The ESG Report: Recent Episodes
Tom Fox
ESG has exploded into compliance and business consciousness. What will be the role of corp compliance in ESG? How should you design, create and implement a best practices ESG program? Join Tom Fox, the Voice of Compliance, to learn the answers to these questions and many more in this new podcast series which will shine a light on the sustainability risks, opportunities and issues that business leaders and compliance professionals need to know about regarding ESG.
Tom Fox hosts the ESG Report podcast. Looking for innovative solutions to tackle climate change? Look no further than The ESG Report! In this episode, Tom speaks with Ernest Anunciacion, Senior Director of Product Marketing at Workiva, about how Workiva uses ESG to drive stakeholder engagement. The conversation between Tom and Ernest explores the importance of stakeholder engagement in driving ESG initiatives. Workiva, a leading platform in ESG reporting, has a comprehensive roadmap focusing on innovation, the environment, philanthropy, and people. They aim to be a leading-edge technology by 2025 and achieve net zero carbon emissions by 2040. Workiva emphasizes the convergence of ESG and financial transformation and provides tools and resources for effective ESG reporting. They stress the need for consistent and decision-useful data to build trust among stakeholders. The conversation also discusses the growing importance of ESG considerations for investors, banks, and insurance companies and the potential of Gen AI in the workforce. Overall, the conversation highlights the importance of stakeholder engagement, ESG reporting, and adapting to technological advancements in driving positive change in the business world. Key Highlights:
ESG Stakeholders
Workiva’s ESG Roadmap
ESG reporting and risk management
The Impact of ESG Strategies on Investment Decisions
The Potential of Gen AI
Resources Ernest Anunciacion Workiva Tom Fox Connect with me on the following sites: Instagram Facebook YouTube Twitter LinkedIn
The ESG Report podcast is hosted by Tom Fox. Looking for innovative solutions to tackle climate change? Look no further than The ESG Report! In this episode, Tom speaks with Yoram Ashery, CEO at Nostromo Energy and we discuss zero carbon energy storage. In this episode, we discuss Nostromo Energy's innovative clean energy storage technology for buildings. By storing cold energy in small cells filled with water, buildings can become giant batteries, reducing dependence on the grid and advancing the energy transition. The use of cloud-based energy storage management allows for remote control and optimization of energy storage systems, creating a virtual power plant that responds to grid demands. This technology offers environmental benefits, and financial advantages, and helps in reducing carbon emissions. The podcast also highlights the challenges and solutions in transitioning to clean energy, emphasizing the need for capital, regulation, consumer participation, and innovative technologies like Nostromo.
Key Highlights · Nostromo Energy: Clean Energy Storage · Cloud-based energy storage management · Clean energy storage and carbon reduction · Renewable Energy Revolution · Challenges and Solutions in Transitioning to Clean Energy Resources Yoram Ashery on LinkedIn Nostromo Energy Tom Fox Connect with me on the following sites: Instagram Facebook YouTube Twitter LinkedIn
Tom Fox welcomes Doug Hileman to this episode of the ESG Report. Doug is the founder of Doug Hileman Consultancy and part of the Volkswagen Monitor Team. In this conversation, he and Tom talk about his experience in the environmental and compliance industries, highlighting the increasing complexity of the environment and legal landscape. He also discusses how corporate compliance officers can play an important role in ensuring that companies are compliant with their environmental and safety obligations.
The Evolution of Environmental Regulations Tom asks Doug how the environmental field has changed over the years. "I would say that it's gotten a lot more complex," Doug responds. Regulation in the past was about cleaning up and disposing of waste, whereas now regulation is broader, covering areas such as product design, biodiversity, and the circular economy. In addition, stakeholders are now imposing requirements: they no longer want to do business with companies that don’t comply with US and global regulations.
The Compliance Professional in Corporate ESG ESG is a great opportunity for compliance professionals. Compliance obligations are now widespread in the business world, so compliance professionals must learn what the requirements are of any organization that they're working with. Once they learn the requirements, they can then take up a leadership role. "If they're not at the table the way they think they should be at the table, then just pull up a chair and sit down," Doug stresses. "Make your own case for why the compliance function has such an important role in ESG. It's not about marketing; it's compliance."
The Board in Corporate ESG The board needs to be involved in the company ESG program. It needs to be an 'all hands on deck' initiative. This will make the entire company operations more competent. Doug remarks on the importance of internal auditing and how it impacts ESG. The board’s focus should be on how to be in line with ESG practices and requirements, Doug tells Tom.
Resources Doug Hileman | LinkedIn Doug Hileman Consultancy
Tom Fox welcomes Ted Dhillon to this episode of the ESG Report. Ted is the co-founder of FigBytes, an ESG insight platform that tracks raw data for environmental, social, and governance management. In this conversation, he and Tom talk about the ways FigBytes helps other companies do data analytics around ESG, the financial impact of ESG, and water stewardship.
FigBytes FigBytes as a platform tracks data for social, environmental and governance management. That raw data is then converted into impacts and metrics. The analyzed data is then implemented into different technological frameworks. "What we also do is we take the next step yet towards engagement," Ted tells Tom. FigBytes connects data with organizational strategy and changes the dynamic of how sustainability and ESG is looked at within a company.
ESG as a Business Approach "[ESG] is clearly a business process approach, and I also look at ESG as a reporting initiative as well," Ted tells Tom. ESG has moved the organizational sector into a phase of new sustainability that's more evolved. The metrics and numbers can be compared and contrasted across various different organizations. ESG is also driven by investment from the financial community. Investors will look at the things that are happening in the world, how it impacts companies, and make risk-based assessments on those factors.
Water Stewardship Water is the next carbon, so Tom asks Ted how FigBytes is facilitating water stewardship. Water stewardship is about the responsible use of water, in a way that is equitable and beneficial to the communities you are drawing it from. Water is a resource with significant impact and a resource that overlaps with climate. You won't achieve climate sustainability without taking water into account. "Water has got a very regional and localized focus and therefore stewardship is critical because companies have direct and indirect impacts of water as well," Ted says.
Resources Ted Dhillon | LinkedIn FigBytes
Fariyal Khanbabi is the CEO and chairman of Dialight Group, an LED industrial lighting technology company that services the maritime industry. Dialight's LED products provide lighting solutions that deliver reduced energy consumption and create a safer working environment. Fariyal joins Tom Fox to talk about her company’s product and services, as well as her thoughts on ESG.
What is Dialight? Tom asks Fariyal to tell listeners more about Dialight. Dialight is the global leader in sustainable LED lighting solutions for the industrial market, she responds. Wherever there's a harsh environment or a plant where some kind of heavy industrial work is going on, Dialight is there providing “the next generation of lighting solutions that deliver reduced energy consumption, and most importantly a safe working environment”. As a company in the 21st century, Dialight is focused on promoting and executing sustainable practices and solving the climate crisis, using technology.
Environmental Protection Declaration Fariyal defines Environmental Protection Declaration (EPD) and how Dialight utilizes them. An EPD is a verified document that communicates transparent and comparable information about the life-cycle environmental impact of products. Approximately 2 years ago, Dialight began using an independent agency to issue EPDs on their products, which verifies the environmental impact of all their major product lines. They focus on the materials they use, and it helps them understand what they should use for the next generation of products. They have incorporated the use of EPDs into their sales program as it helps them get products made with recyclable and sustainable materials that are approved by a board of environmental experts.
Workforce Sustainability Tom asks how sustainability, environmental consciousness, and governance are incorporated into employee acquisition. Fariyal explains that statistically, the next generation of employees does not want to work for a company that does not have a social conscience or is not doing something to help the environment. Even though Dialight is the most sustainable lighting company on the market right now, they actively try to make their employees feel that way. They participate in various initiatives based on environmental and gender-based activities and actively try to encourage women to find their space in the industrial industry.
Resources: Fariyal Khanbabi | LinkedIn | Dialight
Jared Connors and Daniel Zamora join Tom Fox in this episode of the ESG Report to discuss how market expectations have evolved with regard to due diligence in the responsible sourcing field.
Due diligence used to be a data collection exercise where you get transparency into your supply chain, but now it's all about what you do with that information after you collect data. It's about how a company can move from being reactive to being proactive and going beyond regulatory requirements. It means risk management activities related to identifying sanctions within your supply chain. The first step to becoming proactive with your data due diligence is collecting data more efficiently. This allows you to have the resources in place to perform risk management within your supply chain. "You need to have a specific program in place that would allow you to see and identify the risks so you can see where minerals are coming from and where the minerals are going afterwards," Daniel says.
Under the Biden administration, there has been a major focus on critical minerals when it comes to sanctions and regulations. Critical minerals are not specifically tied to the Dodd-Frank Act, but this focus has emphasized to all stakeholders in the industry to be vigilant about them in general. All stakeholders - downstream companies, shareholders, suppliers, customers, and employees - are engaging in discussions and conversations around the ESG requirements for critical minerals. Having an entity in your supply chain that is tied to a sanction puts you at risk, no matter how direct or indirect that linkage is.
