The Role Of Anti-Bribery Compliance In ESG Reporting - White Collar Crime, Anti-Corruption & Fraud

The continuing rise to prominence of environmental, social and governance (ESG) compliance is one of the biggest legal trends of 2022. Investors and other stakeholders are increasingly expecting organizations to track and report ESG metrics as a way of assessing the organization's values, leadership and long-term sustainability.

Anti-bribery and corruption (ABC) compliance and ESG are interrelated, and not just as part of the governance category. In a 2021 Kroll survey, over 50% of ABC compliance programs in Canada and the U.S. were reported to include ESG considerations. In a recent RBC Global Asset Management survey, institutional investors ranked anti-corruption as the most important ESG issue in investment decisions, outranking other ESG issues, including climate change and shareholder rights.

ABC risks and controls can be an important metric in an organization's ESG reporting process. In this article, we focus on how these risks are relevant to the ESG framework.

1. Environmental

Corruption can negatively affect regulation and accountability with respect to the natural environment. Organizations operating in areas that are environmentally sensitive or subject to environmental regulations may interact with government officials, either directly or indirectly, during the permitting, monitoring and controlling of the organization's operations, including its waste, water and air emissions. Proper controls and tailored training can help organizations mitigate the risk of their employees and third parties violating applicable ABC laws relating to interactions with government officials. This can help prevent the misuse or abuse of a region's regulatory regime and degradation of its environment.

2. Social

An organization's social policies are inextricably linked to an effective ABC program. The social category in ESG requires organizations to frequently engage with stakeholders who have potential influence over their business and reputation. Activities such as consultation, sponsorships of community activities or interests and sharing the economic benefits of development with communities may create an enhanced bribery and corruption risk involving government officials.

Companies in Canada should be mindful of corruption risks that can arise by virtue of community and government consultation, engagement, mitigation and benefit sharing. An organization may run afoul of anti-corruption laws in certain circumstances if community benefits are not properly vetted and structured, including the involvement of and relationship to government officials.

Companies should adopt and operationalize policies, procedures and due diligence to reduce the risk it might contribute to a corrupt regime or improperly to an individual government official. Such circumstances could directly contradict social objectives by negatively affecting the ethical reputation or legal standing of an organization. An appropriately risk-based and tailored ABC program is key to properly executing an organization's social goals and commitments.

3. Governance

From a legal perspective, the most significant and frequent interactions between ESG and ABC programs are connected to the governance element. An effective ABC program can directly influence an organization's governance, mitigate reputational risks and maintain shareholder value.

Canadian organizations are bound by the Criminal Code or the Corruption of Foreign Public Officials Act if they operate internationally. An organization's directors and officers can be held liable and subject to a significant fine or imprisonment if they aid or abet a bribery offence by assisting or encouraging its commission. Organizations accused or convicted of domestic or foreign bribery can face significant reputational damage that can result in poor stock performances, difficulty in retaining or attracting employees, enhanced scrutiny from financial institutions and weaker bargaining power in M&A transactions.

4. Objective and Verifiable Metrics in Reporting

Organizations reporting about ESG factors, particularly bribery and corruption risks, can benefit from using objective and verifiable metrics. These metrics can include the total number of each of the following: employees who completed ABC training, bribery and corruption controls implemented by the organization, ABC compliance communications issued from senior management and ABC reviews conducted by the organization. Using these metrics can assist with providing timely disclosures and greater certainty to investors that reporting is being represented accurately.

Conclusion

While there is currently no Canadian legally mandated obligation to use ABC metrics in ESG reporting, it may be beneficial given the interrelation between the two areas. ABC reporting can provide relevant stakeholders with additional confidence in an organization's operations and controls. This can increase marketability of an organization, improve shareholder and investor trust, and reduce avoidable legal liabilities.

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