Foreign Corrupt Practices Act

As pressure from internal and external stakeholders intensifies over environmental, social and governance (ESG) risks, companies that champion ESG issues best and integrate them into the enterprise-wide anti-corruption compliance program are more likely to sustain a successful ESG program in the long-term. Yet, most still struggle to achieve this laudable goal effectively.

To take a deep dive into where companies stand today on the maturity scale of ESG programs and what common gaps still need to be addressed in the oversight of ESG risks, Coleman Parkes Research recently conducted a survey, “Navigating Deep Waters,” on behalf of law firm Hogan Lovells that polled 600 legal and compliance executives at large multinational companies across the United States, Europe, Asia, and Brazil.

According to the findings, just 42 percent of respondents described their company’s ESG program as “mature,” defined as a program that has ESG ownership assigned outside of leadership, an ESG culture fully embedded throughout the business, and in which ESG considerations are fully implemented into strategic and operational decision-making.

Other key findings from the Hogan Lovells survey revealed that 82 percent of respondents said ESG was not embedded into their existing risk practices; 78 percent noted there still exists a lack of ESG knowledge and skills; and 57 percent cited lack of engagement.

Collectively, the survey findings highlighted that, for many large multinational companies, achieving a truly mature ESG program requires greater companywide engagement; a clearer understanding of ESG risks; and enhanced vigilance over both corruption and ESG risks posed by third parties across the global supply chain.

While there are many companies that have a mature ESG program against which other companies can benchmark their own practices, William Semins, a partner at K&L Gates, cautioned against integrating one company’s mature ESG program into your own and expecting it to work. “Any successful program has to reflect the company’s core values, backed by senior management and stakeholders,” Semins told ACI Insights.

For all companies on the journey of creating a best-in-class ESG compliance program, consider the following best practices:

Start at the board and C-suite level. While it might sound cliché, embedding ESG culture into the global enterprise begins with tone at the top. “If the board of directors and senior management don’t understand or value ESG and don’t do a good job of communicating its importance to the organization from top to bottom, skepticism—if not downright cynicism—can prevail, and this will have adverse impacts on the development of a viable ESG culture,” Semins stressed.

Establish a cross-functional working group. Beyond buy-in from the board and senior leaders, operationalizing a commitment to ESG compliance also requires a cross-functional working group “to develop consensus on appropriate ESG goals and metrics for testing progress toward those expressed goals,” Semins added. This working group should be comprised of members from legal, compliance, HR, marketing, sustainability, and the business to ensure all key internal stakeholders have a voice and are aligned in the development of a practical and long-term ESG approach.

To truly have meaningful dialogue, Semins said the working group should be prepared to discuss and understand the company’s values and goals relative to ESG; how those goals are reflected in the organizational and operational structure; how they can be improved over time to reflect the company’s aspirations; and where the company stands on certain issues relative to its competitors.

Use anti-corruption compliance as a framework for ESG risk management. According to the findings in the Hogan Lovells survey, 62 percent of respondents indicated that they lack an understanding in the linkage between bribery and corruption risks and ESG abuses. That finding is concerning, because it points to a serious gap in ESG compliance programs.

An anti-bribery/anti-corruption (AB/AC) compliance program and ESG risk management “are inextricably linked, and companies do not need to—and should not—prioritize one to the detriment of the other,” Stephanie Yonekura, global head of Hogan Lovells Investigations, White-Collar and Fraud practice (IWCF), stated in a press release discussing the survey findings.

Crispin Rapinet, an IWCF partner in London, similarly stressed, “Effective ESG compliance implementation requires full alignment with an effective anti-bribery and corruption strategy. Companies with strong anti-bribery and corruption policies and controls have a strong framework on which to build the governance limb on an ESG program.”

Map out the supply chain. The Hogan Lovells survey additionally found that only 29 percent of respondents reported concerns about ESG risks posed by third parties, which is another concerning finding, particularly as it pertains to human-rights related risks—the “S” in ESG.

As with bribery and corruption risks, mitigating ESG risks in the global supply chain starts with understanding where and with whom the company is doing business and leveraging those third-party relationships “to develop more upstream data through more robust contract provisions, including cascading standards and due diligence requirements, to set the standards and fill in the gaps,” Semins said.

With those mechanisms in place—and data coming in as a secondary measure—the business can then begin to focus on verifying the information and responding to red flags, Semins added.

Supply chain mapping is also a beneficial exercise in the context of mitigating human-rights risks. “Once suppliers are identified, targeted review of current labor conditions and practices can be scoped and prioritized in a manner proportionate to other identified risk factors,” Semins noted. Where certain information from the lower tiers of the supply chain may be unavailable, enhanced, risk-based due diligence and/or other remedial activities may be needed.

Even with mature ESG programs, blind spots are unavoidable. “For example, getting reliable data from certain China-based suppliers in certain regions right now is highly problematic, but it’s important to be able to identify those blind spots and take it as far as you can go to get the necessary assurances that your supplies, including component parts and raw materials, are not produced with forced labor or child labor,” Semins said.

Companies that are seeking to continually improve their ESG risk management efforts, particularly as it relates to the potential human-rights’ risks that their suppliers pose, have several helpful resources to which they can turn. These resources include, but are not limited to:

• U.S. State Department’s Trafficking in Persons Report;
• State Department country reports on Human Rights Practices;
• Bureau of International Labor Affairs Forced Labor List;
• Global Slavery Index;
• Amnesty International’s country reports; and
• Human Rights Watch country overviews.

Finally, it’s important to keep in mind that a truly mature ESG program is an evolutionary process, not a check-the-box exercise: “Incremental progress is okay,” Semins said. At a foundational level, identify what risks are manageable now in order to work toward achieving future ESG aspirations.

ACI will be holding a forum on creating a best-in-class ESG compliance program at its “39^th International Conference on the FCPA,” taking place Nov. 30-Dec. 1, 2022, at the Gaylord National Resort and Convention Center in Washington D.C. | www.FCPAconference.com

For questions, concerns or more information about ACI Insights, please contact:
Chris Corbin
Associate Director of Marketing
American Conference Institute | The Canadian Institute | C5
E: [email protected]