Resources Jared Connors on LinkedIn Daniel Zamora on LinkedIn Tom Fox’s email Assent
In this episode of the ESG Report,Tom Fox is joined by Devin O’Herron and Jared Connors of Assent to discuss Scope 3 emissions reporting as the key to disclosure success. They talk about the importance of accounting for Scope 3 in your emissions strategy.
There are three scope levels within the emissions reporting strategy: Scope 1 refers to things like your vehicle or things you’re doing around your facility; Scope 2 is the purchased heat or electricity powering your facility; and Scope 3 is all those variables outside your four walls. The most important aspect of Scope 3 is purchased goods. This has a large impact on organizations that may not necessarily take in raw materials and directly manufacture those raw materials into a finished good. "Even if your organization designs products and influences those products, you typically will obtain your raw materials components through your supply chain," Jared says. The supply chain is a very significant factor to consider when coming up with the emissions strategy as a company.
A recent study found that Scope 3 emissions are typically 11 times larger than an organization's Scope 1 and 2 emissions combined. As mandatory climate disclosure legislation progresses into the future, the overall emissions strategy needs to start accounting for Scope 3 as much as possible. "When it comes to Scope 3 emissions in particular, as we think about things like carbon taxes, risk in terms of risk, if you don’t understand what exactly that applies to your organization, you are missing a big opportunity," Devin stresses. Organizations need to get a handle on their total emissions footprint. You cannot manage what you do not measure.
Resources Devin O’Herron on LinkedIn Jared Connors | LinkedIn Tom Fox’s email Assent website
In this episode of the ESG Report, Cally Edgren and Devin O’Herron of Assent join Tom Fox to discuss product compliance and sustainability. They explore how the two worlds are starting to intersect.
Making sure products meet regulatory requirements is what product compliance is all about. In recent years, the requirements have been changing. There used to be a focus on safety features like mechanical and electrical safety, but things changed with the RoHS Directive in 2002. That directive was meant to make sure electronic waste from third-world countries was safe. "The RoHS directive and the EU Ecodesign Directive require compliance, or you cannot sell in locations where they are effective," Cally remarks. It was one of the first times a regulatory rule had more to do with sustainability than traditional product safety.
Manufacturers need to understand that their customers are no longer just concerned with what they hold in their hands at the end of the process - they want to make sure that their suppliers are using responsible processes. The two worlds of operations compliance and product compliance are starting to connect. "What I am seeing and what I have experienced is we are starting to merge the environmental into the more traditional product safety," Cally says. As we become increasingly aware of the importance and relevance of the social and environmental costs associated with manufacturing processes and the barrier they present towards sustainability, ESG metrics represent another way of managing and measuring these externalities.
Resources Cally Edgren on LinkedIn Devin O’Herron on LinkedIn Tom Fox’s email Assent website
Tom Fox welcomes Travis Miller and Jamie Wallisch to the ESG Report. In this episode, they talk about the Uyghur Forced Labor Prevention Act (UFLPA), and how it impacts the way companies do business across the supply chain.
The UFLPA is a United States federal law that stops companies from importing products made with forced labor in the Xinjiang region of China or any other part of China with forced labor by workers or other minorities. This law is important because it makes sure that companies are aware of what is happening and take steps to stop it. The UFLPA makes companies use processes that already exist in their business. To follow the UFLPA, your company would need to have a compliance program in place. Jamie also explains how regulators could assess companies' compliance programs using the UFLPA.
Organizations need to recognize their organizational footprint because each company out there affects more than just the people who work there. It's not just about who you choose to do business with but also who you choose to profit from. You can't just condemn bad business practices verbally. You have to be actively engaged in ethical behavior. "It’s this assessment, it’s this realization that you are the sum of your components. You are the sum of your relationships," Travis adds.
Resources Travis Miller | LinkedIn Jamie Wallisch | LinkedIn Assent
James Calder and Jared Connors of Assent are today’s guests on this premier episode of the 5-part series, Supply Chain and ESG - What You Need to Know. In this brief conversation, they chat with Tom Fox about how ESG impacts a company's performance presently and in the future.
Before the pandemic, many companies were very dependent on global supply chains. Post-pandemic, however, companies need to focus on environmental resilience. This means that they need to be careful about where they get their supplies from because there is a risk of disruption. It is risky now to source from regions that do not abide by the appropriate environmental controls or expectations on human rights, all of which can lead to a supply chain disruption. Additionally, companies that can't demonstrate that their products don't violate human rights are at a disadvantage. Without evidence that they are adhering to labor laws, they could lose business to their competitors, Jared tells Tom.
ESG offers companies the opportunity to determine with data if there are operational inefficiencies. If there are inefficiencies, business solutions can be brought to help make companies actually run more efficiently from the data collation required for an ESG program. This in turn saves companies money. "When you think about that in the context of labor… if you're helping the well-being of these organizations or these individuals out there working in these organizations, oftentimes you see a lot more efficiency and better quality in their work," Jared says.
Resources James Calder | LinkedIn Jared Connors | LinkedIn Assent
Tom Fox welcomes Keith Deinert to this episode of the ESG Report. Keith is the Global Program Manager at Jabil, a company that provides product design, manufacturing, and logistics to customers, as well as reverse supply chain strategies. In this brief conversation, they talk about scope three emissions, define the circular economy, and discuss how these topics all relate to ESG.
Scope Three Emissions Tom asks Keith to start off by defining scope three emissions. "It's probably easier to say what they're not than what they are," Keith quips. He begins by defining scope one and two emissions: scope one being the emissions that we emit ourselves, such as greenhouse gasses, and scope two being the actual energy we consume. Scope three is everything else. "[They're] tied to the emissions from the commodities and the materials that we bring in to make the products," Keith tells Tom. Scope three is the use of the product and the transportation involved, and its final disposition.
The Circular Economy The Circular Economy sits on top and is the governing principle that drives a lot of sustainability initiatives. "It's designing eco-friendly products in the beginning, it's maximizing their useful life at their highest values…and then to regenerate natural systems," Keith explains. In a circular economy, you're building a product so that it can be reused. By doing so, you don't have to extract as much material from the earth to create new products, and you're actually avoiding driving up emissions in the ecosystem. Keith adds that companies are now adopting this mindset because their customers are more eco-conscious. "It's not just something that's a feel-good service anymore. Companies are looking at this proactively," he stresses.
Business Driven Approach Tom asks Keith if he's seen a business-driven approach to both ESG and the circular economy and to elaborate. "It starts with the customer," Keith begins. Consumers are more aware of which companies are trying to do the right thing when it comes to being environmentally conscious. Companies that want to create products or devices then come to Jabil as their manufacturers for help in making greener products. "What companies that we engage with are really good at is understanding the marketplace and their consumers," Keith explains. "And they're relying on us to be the experts on how to deliver these goals and these objectives into a manufactured product that meets that consumer's [need]," he adds. When the customer demands more eco-friendly products, it drives the businesses to comply in order to be vendors of their desired consumer targets. This, in turn, drives business profit, and companies are taking notice. Keith cautions that while this approach is currently optional, it will become mandatory just to be in the business game.
Resources Keith Deinert | LinkedIn Jabil
In this brief solo episode, Tom Fox is reflecting on the impact the Russian Invasion had on ESG. He talks about how the invasion changed the way businesses viewed their ESG programs, the importance of ESG in business and national security, and what it means for businesses to be purpose-driven.
ESG is Business Change ESG is not driven by a specific political ideology or political group. What drives ESG is the business world. "What the Russian invasion of Ukraine drove home was the need for a more holistic approach to corporate ESG, which integrates each one of those letters into the fully formed ESG," Tom says. ESG also is key in national security interest. "The transparency required by ESG programs through government required disclosure, or private sector required disclosure also ties into other areas of business change," he adds.
Reputational Risk The Russian invasion caused a major disruption in the global supply chain and created higher reputational risk for companies. Some companies were hit with sanctions, and customers boycotted others. "Hits to reputational damage are above-the-line costs meaning they eat directly into sales revenue and overall business success," Tom remarks. If consumers view your organization as supportive of oppressive and autocratic regimes, or your goods as created by slave labor, they will not want to do business with you. "The risk is simply too high. Consumers want to purchase and transact with purpose-driven businesses," Tom adds.
Be Purpose Driven "People are demanding that a company align with their values and align with their ethics," Tom iterates. An organization must fully incorporate ESG into an effective business strategy. "You have to look at ESG proactively and react to situations based upon the turmoil that is ongoing literally across the globe," Tom stresses. ESG is now seen as a 'must have' in businesses across the US and Western Europe, and companies need to understand that these requirements are not driven by regulators. To unlock capital and cash, and to grow your business, you have to have an effective and transparent ESG program so that people will want to invest in you and do business with you.
Resources Tom Fox email
Tom Fox welcomes Alexandra Poe, Andrew Fowler, and Bryan Sillaman of Hughes Hubbard & Reed (HHR) to part two of this series of the ESG Report. Hughes Hubbard & Reed released their newest ESG guide with practical guidance about the most common issues in establishing an ESG program. It also gives companies resources to help them comply with the evolving ESG expectations of regulators and investors.
