ESG and Business Risks – Leveraging Compliance Resources
Chief compliance officers are creative professionals. This is one of many areas of expertise. But when it comes to corporate politics, many CCOs know how to package and promote their mission.
CCOs faced real constraints and challenges during the pandemic. CCOs were challenged as to why compliance was an important function to preserve in the time of a pandemic which threatened many companies’ very existence. Compliance departments have been slow to grow over the last five years. The resource push to compliance have either stayed stable or been slightly reduced. Only a small percentage of compliance departments have received additional resources.
As we all know, ESG is the hot-button issue surrounding corporate management. At corporate meetings, just mention the term and attendees will perk up with interest. Mention ESG in the board room and everyone sits up straight and looks with inquiring eyes. It borders on almost comical.
CCOs however have embraced ESG as an important tool to leverage their own needs. Candidly, CCOs will concede that they have dusted off prior requests for resources or personnel and couched them in new terms, using the ESG language and pinning these prior initiatives to the “G” in ESG, or corporate governance.
ESG has brought an important perspective back to corporate governance. A critical part of that function is ethics and compliance. CCOs were ready for this and are now pushing their own agenda forward, recognizing that ethics and compliance improvements, by definition, enhance a company’s corporate governance function.
CCOs have an important opportunity in this new ESG world. Human resource professionals should band together with CCOs to push certain initiatives tied to corporate governance, including culture surveys, conflict of interest platforms, corporate training, and other related initiatives. HR should be an important beneficiary of ESG as well, beyond diversity initiatives.
For companies with a number of important ESG risks and initiatives, CCOs offer quick wins in the ESG program by implementing ethics and compliance solutions in the short term. Companies that face significant environmental and sustainability issues need to dedicate themselves over a multi-year planning front. Ethics and compliance, however, does not require such a long lead time. CCOs know what they need to do and just need senior management go ahead.
ESG is a movement that is here to stay because it reflects the confluence of several significant social trends. Stakeholders and consumers are demanding better performance from the private sector. This may reflect a growing frustration with our political system and the ability of the government to problem solve. Investors, shareholders and communities want companies to address climate change, to reduce their carbon impact, to focus on social justice, reduce discrimination and promote diversity. These are big issues that require attention. Ethics and compliance is not at the forefront of these significant issues but is a major player in the corporate governance area.
Investors, shareholders, and the public are demanding improvements in corporate performance – not just financial results, but corporate citizenship. ESG is the beginning of this movement. Corporate citizenship is extending beyond these initial requirements. As more attention is paid to these issues, demand for even more performance improvements will inevitably increase.