6 Anti-Bribery Considerations for ESG Investors

The focus on environmental, social and governance (ESG) issues continues to accelerate. One of the primary drivers that is fueling this sustained attention to ESG tracking and reporting is the fact that both institutional and retail investors are increasingly seeking to make socially responsible investments.

For example, a recent survey of general counsel by the Center for Corporate Governance at Stanford University found that the second-greatest source of pressure behind ESG initiatives comes from investors (cited by 44% of respondents), just behind company employees (48%) and ahead of other pressures such as customers (41%), advocacy groups (33%) and ratings firms (24%).

Corporate compliance professionals who want to help ensure their companies are part of the ESG investing conversation need to assess how their existing compliance programs tie into ESG reporting requirements. One of these important areas is anti-bribery and corruption, which is central to the “governance” prong of ESG.

So how can compliance professionals and in-house counsel contribute to their organization’s ESG goals in this key area of anti-bribery and corruption? The actions and risks most likely to have a significant ESG impact for responsible investors relate to risk assessment and preventive measures or omissions. This encompasses anti-bribery policies and procedures, senior management commitment, customized training, specific gift and entertainment policies, and vetting of third-party vendors.

Here are six anti-bribery considerations that can demonstrate ESG commitment and integration to ESG investors:

1. More inclusive risk assessment

For favorable ESG investor consideration on the anti-bribery front, organizations should address the risks and conduct most likely to result in an anti-bribery violation. Remember that not all anti-bribery violations are equal or equally harmful for the organization. The risk assessment should include a category and ranking for medium to higher risk activities for which a violation could produce a higher risk of legal or reputational exposure.

2. Effective anti-bribery policies and procedures

Organizations should have written policies and procedures commensurate with their anti-bribery compliance risks and exposures. “Cookie-cutter” policies that do not take into account true anti-bribery risks — or having no written anti-bribery policies or procedures that address actual bribery risks — lead to a higher probability of an anti-bribery violation. ESG investors will take note of this exposure.

3. Senior management and board commitment

A responsible investor interested in preventing bribery expects strong, tangible assurance of an anti-bribery commitment from senior managers and the board of directors. These corporate leaders should demonstrate a commitment to anti-bribery compliance that goes beyond implementing compliance and ethics policies and procedures. ESG investors worry that, without those values reflected by leadership in day-to-day operations, anti-bribery lapses may occur in spite of well-written policies.

4. Customized anti-bribery training

For cost and convenience reasons, many anti-bribery training programs are often generic and unrelated to specific types of serious anti-bribery compliance risks facing the company. Training should be customized for the company, its operations, its business model and its risk profile. ESG investors are unlikely to commit to a company with inadequate anti-bribery training that leaves the company more vulnerable to defending against an enforcement or whistleblower action, or addressing a shareholders’ derivative lawsuit.

5. Gift and entertainment restrictions

The standards for what constitutes a reasonable and proportionate business gift varies greatly around the world. This can create high anti-bribery compliance risks for organizations that operate in multiple jurisdictions, so it’s important to have clear policies and procedures governing business entertainment that incorporate local law requirements — as well as other applicable legal requirements, such as those in the FCPA or the UK Bribery Act. These types of abuses, if left unchecked, can become quite large in the aggregate and thereby pose a problem for ESG investors.

6. Third-party due diligence

The harm that unvetted third parties can cause through acts of bribery and corruption is potentially the most damaging to an organization’s ESG record. A company’s ESG anti-bribery profile will reflect failures or inadequacies in conducting appropriate risk-based due diligence and/or vetting of: consultants and agents; third-party business suppliers; merger or acquisition targets; or joint venture partners. Such compliance failures can result in significantly increased risks for financial, commercial, regulatory and reputational damage from a resulting violation.

For some companies, the business case for attracting ESG investors is as powerful as deterrence from the costly and commercially damaging impacts of an anti-bribery enforcement action. Compliance professionals and in-house counsel play a crucial role in helping their organizations evaluate risks and beef up their existing playbooks to support their company’s anti-bribery ESG profile.

We identified these and other bribery and corruption considerations that may be important to ESG-motivated investors in a new LexisNexis white paper, “Connecting Environmental, Social and Governance (ESG) Reporting and Anti-Bribery Compliance.” Please click here to download a free copy of this report.