Key ESG Topics In the Resource Guide Tom asks Andrew and Alexandra to highlight the key ESG topics seen in the corporate sector that are covered in the resource guide. Alexandra says that before companies tackle any technical compliance concerns they must first understand that “[technical compliance] is a topic that involves governance strategy and mission and culture questions”. This chapter of the resource guide urges corporations to focus on the current trends.
Andrew explains that there are many evolving ESG topics in this new social and political climate, so it may be difficult to choose umbrella topics for the corporate sector. However, he explains that most topics can fall into the category of risk assessment. Stakeholders and investors always need to ensure they’re investing in a safe business, so risk and mitigation planning is always a main issue.
The Regulatory Environment Tom asks Bryan how he assesses the regulatory landscape. Bryan says that the regulatory environment is constantly and rapidly evolving and it varies from region to region. The EU is more advanced than the US when it comes to regulatory efforts: they have several laws in place to limit greenwashing and identify environmentally friendly activities and sustainable economic activities. However, with the SEC rules in the final stages of being implemented, the US is on pace to become an ESG-friendly landscape.
ESG From An Investor’s Perspective Tom asks Alexandra to discuss how ESG is viewed by funds and investment advisors. Alexandra explains that ESG is viewed as an expensive commodity within the US. ESG regulations are better implemented by the private sector. The private sector is more likely to urge itself and government-based companies to make better disclosures and examine their practices better. She points out that companies always follow through with the ESG regulatory efforts they implement because it boosts their public image and aligns with their mission statement.
Resources Alexandra Poe | LinkedIn Andrew F. Fowler | LinkedIn Bryan Sillaman | LinkedIn Hughes Hubbard & Reed | How to ESG: A Resource Guide for Establishing an ESG Program for your Company
Tom Fox welcomes Alexandra Poe, Andrew Fowler, and Bryan Sillaman of Hughes Hubbard & Reed (HHR) to the ESG Report! Hughes Hubbard & Reed released their newest ESG guide with practical guidance about the most common issues in establishing an ESG program. It also gives companies resources to help them comply with the evolving ESG expectations of regulators and investors.
The ESG Resource Guide Tom asks Alexandra to explain the genesis of the ESG Resource Guide. Andrew’s previous work with renewable energy projects paved the way, she responds. It firstly led to launching the ESG practice at HHR. Eventually, they recognized the need for a guide that helps companies “unpack and understand quickly the aim of bringing ESG into their company and creating a program”. The ESG Resource Guide is the result.
The guide begins by defining ESG terminology and available resources to ensure that companies understand the importance of having an ESG program. The next chapter helps companies “orient themselves to the breadth of this endeavor, about all the different types of folks who likely would … contribute to the genesis of your ESG program,” Alexandra says. ESG regulations from various jurisdictions and other hot topics like diversity, equity, climate change, and inclusion are also explored.
ESG Means Different Things to Different People Bryan explains that ESG is a broad topic that means different things to different companies within different industries. You have to determine what is most relevant for your particular company, which is based on “your sector, your industry, and your geographic footprint”. This is why the team at HHR gathered data from multiple stakeholders. This process helped them to determine which ESG topics were most relevant to the various companies and organizations.
ESG and Funding Tom asks Andrew to describe some critical issues they have identified for private equity lenders and financial institutions seeking capital investments. Andrew replies that they should ensure that they aren't falling behind in their field while still acknowledging the new regulatory environment regulations. As a company you have to ensure that your investors feel like they're not investing in a lost cause – that there is evidence and data to show why they should invest in your ESG program.
Resources Alexandra Poe | LinkedIn Andrew F. Fowler | LinkedIn Bryan Sillaman | LinkedIn Hughes Hubbard & Reed | How to ESG: A Resource Guide for Establishing an ESG Program for your Company
Tommy Linstroth is the founder and CEO of Green Badger, a SaaS company providing easy-to-use, collaborative cloud-based solutions to streamline and automate sustainability in the green building construction market. Tommy is a leader and pioneer in the ESG space, and in this week’s episode, he and Tom Fox explore ESG in the green construction market.
Green Construction Within ESG Tom asks Tommy how green construction fits into an overall ESG conversation. Tommy acknowledges that ESG is becoming more popular at the organizational, corporate and portfolio levels. Green building is part and parcel of the general ESG framework; companies are increasingly considering sustainability in the process of construction instead of only when the building is complete. Tom comments that this idea could expand from just a building to a community or gated subdivision. Tommy agrees and explains that if a developer is looking at multi-family developments, they should look at the collective impact that those have on not just the environment but the social and governmental aspects, as well.
The Origins of Green Badger Green Badger was founded to solve the challenges Tommy faced managing green construction as a consultant. He would have to manage and track data from multiple projects, in different phases of construction. This was time-consuming, and he figured there had to be a way to automate the process to make it easier. With the extra time, they could make building projects greener, and finish them on time and within budget. Thus, the idea for Green Badger was born.
Green Certification Tom asks Tommy to explain what is green certification. For buildings, there's the primary or gold standard called LEED (Leadership in Energy and Environmental Design) certification, which is a third-party certification that is administered by the United States Green Building Control. It is used to verify the sustainability aspects of a building. About 95% of companies require it on their facilities moving forward and is used on almost everything that is publicly funded.
ESG Metrics Tom asks Tommy about common ESG metrics in the construction phase. Tommy says that the most common metric is energy consumption; for example, fuel used on-site for equipment. You have to take into account all the direct and indirect emissions being produced, such as the carbon emissions produced while traveling to and from the job site. Measuring construction waste and water consumption is also a standard ESG metric. These metrics tend to focus more on the environmental and social aspects of ESG, rather than the governance side, he points out.
Looking Ahead Tommy believes that there will be increased ESG requirements in new residential or commercial construction in 2025. He compares it to a running faucet: “Right now how we see the faucets on, and it’s just a trickle. Those financial owner-driven regulations – they're slowly lifting that lever where the drop is going to turn into a trickle, and then it's going to turn into a blast.” In the 80s and 90s safety regulations were not that prevalent, but these days they are ingrained into the culture of every work site. “ESG will become baked in as a standard operating procedure”.
Resources Tommy Linstroth | LinkedIn | Twitter | Instagram Green Badger | Website | LinkedIn | Twitter
Tom Fox welcomes Will Robinson to the ESG Report. Will, a former investment banker, now serves as the CEO at Encapture, a 20-year-old document management services company that pivoted into a SaaS product company in 2019. In this week’s episode, he and Tom talk about how Encapture helps its clients comply in the changing world of ESG.
Intelligent Document Processing Encapture is a software company with a unique process called “intelligent document processing”. Will explains that this process makes it easy for organizations of varying sizes to collect incoming documents as a part of a business process. “Encapture’s machine learning can read the document and discern what type of document it is, then the system can extract data out of these documents and utilize the data for a variety of purposes,” he says. It can transfer data to another system as well as compare data across multiple documents. “We can automate a bunch of reporting on the compliance front,” he adds.
ESG: An Incremental Change Banks are more reactive instead of proactive when it comes to ESG, Will tells Tom. Most of the ESG changes being implemented are incremental; using a proven process and appropriate technology like Encapture, complying with new regulations can be a seamless process which can often happen within a few days. This directly benefits compliance leaders who need a dynamic platform that evolves with the ever-changing real world, Will points out. Tom comments that banks usually already have the information they need to comply, but it’s siloed. Encapture is “a very powerful tool” that can help them utilize the information to respond more nimbly and a lot more quickly. “We feel like everybody is better served if we can solve this compliance issue and solve it efficiently,” Will remarks.
Resources Will Robinson | LinkedIn | Encapture
Todd Boehler has over 25 years experience in the governance risk and compliance software space. He is currently Senior Vice President of Strategy at ProcessUnity, where he oversees third-party risk management. ProcessUnity is a company that is making good governance, risk, and compliance (GRC) practices and tools available to organizations via cloud-based, third-party risk and cybersecurity program management tools. Tom Fox welcomes Todd to this week’s episode of the ESG Report to discuss the relationship between third-party risk management and ESG.
The Biggest Risk “In my opinion, third-party risk management has been the biggest risk in anti-corruption compliance,” Tom says. It’s something everyone in the company - up to the board level - has to be more consistent with. Todd agrees; it’s becoming more complex as time goes on, he adds. More businesses are outsourcing in order to compete. This brings accelerated risk. “You have to know where the risk lies inside of those [third-party] companies, otherwise you're going to be accountable for that to your customers and your regulators and your examiners,” Todd points out.
Evolving Risk Todd runs ProcessUnity’s Partners and Alliances program and its product teams. His role involves growing the company ecosystem and investing in technology to help their clients manage risk and solve their problems more efficiently. “ESG has been an evolving risk area,” Todd tells Tom. “We help companies monitor and manage their third-party [risk] specifically, across all different areas of risk [including ESG risk].” ESG is a social mandate nowadays, he continues; more companies and regulators are acknowledging its importance. “We integrate and connect ESG data providers into our customer's risk programs so that they can cover and understand ESG risk against their third parties,” he points out.
Monitoring Third-Party Risk Tom asks Todd whether potential clients fully understand the need to monitor ESG risk and how ProcessUnity allows them to manage that risk. It depends on the maturity of the company, Todd responds. “Smaller companies that are highly regulated may be more mature than larger companies that are not so highly regulated,” he points out. It also depends on the stage they are in their roadmap, as well as how much they prioritize ESG risk against other types of risk.
