subjective to disclosures in their annual report or
say the least. As integrating ESG in standalone sustainability reports;
considerations into investment numerous institutions, such as the
analysis and the calculation of a Sustainability Accounting Standards
company’s value become more Board (SASB) and the Task Force on
prevalent, it will be crucial to Climate-related Financial Disclosures
provide units of measurement for (TCFD), are working to form standards
investment decisions on subjective and define materiality to facilitate
issues like degrees of harm to incorporation of these factors into the
workers, or how far down the investment process.
supply chain for the production of a
particular product you go. Regulators, too, are doing their part
– see for example the EU3 and the
From a compliance standpoint, the Financial Conduct Authority (FCA)
complexity of the argument requires in the UK.4 And the global market
more in-depth contribution and is already embracing technology
effort, for ESG is an evolving, complex innovations and investments on
matter. And, as with any complexity, different areas, such as data quality
unpacking it begins by understanding and analytics, more green solutions,
the underlying issues. For ESG, this open data initiatives and collaboration
means embedding an ESG culture efforts. These encouraging signs
and strategy, within and without the will need to be matched with real,
company, putting together processes, measurable progress for ESG to fulfil
systems, tools and initiatives that its potential.
better embrace the spirit of today’s
ESG and its future development.

1. A brief overview would include the following. Environmental (Climate change & carbon emissions, air & water pollution, biodiversity, deforestation,
energy efficiency, waste management, water scarcity); Social (data protection & privacy, gender & diversity, employee engagement, human rights, labour
standards); Governance (Board composition, audit, bribery and corruption, executive compensation, lobbying, political contributions, whistle-blower schemes)
2. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3212685
3. https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/210308-report-efrag-sustainability-
reporting-standard-setting_en.pdf
4. https://www.fca.org.uk/publications/corporate-documents/strategy-positive-change-our-esg-priorities

25
 Environmental Social and Governance Perspectives

Final thoughts
ESG, as we’ve seen, is a topic deep and The reason it has done so is relatively
broad, with many tributaries. It is one easy to ascertain: each of the three
that is ostensibly simple, but which individual elements that make up ESG
is formed of such diverse – and often is aligned with the major issues facing
quite fascinating – issues that it is governments around the world today.
seldom easy to capture its spirit.
The environment and the damage
However one thing about which that has been inflicted upon it has
each of our contributors agree is perhaps never come under such heavy
its growing prominence. Since the scrutiny; societal issues like diversity
pandemic began, it has risen to and inclusion, ethics, wellbeing and
the top of corporate agendas with culture are front and centre of almost
extraordinary speed. And there is every industry; and governance
no evidence that its growth and has never been more crucial in our
increasing ubiquity will diminish. delicately interconnected world of
global business.
All of which makes understanding ESG
of incredible importance, not just for Seen in this light, the emergence of
firms, but for the individuals within ESG seems less an upheaval, more
them and in the societies in which an inevitability that must not only be
those firms operate. acknowledged, but fully absorbed
and implemented.
A healthy dose of hesitance and
caution is useful whenever a Failure to do so would be nothing
popular term seizes the zeitgeist of short of dangerous for firms.
boardrooms. We’ve seen before just More than this, it would also be
how rapidly such fashionable topics shortsighted in terms of success: the
can vanish. benefits to businesses of adopting
stringent ESG policies and procedures
But every now and again, something are substantial.
comes along that permanently alters
the business landscape, something Of course, there remains much to be
that cuts through the corporate world digested about ESG and its subtopics,
and upends normal procedures – and indeed some, like sustainability,
culture, for example, after the financial receive greater attention now than
crisis of 2008. Today, it very much others. Taken as a whole, however, they
seems like ESG belongs to that elite are a vital part of how a business will be
group of concerns that are powerful measured going forward, whether by
enough to leave a lasting impact. its employees or its customers.

26
 Financial Crime A Global Perspective

About the International Compliance Association

The International Compliance Association (ICA) is the leading

professional body for the global regulatory and financial crime
compliance community. It has enhanced the knowledge, skills
and behaviour of over 160,000 professionals in more than 150
countries either through its internationally recognised portfolio of
professional qualifications (awarded in association with Alliance
Manchester Business School, the University of Manchester) or
through accredited in-company training.

For more information visit:

www.int-comp.org

Disclaimer: All views expressed in this report belong to the individual contributors
and do not reflect the position of the International Compliance Association, or its
parent company.

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