Financial Resiliency Tom comments on the importance of financial resiliency of your third-party partners. If a company is not doing well financially, they may be unable to supply your products. They are more vulnerable to cyber attack because they may not be able to invest in cybersecurity, and they may be more easily persuaded to engage in bribery and corruption. Financial resiliency is a must, Todd says. Your company needs it, and your suppliers must also have it.
The Rise of ESG ProcessUnity recently released a white paper, The Rise of ESG in Third-Party Risk Management. Tom asks, “What do you see as some of the key factors contributing to the relevancy of ESG on a worldwide basis?” He and Todd talk about the global push towards ESG and the corporate world’s response. A cultural shift coupled with new regulation is bringing ESG to the fore. Proper documentation of our ESG program will help you make better business decisions as well, both men agree. Your business will become more efficient and robust as well.
Looking Ahead Tom asks Todd where he sees third-party risk management in ESG in 2025 and beyond. Risk professionals are thinking about and prioritizing ESG risk more, they agree. Todd adds that ESG risk attention will increase because there will be more data and more regulations. Additionally, there will be more people taking over executive positions who wish to implement ESG cultures and regulations in businesses that require ESG risk management.
Resources Todd Boehler | LinkedIn | ProcessUnity The Rise of ESG in Third-Party Risk Management
Tom Fox welcomes renowned compliance leader, Ty Francis, to the ESG Report! Ty is the Chief Advisory Officer at LRN; he leads the company’s worldwide ethics and compliance consulting, ESG, and community outreach strategy. In this week’s episode, Ty and Tom discuss LRN’s new report, Assessing Corporate Culture, and how it relates to ESG. The Genesis of the Assessing Corporate Culture Report Tom asks Ty about the genesis of the LRN report. This is the second report LRN produced; the first one was about activating culture and ethics in the boardroom. Their previous research led the team at LRN to realize that most corporate boards did not understand culture. Ty says, “Over the last 10 years culture is so high on those lists, but when you look further into the survey and ask them what they’ve done to measure this culture, it's nonexistent.” Therefore, LRN sought to discover the general opinion on culture and ethics compliance and provide a roadmap on how to activate these skills within a company. Roadmap for Building Corporate Culture Tom highlights how the report can be used as a roadmap to build culture. Ty says that building corporate culture starts with defining ethical culture. Ethical culture is the codification of what an organization stands for and the systems that support those beliefs; the core architecture should be reinforced by leadership in how they model desired behavior. The second step in building culture is getting to know the most valuable members within your company, in each department. Culture is extremely important for building relationships within a company and allowing people to hear opinions from all sides. The Relationship Between ESG and Corporate Culture The culture within a corporate setting has always been an ESG issue. The governance aspect of ESG is directly related to culture as it is something that companies should have been implementing for years. Ty remarks, “It shows the company’s values across the board, and I think when you have a mismatch of what the company says it’s doing and what they are really doing, that can fragment any ability for a company to demonstrate that it is really a forward-thinking, future-expanding company.” The governance is to be upheld by the board, stewards, stakeholders, and managers. He lists five key considerations for boards:
prioritizing culture on the board agenda,
challenging the board’s culture,
mentoring and monitoring,
articulating the desired culture, and
establishing clear communication.
Looking Ahead Acknowledging the new legal and regulatory requirements, public pressure and the evolution of thinking surrounding corporate culture, Tom asks Ty if he believes that boards will maintain the corporate culture into 2025 and beyond. Ty believes these pressures will force boards to manage and maintain the corporate culture. Resources Ty Francis | LinkedIn | Twitter LRN | LRN Report - Assessing Corporate Culture | LinkedIn | Twitter | LRN Report - Benchmark of Ethical Culture |
Tom Fox welcomes Raj Arora to the ESG Report. Raj is the CEO of Jensen Hughes, deemed the global leader in safety, security, risk-based engineering, technology, and consulting. It is primarily known for its innovative work in fire protection and engineering. In this week’s show, Raj and Tom discuss the firm, his professional background, and how it relates to ESG.
Risk-Based Engineering Tom asks Raj to define risk-based engineering. “Risk-based engineering and consulting are all the facets of trying to assess the risk, to ensure that the probabilities and the consequences are limited for our clients,” Raj responds. They help clients prepare for emergencies, mitigate losses and respond and recover from those accidents quickly. They assess emergency management situations through risk frameworks and use the popular method of probabilistic risk assessment.
Principles + Purpose with Jensen Hughes Tom asks Raj to explain how Jensen Hughes put their Principle + Purpose strategy into practice. “Our purpose is to make our world safe, secure, and resilient,” Raj remarks, “and we have principles that we lead the company by and live by every day and that is our clients, our industry, and our performance.” A successful business needs to have a purpose and a drive for what you’re doing and who you’re doing it for. Your main priority should be being “good partners and understanding your clients objective.” You must also be performance-oriented and focused on business growth “which helps advance the purpose of the firm.”
ESG and the Engineering Industry Tom asks Raj what role an engineering firm like Jensen Hughes plays in ESG. He responds that Jensen Hughes believes that they must help achieve their ESG goals, as their mission is “making the world safe, secure, and resilient”. Most engineering firms are all about focusing on the environmental aspect of ESG, by reducing their carbon footprint, decarbonization, and environmental stewardship. Jensen Hughes also helps their clients follow ESG regulations by “helping manage wildfires, risk-based engineering, new energy storage solutions and safely advancing carbon-free energy.”
Resources Raj Arora | LinkedIn | Twitter Jensen Hughes | Website | LinkedIn
Tom Fox welcomes Tim Springer to the ESG Report. Tim is CEO and founder of Level Access, a digital accessibility company that provides technology accessibility compliance solutions for corporations, government agencies, and leading educational institutions. In this week’s show, he and Tom discuss the role digital accessibility plays in ESG.
Level Access's Niche in the Market Tom asks Tim what led him to found Level Access. Tim explains that he and his colleagues first created a website to make finding wheelchair-accessible museums in Europe easy and convenient, but that idea was not successful. They did find that digital accessibility was a fruitful idea so they decided to make all websites user accessible. Level Access was born from this. It evolved into digital accessibility and enforcement.
What is Digital Accessibility? Tom asks Tim to define digital accessibility. Digital accessibility refers to how usable all possible users - regardless of their ability or disability - find a website, app, or other digital experience. Tim explains, "When you build a digital asset there are rules that you can follow to ensure that it's usable to people with disabilities, and if you don't follow those rules it will not be usable to people with disabilities, and you will often face legal liability associated with that." He adds that this is a lucrative field because, in recent years, ESG evangelists have been promoting inclusivity and equity. “Organizations would want to be seen implementing accessibility because it allows them to tell a good equity story,” he points out.
The Relationship Between ESG and Digital Accessibility Tom asks Tim how he sees digital accessibility as it relates to ESG. Tim replies that a major component of ESG is diversity and inclusion, and the public is demanding companies to answer these questions: ‘Do you have a diverse population?’ and ‘Are you providing equivalent access for everyone in your organization?’ This is where the social aspect of ESG plays in. Additionally, due to a recent executive order from the Biden administration, accessibility will be added to the ESG trifecta of diversity, equity, and inclusion.
Looking Ahead Tom asks Tim where he sees digital accessibility in 2025 from the corporate perspective. Digital accessibility will move beyond simply a regulatory response to a more far-reaching answer. Tim expects that by 2025, digital accessibility will be one of the three core digital governance activities that organizations follow – digital security, digital privacy, and digital accessibility.
Resources Tim Springer | LinkedIn | Twitter Level Access
Bill David is the founder and Portfolio Manager of Stance Capital. This company mitigates material ESG risks, produces excess returns, and is dedicated to ensuring that public equity portfolios can align with capital and personal values, without sacrificing performance. Tom Fox welcomes him to this week’s show to talk about Stance Capital, how it helps its clients, and greenwashing.
Greenwashing Tom asks Bill to define greenwashing and explain why it is a major problem in ESG. According to Bill, greenwashing is when companies make promises to preserve the environment which are not actually true. Greenwashing is “a marketing claim that does not back up reality,” he tells Tom. It’s an important issue in ESG because we expect companies to be socially responsible. “There is an ethical partnership that goes beyond the basic contract and when it isn't done it adds a level of frustration,” Bill remarks. Tom comments that he started to seriously think about the environmental aspect of ESG when he looked at his children and thought about what kind of world they were inheriting. He talks about the importance of sustainability and the “very real threat posed by climate risk”, and urges major companies to act quickly to reverse the effects of climate change.
Chasing Shiny Objects Bill believes that the surge in greenwashing today stems from the large number of companies who want to brand themselves as environmentally friendly without adequate preparation. He says, “I think it's really just chasing shiny objects; I think lots of firms rush to the market with a product because they see that it is in demand – however, they don't understand the product.” However, there is an even more dangerous issue of greenwashing: some companies blatantly mislead the industry or investors by marketing their product as fossil-free, although it contains fossil fuels.
ESG in Russia Tom and Bill discuss how the Russian invasion of Ukraine impacts ESG and how it ties into greenwashing. Bill points out that it's difficult to discuss only the environmental aspect as Russia also has numerous social and governance issues. He notes that several companies that claim to be environmentally conscious and pro-ESG, do work with other businesses that have worked intimately with Russia over the years. He believes that this is the fault of ESG rating data. “They're not doing a full job and understanding what they're buying. And secondly, I think it’s part of the nature of the world - as things are happening so quickly - that sometimes it's difficult to think of everything in advance.” As an ESG data analyst or fund manager, you should take current events into account so that when the next event happens you can respond more nimbly.
Resources Bill Davis | LinkedIn | Twitter Stance Capital
Elizabeth Crow is the CEO of OnPoint Industrial Services, a company that services every aspect of your industrial project, ensuring its smooth execution and the safety of your workers. Tom Fox welcomes her to this week’s show to talk about OnPoint’s work, how it helps people, and the future of safety within ESG.
How OnPoint Manages Turnarounds Tom asks Elizabeth to define turnarounds and how OnPoint facilitates them. A turnaround is a concentrated maintenance event where activities that cannot be conducted while the facility is online, such as cleaning, inspection, and repairs maintenance, are undertaken. A turnaround takes up to 6 weeks and thousands of people come on-site to do the work. Elizabeth describes OnPoint as a turnaround support services provider. She says, “The biggest part of OnPoint’s business is around safety, providing permits, providing safety attendants…. everything except the work itself is what OnPoint does.”
The Relationship Between ESG and OnPoint Tom asks how ESG has affected a company like OnPoint. Elizabeth explains that since ESG has become more popular, the private equity firm that owns them, Cap Street, has been focused on instilling ESG priorities into the portfolio companies they manage. However, due to the nature of the services OnPoint provides, it is difficult to focus on ESG in its entirety. Their work tends to focus more on the social and on the governance components of ESG than on the environmental component. “By the nature of what we do we can't impact the environmental footprint,” she remarks. She explains that they are concentrating on ensuring the safety of the workforce and maintaining their safety standards and compliance.
Safety Requirements During Turnarounds Safety has always been a key component of ESG. Elizabeth believes that it has been pivotal to OnPoint’s success, since the increased emphasis on safety means companies recognize the value of having a professional safety provider. While some companies that are conducting the turnaround will hire anyone to ensure safety, Elizabeth tells Tom, “we [at OnPoint] train [people] to a specific standard and when we send somebody out, it's treated as a professional service so you get a much higher quality from that.” This work aligns with the social aspect of ESG, caring for their rights.
Looking Ahead Elizabeth believes that in the future more customers and stakeholders will be interested in more aspects of ESG, as the world is progressing in a direction to create safer work environments. Additionally, with the increasing threat of global warming more industrial companies will focus on the environmental aspect of ESG.
Resources Elizabeth Crow | OnPoint Industrial Services
Christian Perez Font has appeared on many of Tom Fox’s podcasts. He is the managing partner of Thinkeen Legal, a revolutionary law firm that specializes in corporate and commercial law, domestic and cross-border transactions, and compliance with a focus on startups, and small and mid-sized companies. He specializes in using data to help clients do traditional legal tasks. Thinkeen Legal’s main focus is the healthcare industry. In this episode, Christian and Tom discuss organizations' legal approach to ESG.
Compliance Through The ESG Lens Tom asks Christian how he approaches M&A and compliance from an ESG perspective. Christian responds that when he looks at data and legal projects, he thinks about the data from two perspectives. “First you need to think of data as fuel because it's what keeps your compliance cycle going on, your business cycle going on; but also as a measure of progress towards a certain goal.” The same goes for a company’s ESG program, he says. He explains that it is crucial to have fixed goals for each part of your ESG program as well as a way to measure your progress toward those goals. In an ESG program, you may have to analyze large sums of data in some cases, and in other cases the data may be very limited. He tells Tom, “When we talk about data in the governance side of things, you're probably going to have fewer amounts of data to track than if you're thinking about social responsibility.”
The Nexus Between Healthcare Compliance and ESG Thinkeen Legal is known for its work in the healthcare compliance industry, so Tom asks how data, healthcare, compliance, and ESG intersect. Christian explains that there's a big intersection of ESG and compliance on the social responsibility side and governance sides. He remarks, “When looking at acquisition as an investor, one of the things you want to look at is the social responsibility program to know if this is the company you want to invest in from a corruption standpoint… In the healthcare sector, we’ve seen some companies use social responsibility initiatives for improper purposes.” Therefore, he advises that good asset management - which is a part of a governance system - can provide you with useful information from a compliance perspective about what is happening in relation to ESG in the company.
ESG and Data Analytics Tom asks Christian about the importance of ESG audits and the importance of the data you collect. Christian replies that auditors play a crucial role in data tacking by having to intimately understand the trends the company is tracing. “Data analytics and tracking play a major role in business acquisitions,” he points out. “Know as much as you can about the other. Understand the company’s ESG program and have a clear grasp of its social responsibility and environmental footprint.”
Resources Christian Perez Font | LinkedIn | Twitter Thinkeen Legal | Twitter | Instagram
Tom Fox welcomes back Aaron Nicodemus to the ESG Report. Aaron is a writer at Compliance Week, a magazine that provides the latest information in the ethics, governance, risk, and compliance space. He primarily writes about regulatory policy and compliance trends. In this week’s show, he and Tom discuss Aaron’s new article series about FedEx’s journey on ESG.
The Inspiration Behind The Articles on FedEx and Their ESG Journey Justin Ross, CCO at FedEx, was dubbed the CCO of The Year at Compliance Week 2021. After he won the award, he and Aaron discussed the new efforts FedEx was venturing into. One of the initiatives that came up was FedEx’s environmental plan for the future. After extensive research, Aaron realized that “the extent of [FedEx’s] ESG initiatives went much further than I had realized”. This intrigued him and he decided to write the series based on his findings.
How FedEx Plans to Manage ESG Tom asks Aaron how a delivery company, that spends exorbitant amounts on fuel and vehicle maintenance, could reframe that into an ESG issue. Aaron replies that those were the first questions FedEx asked themselves when it conceptualized its environmental initiative. They decided to focus on reducing their emissions; that worked well alongside their fuel reduction initiative for a time. They determined that they could be more efficient with their jets, by ensuring that the engine does not idle more than necessary. However, as Aaron points out, emissions and fuel reduction are not a linear process, “Their biggest problem with their emissions is that because they're growing so fast, they're making more deliveries, they're making more flights through the air, and they just have trouble keeping their emissions down because they're expanding so fast.”
Ebb and Flow of FedEx’s Environmental Initiative Aaron says, “One of the biggest touch points for FedEx with its ESG initiative is transparency.” He explains that they want stakeholders to understand their goals and the journey to get there so that when they have setbacks, they're all accounted for. For example, FedEx has ordered over 20,000 electric cars, to reduce exhaust emissions into the environment but only received five of them. He adds that they had another goal to increase an alternative source of jet fuel but they were having an issue with supply, and they ended up having to postpone the idea several times. However, since they are in constant communication with their investors, employees, and customers, they can comfortably discuss their failures, how close they got to achieving them, and why they did or did not achieve them.
Resources Aaron Nicodemus | LinkedIn | Twitter Compliance Week | Compliance Week Profile
In this very unique ESG Report, Tom Fox welcomes special guests, Daniel Banes and Mark Henderson. Daniel Banes is the President of Commercial Tech and Mark Henderson is the Director of Solution Design Lead at Exiger, a company dedicated to altering the playing field related to fraud and financial crime. In this powerful episode, they discuss the effects of ESG in the energy industry and the role of the supply chain in ESG.
The Evolution of ESG in the Energy Industry Tom asks how ESG regulatory risk management has evolved within the energy industry. Mark explains that historically consumers, governments, and companies focused on the environmental issues in ESG, but recent global trends and regulations brought social issues to the forefront. Mark says that the Supply Chain Due Diligence Act that would come into effect in Germany on January 1st, 2023 is an example of social issues taking the front seat globally. This act would “require companies to identify, assess, prevent and remedy human rights risks, and impacts across their supply chains”. If companies do not comply with these laws, they are at risk of being fined and possibly excluded from earning contracts in Germany’s public sector for up to three years.
Climate Risk Management versus the Energy Industry Recently the SEC proposed new rules about climate risk management disclosure and Tom asked Daniel how he thinks it would affect energy companies. Dan responds that it means that energy companies would now be held accountable; over the years most companies proposed that they would be carbon neutral by a certain date, and it never materialized. “Having this disclosure rule gives the public insight - across the board for all public companies - into those targets that companies are committing to climate-related risks,” Mark says. He adds that financial statements would be audited allowing for more accountability for these companies.
Managing Scope Three Tom asks Daniel how he believes energy companies would manage Scope Three and how they could be connected to the proposed SEC rules about accountability and transparency. Mark explains, “Scope Three [is] about having data to look into your supply chain and understand emissions that are within your supply chain and have those conversations with your suppliers.” Additionally, it allows a more wholesome relationship to flourish across your supply chains and for efficiencies to be detected before discussing environmental control and risk and emissions.
Resources Daniel Banes | Exiger Profile | LinkedIn Mark Henderson | Exiger Profile | LinkedIn Exiger | Exiger's Supply Chain Explorer
Tom Fox welcomes Jules Oringel as his guest this week, and she may have the most unique story that’s ever been shared on The ESG Report. Jules is a second-year student at UNC where she double majors in Business Administration concentrating on ESG, Sustainability and Human Organizational Leadership & Development, with a minor in Public Policy. She’s here to talk about her passion for ESG and sustainability, and the road to pursuing it as a professional career post-grad.
Entering the World of Sustainable Development Tom asks Jules what led to her studies at UNC. Jules explains that in 2018, after losing a loved one in the tragic shooting at Marjory Stoneman Douglas High School in Parkland, Florida, she founded Return Home Supplies, a youth-led nonprofit organization working towards ending gun violence in America. Speaking about gun safety legislation not only helped her heal from trauma, but also educated her on how policy and business were intermixed in a way she’d never understood before.
She was really introduced to ESG in college, and was so interested that she declared a major in business in addition to her focus in public policy. In Jules’ words, “Taking classes in ESG is just opening my eyes to what ESG in business and nonprofit can do to make the world a better place.”
The Impact of Customers on ESG In her classes, Jules is learning about the economic benefits of working towards sustainable development goals as a business. Some notable benefits include higher sales, employee retention, and brand loyalty. She cites Patagonia as a worthy example for other businesses to follow. “We can’t go through and do hours of research on every single product we’re purchasing,” she comments. However, she continues, if we are mindful of the companies we purchase products from, we can make our own carbon footprints more sustainable. Ultimately, though, it’s up to corporations to focus on ESG to enact greater change.
Generation Z and ESG’s Future The current generation is very willing to embrace many concepts pertaining to social justice. Tom asks Jules why she thinks that may be. “My generation is the most diverse, and the generation most focused on social and economic justice,” Jules claims. Generation Z strives to eventually work for organizations that care about their employees, their environmental impact, and forming long-standing partnerships with social organizations working to alleviate standing issues in our society.
Why Should ESG Internships Be Offered? Jules speaks about the process of applying for internships. Tom asks her, “Do you have any thoughts that you could share directly to businesses about why they should offer ESG internships?” Though there are tons of marketing and finance internships available, it’s difficult to find roles in ESG despite the high levels of interest expressed by the current generation. Jules understands the requirement of 5 to 10 years of experience for most of the roles that are offered in social and environmental impact management, but encourages companies to work on providing more opportunities to learn from the best in sustainability, to ensure that they have convenient access to people who are ready and willing to tackle ESG issues.
The UN Sustainable Development Goals There are 17 UN sustainable development goals ranging from zero hunger to decent work and economic growth. Each goal comes with specific targets to help meet them by the year 2030. The UN Global Compact hopes to provide different frameworks and resources to encourage businesses to embrace these goals. Should businesses cooperate, we have a chance to achieve a much more prosperous and equitable future, Jules points out.
RESOURCES Tom Fox’s email Jules Oringel | LinkedIn | Instagram | Return Home Supplies UN Global Compact
Trysha Daskam has made appearances on many of Tom Fox’s podcasts over the years; she comes to this week’s show to share her ESG expertise. Trysha holds the positions of Managing Director and Head of ESG Strategy at Silver Regulatory Associates, a boutique consulting firm offering ESG services, compliance and regulatory services, and due diligence services. Today, she joins him to discuss the expectations for ESG significance and regulatory concerns moving into 2022.
The Work of Silver Regulatory Associates “We take a really unique approach to ESG,” Trysha tells Tom. At Silver, they’re thoughtful about building ESG programs from the regulator’s perspective. By evaluating an investment manager through the lens of their investment strategy, Silver understands how ESG can be incorporated in a natural way, allowing the programs to really thrive.
How Important is ESG Training? There should definitely be a focus on competency across regulatory firms, especially with the increase of investment managers being on board with ESG responsibilities. Trysha has seen an uptick in clients requesting ESG training in order to understand the responsibilities of the different members of the firm, including investment professionals and compliance professionals. “It’s correct to think about your ESG program with the same cautiousness and prudence you would use for any other policy or procedure,” she states.
The Growth of ESG The momentum of ESG in 2021 has influenced more and more organizations to voluntarily align their company values with those of ESG, and, as a result, financial services are starting to feel the pressure.
What to Expect, Moving Forward Earlier in the year, Silver issued a report discussing the areas that private investment fund managers should focus on, going into 2022. For Trysha, the key takeaways were: 1. Managers should prepare for enhanced ESG disclosure; most notably, the introduction of a climate disclosure regulation is to be expected in the near term. 2. It is likely that managers will be continually pressed to evidence the ESG-related claims they make in their policies and writings. 3. Firms will be required to articulate their approach to climate risk and adaptation; “Long gone are the days where managers run an investment strategy that doesn’t see climate as the most material risk to their process,” Trysha remarks.
Regulation and ESG Reporting in 2022 Trysha cites greenwashing as the core of every regulatory movement being seen today. Though the EU is the most vocal about this, the SEC has also stated that they view greenwashing as a major risk in the current marketplace. Where there is an opportunity to use language describing an approach to ESG, there needs to be auditing of whether or not it is authentic to what a manager is actually accomplishing.
DEI (Diversity, Equity and Inclusion) is another important issue. Managers are responding to DEI questions from their investor base on a more routine basis, and DEI-related questions have matured over time. Trysha believes that this will continue going into 2022, and there could be regulatory obligations around transparent reporting out of the SEC in the future.
She and Tom also discuss the frustration surrounding the lack of international standards for framework, and whether or not it will be addressed in 2022. Trysha thinks that some light is beginning to be shed on the evaluation, and ultimately, the development of these standards.
RESOURCES Tom Fox’s email Trysha Daskam | LinkedIn | Silver Regulatory Associates
Tom Fox is chatting with Jay Rosen in this week’s ESG Report. They discuss the critical factors involved in aligning your company culture with your ESG strategy.
What is Culture? ESG considerations have been taking center stage and are now critical for sustainable success. However, a key area organizations may overlook when planning their ESG strategy is culture, which refers to the way things get done within an organization, comprising norms, beliefs, and behaviors that determine how people show up at work.
How to Shift Company Culture “Getting culture right is essential for any successful transformation,” Jay says. Investing heavily in ESG-friendly structures, workforce strategies, and governance models only does so much, but the real change lies in educating the company around the goals of ESG, aligning hearts and minds. Jay points out that few people are prepared to alter their attitudes and beliefs simply because senior management tells them they should. Leaders are therefore required to give people a say in culture change and make it clear to everyone in the organization why the change matters, and how it allows them to meet consumer and societal needs better.
What Makes Up the Right ESG Culture? If a company says they’re all about ESG, then they need to show it. Internal company policies, processes, and cultures must align with their external communications. Correct behaviors can include things as little as carrying a reusable water bottle, using public transport, or avoiding unnecessary printing; these can all enhance your credibility as a leader of an ESG program. “Any sustainable change starts with a culture and mindset shift,” Jay tells Tom.
RESOURCES Tom Fox’s email Jay Rosen | LinkedIn
Tom Fox is back for a new episode of The ESG Report. He’s joined by Professor Karen Woody, and they go inside the SEC to take a look at the process and procedure, as well as the arguments made against the recently proposed rule around ESG.
The Proposal Process “These rules aren’t just picked from the sky,” Karen explains. There are a number of people at the SEC who come together to devise these rules, with a lot of time being spent working through the proposal process. After the rule is written, the public has 60 days to comment on it, and once this period ends, the SEC takes these comments under advisement to promulgate a final rule.
Challenging the Dissent Karen points out that in the past, there has always been dissent whenever a rule was proposed in the SEC. However, the recent presence of dissent at almost every turn in the commission has created what feels like a very political space that - according to Karen - isn’t doing anyone any favors. A major argument that was raised is that promoting rules about climate does not lie within the SEC’s scope of authority. Karen disagrees; she states, “It would be hard to find an industry that won’t be touched by a climate event,” citing the many corporate sectors that would be negatively affected should a climate emergency occur. Another big point of issue was that investors don’t care about ESG. To rebut this, Karen brings up the Conflict Minerals Regulation, and how it is the perfect counterpoint to ESG. ESG is an investor-led movement, because people do want to know how green companies are.
Challenging a Final Rule The procedure of challenging an SEC rule once it becomes final differs depending on where the challenge comes from. “The SEC is its own mini country,” says Karen, because they write and enforce their own rules, and the commission has its own court with an appointed administrative law judge. She explains the legal process that is involved with filing a lawsuit against the Securities and Exchange Commission should one wish to challenge a final rule, which involves answering to their administrative law judge, and eventually to an Article III court.
RESOURCES Tom Fox’s email Karen Woody | LinkedIn | Twitter
Matt Kelly and Tom Fox take a look at the recent rule proposed by the Securities and Exchange Commission regarding climate management risk and ESG.
Climate Change Risk Disclosure Finally, there’s a proposed rule from the SEC to require climate change risk disclosure. Should this rule be implemented, there are a few categories of data that would be required of companies, such as the impact of climate-related events, greenhouse gas emissions, and any transition activities to a net-zero future. For example, if it is possible to tie specific financial losses to specific climate risk events, this information should be included in the 10K/10Q. In agreement with Jonathan Armstrong, Matt says, “If you’re telling the public, ‘We’re gonna be net-zero by 2035!’ you’re going to have to back that up with real data.”
Compliance Questions Associated with This Proposal Matt discusses some of the questions that compliance professionals tend to raise in relation to this proposed rule, including:
Would greenhouse gas emissions disclosures be subject to internal control?
How would the audit requirement for greenhouse gas emissions work?
How would these climate risk disclosures in the 10K/10Q compare to what is published in corporate sustainability reports?
Aspirational or Actionable? With all the promises of net-zero, a regulator to watch out for is the Federal Trade Commission; they have been known to crack down on corporations who make claims of being ‘great and green’ without making any substantive moves. Matt comments on the FTC’s actions, stating, “It’s not easy being green, but it’s not easy to simply say you’re green, either.”
RESOURCES Tom Fox’s email Matt Kelly | LinkedIn | Twitter
Jonathan Armstrong has been looking at ESG from a unique angle for quite some time. In this episode of the ESG Report, he and Tom Fox are taking a look at greenwashing, and how trying to do good can end badly.
The Issue of Greenwashing One area where people can do wrong by trying to do good is combining the energy crisis with ESG. Corporations attempt to get with the ESG program by talking about carbon neutrality or the use of renewable power, but many have gone beyond simply saying ‘We are carbon neutral!’ to sound more like ‘We’re doing what’s best for the planet!’ Making these claims potentially subject your company to fair trading law across Europe, and can lead to fines or even prison in extreme cases, if the statement cannot be backed up.
The Dark Side The production of solar panels, wind turbines, and biofuels are associated with a number of issues, including forced labor, armed conflict, corruption, ecosystem destruction, and allegations of fraud and money laundering. Jonathan discusses all of these, making it clear that, “We shouldn’t necessarily assume green is good.”
Responses of the EU & UK The biggest response has come from the UK parliament, who have had specific inquiry into supply chains and proposals for new legislation, including a toughening of the UK Modern Slavery Act. Jonathan’s advice is to provide complete due diligence on who is selling the goods, and where they are coming from, to ensure a good ESG program. “A corporation does not have a good ESG program if one of its first acts is being prosecuted for abuses involved in alternative fuel source production,” he tells listeners.
RESOURCES Tom Fox’s email Jonathan Armstrong | LinkedIn | Twitter
The need for diversity, equity and inclusion is obvious, but what does that mean from a corporate perspective? Tom Fox sits down with Chief Diversity and Inclusion Officer Kuma Roberts for a conversation about DEI in organizations and the all round benefits that these values offer.
The Business Advantages of DEI “Companies absolutely understand the business case for diversity, equity, and inclusion,” Kuma states, citing the rise in the CEO Action Network, as well as smaller chambers of commerce pushing to join the fight, as well. She believes that the corporate world has transitioned from it being the right thing to do, to being the smart and most profitable thing to do.
Defining DEI Everyone understands diversity; it’s all the ways we differ. Equity refers to the access and opportunity for people who have been most disadvantaged. For Kuma, inclusion is when a variety of people have voice, power, and decision-making authority.
DEI Insurance Policy We think of safety in organizations as something inherent and traditional. When considering diversity and inclusion as part of your organization’s culture, you create an insurance policy that ensures you will remain relevant, valuable, and sustainable for years to come.
Utilizing Soft Skills Kuma gives a lot of credit to soft skills in her personal life. She speaks, from a corporate perspective, about the necessity of actively working with students to help them to understand important skills that will benefit them later on in the world of work.
The Significance of Data When seeking out inequities across their communities, Kuma’s clients make use of various sources to aid them in understanding where there’s inequity, and how their organization can make an impact. ‘Learn to leverage data as a flashlight,’ is a phrase she loves, preferring to highlight areas where there are opportunities for improvement, rather than using data as a way to punish or vilify.
RESOURCES Tom Fox’s email Kuma Roberts | LinkedIn | Twitter
In today’s ESG Report, Tom Fox is pleased to be joined by supply chain risk management professional extraordinaire, Jared Connors. They’re discussing the work done at Assent Compliance Inc., one of the leading organizations in supply chain sustainability management. Becoming a Leader in the World of ESG Assent has worked on a variety of regulations to support its clients’ compliance journeys, including substance and modern slavery regulations. Within that context, there are often reputational impacts of compliance. At Assent, the natural extension is to encourage customers to assess their suppliers’ abilities to support and adhere to these regulations.
The Impact of the Conflict Minerals Regulation The Conflict Minerals Regulation was one of the first regulations to promote greater transparency of the upstream supply chain and is a pioneering regulation that’s driven companies to look beyond their Tier 1 suppliers. According to Jared, the Conflict Minerals Regulation isn’t just about source of origin verification, but also about chain of custody.
Reputational Damage Jared tells a story that highlights the significance of reputational damage, and how it can facilitate an organization’s downfall, “This started out with reputational impacts and led to a lot of other tangible risks from a monetary perspective.”
Direct and Indirect Engagement Directly engaging suppliers involves asking them about internal controls, management procedures, and their ability to provide metrics on certain topics. This, however, is insufficient, and therefore, indirect evaluation is required. “You can’t just look at the first level,” says Jared, “You have to get deeper.” These further evaluations are necessary to understand if suppliers can “walk that talk”, because that should have huge implications in doing business with them. RESOURCES Tom Fox’s email Jared Connors | LinkedIn | Assent
Tom Fox is joined by Jed Yueh, founder and CEO of Delphix. They discuss his newest passion project with SustainableIT.org and their mission to advance global sustainability through technology and leadership.
The Work of SustainableIT.org Many people believe that sustainability is somebody else's problem to solve, but Jed makes it clear that we cannot keep thinking that way if we want to make a difference. At SustainableIT.org, they collaborate with esteemed technology leaders to drive sustainability forward across the world’s largest organizations.
The Link Between Technology and ESG Jed tells Tom that companies must “take a hard look at how you govern technology programs so that they don’t have adverse impacts on society and the environment.” Most companies view ESG as something in-demand, and so they independently chart the course they will take on ESG initiatives. At SustainableIT.org, they create and identify the best programs that can actually digitize the way a business functions while decreasing its carbon footprint.
Making an Impact Facilitating change is not about one technology company being pro-environment. Jed names a number of SustainableIT.org’s board members, explaining how many of these great technologists work for some of the world’s biggest companies. “That’s how we can have the biggest impact,” he says.
RESOURCES Tom Fox’s email Jedidiah Yueh | LinkedIn | Twitter | SustainableIT.org
Operating in a tax-efficient manner is a wise business move for a multitude of reasons. It’s time to start the conversation about the benefits of a relationship between tax and ESG, especially in multinational organizations. That’s what Tom Fox and Tracy Howell are discussing in this episode of The ESG Report.
How Tax and ESG Intersect Tracy tells Tom, “There are external forces pulling tax into the ‘S’ and ‘G’ of ESG.” In the social sector, different jurisdictions have different tax rates and laws, and as companies begin to operate in a tax-efficient manner, their activities will gravitate towards lower tax regimes. Tracy adds, “You’ve got forces trying to push the concept of ‘fair share’ rather than compliance with tax laws of different jurisdictions.” Governance-wise, it’s becoming more common for companies to be required to talk about their compliance tax audits.
The Role of Tax in a Company With the growing pressures on ESG transparency, there’s a push to standardize reporting and scorecarding of companies based on their tax transparency. This would include things like the reporting of an organization’s effective tax rate.
Tax and ESG in Multinational Organizations Institutional investors play a major role in impacting the activities of a multinational company. When making investment decisions, these entities heavily incorporate ESG scorecards with tax transparency, further emphasizing the need for a relationship between the two sectors.
RESOURCES Tom Fox’s email Tracy Howell | Email | LinkedIn
Tom Fox is talking about purpose in this solo episode of the ESG Report. He shares insights from an HBR article, What Is The Purpose of Your Purpose written by Jonathan Knowles, Tom Hunsaker, Hannah Grove and Allison James, that talks about aligning your ESG program to your corporate purpose.
The Three Senses of Purpose The authors identify the three senses of purpose: competence, culture and cause. There are gaps in these senses that compliance officers must overcome:
The cause competence gap - the lack of alignment with your business and why it exists.
The competence culture gap - where the company is valued by its customers but treats its employees poorly through low wages or an intolerant environment.
The culture cause gap - where the company has a clearly defined cause but employee engagement on that cause is very low.
Finding Your Corporate Purpose The authors map out a five-step approach to finding your corporate purpose, and also remedying the sense gaps. Itemizing the types of interests for your ESG program, and getting those departments to work together, will be crucial in order to get them to buy into the ESG approach. Understanding the three senses of purpose and their advantages will help compliance officers develop a clear sense of business objectives. Asking questions about your organization's credibility to do good and bring value to society, will keep you focused on the bigger picture and help to ensure ethical behavior. By embedding purpose in corporate behavior, and from a bottom-up perspective, purpose can increase authenticity and engagement from the day-to-day experiences of customers and employees.
The Importance of Purpose Purpose can increase customers' preference for your products and services. Purpose can boost employee engagement. "The employees have to believe in your compliance program and do business in your compliance program by believing in it," Tom quotes. The purpose of your organization and your ESG program can help with this. Purpose and ESG can help reinforce a company's reputation as a good corporate citizen. Finally, purpose and ESG will allow you to respond to crises and risks in a timely manner, in ways that are impactful.
Resources Tom Fox email What Is The Purpose of Your Purpose
‘Compliance is no longer the standard. Companies want to do business with other companies whose values align with theirs.’ This is one of the main talking points in this week’s episode of The ESG Report, where Jagmeet ‘Jag’ Lamba and Daniel Perry join Tom Fox for a conversation about third-party risk management.
The Importance of Third-Party Automation “Companies are not islands,” says Jag, “they exist mainly with the help of partners.” As the companies grow and expand, the third-party network does too. With the compliance burden, data security/privacy burden, and now, the ESG burden that accompany all of these third parties, it’s impossible to manage without automation.
Reputational Damage Tom mentions the risk of reputational damage to one’s brand through their third parties. In Jag’s company, Certa, reputation plays a role in all of the contracts they make with their key stakeholders, therefore, any reputational issue is a breach of that contract. He advises holding your third parties to that same standard. It is no longer sufficient to be compliant, as today, employees and other companies want to do business with those whose values align with theirs. “Compliance is no longer the standard,” Jag tells listeners.
The Work of EcoVadis: Improving Sustainability ESG stands for environmental, social, and governance. The ‘S’ can also stand for sustainability, but, “Sustainability actually covers all of the pillars of ESG,” Daniel claims. In a company, experts are generally required to aid in making procurement decisions, but they are probably not also experts on sustainability and ESG. His company, EcoVadis, provides a simple scorecard that tells how well, or how poorly a company is doing on key areas of sustainability, such as environment, labor and human rights, ethics, and supply chain. With these scorecards, you can start making broad, tactical decisions. By having one way of understanding the ESG of all suppliers, companies are able to implement necessary changes.
The Partnership between Certa and EcoVadis Both Daniel and Jag detail their goals for both their clients, as well as the world of ESG, from their respective company perspectives. “The only way to have a strong ESG profile is if you also measure the ESG profile of your third parties,” is a quote from Jag that sums up this partnership quite well.
RESOURCES Tom Fox’s email Jagmeet Lamba | LinkedIn | Twitter | Certa Daniel Perry | LinkedIn | Twitter | EcoVadis
In this episode of The ESG Report, David Simon, author of the LinkedIn article ‘The “G” in ESG, is Tom Fox's guest. They discuss the article’s content as well as the role of compliance in governance.
The Link Between a Company’s Meta-Contract and Governance The term ‘meta-contract’ was coined by one of David’s Oxford professors, Alan Morrison. A meta-contract is what an organization is all about, including how it will and won’t do business. Governance refers to how well or how poorly a company adheres to its meta-contract. Tom mentions that monitoring this is something compliance professionals do day in and day out, and David agrees; ensuring that a company behaves consistently with its values is something compliance professionals are best at.
Incorporating Stakeholders’ Views in a Company Once you accept stakeholder capitalism, you must ask yourself, ‘Where do I draw the line?’ To David, from an ESG perspective, the key to answering this is authenticity and integrity, “Look at your values and who your stakeholders are, and rank them in terms of priority. It’s a very individualized exercise, and it’s important for company leadership to be honest and look at who they are, and what they aspire to be.” He resists the idea of everybody fitting into the same box, because, “It’s bound to fail; I don’t think it really represents their true meta-contracts.”
The Importance of Compliance in Corporate Governance David points out that compliance professionals are really well-suited to take the meta-contract and implement it in a way that’s enforceable and consistent throughout the organization. One of the great things about ESG is that it allows compliance to broaden its horizons. Compliance can get very focused on true compliance with the law or regulatory regimes, but there are certain violations and scandals that are worse than others, and that ties to what their meta-contract is. These violations may not be violations of the law, but rather, violations of who they are as an organization. David comments on this, “From a compliance perspective, compliance professionals need to think more broadly than just the laws; more about what their organizational meta-contract is, and take steps to avoid violating it.”
RESOURCES Tom Fox’s email David Simon | Twitter | LinkedIn | The “G” in ESG: Governance
People often ask, ‘Which companies are bad and shouldn’t be bought from?’ In reality, there is no way of determining that, across the board. Some companies getting called out doesn't mean that others aren’t having issues. “ESG has that potential to introduce the baseline we’re all looking for,” says Matt Friedman, and in this episode, he and host Tom Fox discuss ESG’s role in the fight against modern slavery.
What is Modern Slavery? Modern slavery is defined as a situation where a person is tricked and deceived into a job situation where they can’t get out, and don’t get paid. Matt reveals that it often happens to migrants who are taken from one place to another, and that there are about 40 million people estimated to be in modern slavery around the world, “There are more slaves today than any other time in history.”
While sex trafficking is a large component of modern slavery, it’s actually a much broader issue. Many Latin Americans who manage to get into the US are highly exploited; they’re picking our tomatoes and oranges, and they don’t get paid at all because they’re indebted, and domestic cleaners are in situations where they’re locked in the house, not able to do anything to protect themselves or escape.
The Work of The Mekong Club The Mekong Club is a non-government organization set up in Hong Kong to work with the private sector in a positive and supportive way, and to help them understand the issue of human trafficking and what needs to be done to address it. Matt says, “Our role is to work with them, not against them.” With some organizations, the only way to get the private sector to take action is to find something they’re doing and embarrass them enough for them to implement change. The Mekong Club isn’t that kind of organization. Instead, they try to offer the services and consultations needed by the company in order to protect themselves.
About 32 tools are available, offering remedies that come from private sector companies, themselves. One of the first things done with companies is a self-assessment; based on the results, Mekong Club rates the extent to which they are achieving what needs to be done in terms of modern slavery, and works with them in order to mitigate the problems. “This is what they say they need, and whatever it is that they need, they get.” he tells Tom. The ‘S’ in ESG In Matt’s opinion, the ‘S’ in ESG has always been the orphan. Since it includes human rights, modern slavery, and safety, it is viewed by many as not having measurable, potential risk. As a result of this, a lot of modern slavery indicators - what Matt calls ‘superficial S indicators' - aren’t up to par with other areas of ESG. Matt and The Mekong Club strive to change that, “We have to have companies actually demonstrate they’re actually doing something when they say they’re doing it.”
The Road to a Robust Company The Mekong Club focuses on various things when it comes to improving a company - many of which are easy, cost-efficient, and can be implemented by you now, in your own companies. Some of these include: 1. Making the leaders understand that modern slavery is a relevant and important issue. 2. Having a point person or team of individuals within the organization that are ‘focal people.’ They would be better trained and receive whatever tools/instructions. 3. Issuing policies and procedures: e.g. Do you have a zero-tolerance statement? Do you have a mechanism in place to ensure that workers’ voices are heard? If you find forced labor, how do you remediate it? 4. Developing tools.
RESOURCES Matt Friedman | Where Were You?: A Profile of Modern Slavery The Mekong Club | The Mekong Club paper | PDF summary of our tools | Here is our most recent membership brochure | The mini-assessment tool
This is a crosspost episode that first aired on the Innovation In Compliance podcast.
Tom Fox welcomes Joshua Nunziato on this episode of the ESG Report. Joshua is an author, and an Instructor in the Social Responsibility and Sustainability division of the Leeds School of Business. He joins Tom to talk about corporate leaders conducting ethical leadership, its role in ESG, and why ethical leadership is a must in the future business world.
Creating Ethical Leadership Joshua created his Ethical Leadership course for corporate leaders to equip them with the tools and insight they need to understand the changes happening around them. "We really want to help leaders who participate in our program to understand that acceleration is really the new constant," he tells Tom. Corporate leaders need to be able to respond proactively to changes and crises. The range of stakeholders has expanded, so the traditional approach to corporate director education is no longer going to work. Directors and corporate leaders need forward-looking tools to navigate their current environment.
The Relevance of Ethical Leadership in 2022 Tom asks Joshua to explain why a course on ethical leadership is needed in 2022. Joshua responds that emerging from the crisis mode of the pandemic comes with a range of challenges that board members have to face, including increasing interest rates, high inflation and uncertainty. Board members need to be able to situate their companies against these challenges and risks, ask the right questions and provide leadership that will drive their organizations forward.
The Role of Corporate Leaders in ESG Sustainable leadership in ESG means that the needs and wants of the broad ecosystem of company stakeholders are being met with what Joshua calls, 'compassionate pragmatism'. "Corporate leaders are able to weigh up and evaluate the comprehensive impact that their decisions are having on the environment on local communities, on their employees, on their suppliers, on their customers, and yes on their investors," Joshua further explains. Compassionate pragmatism is also about taking in the impact, whether positive or negative, that corporate decisions may have, as well as managing what leaders can measure, and what they cannot. Leaders have to figure out what they value, and also what values they can gather as a business community that will drive them towards enduring prosperity.
America in Ethical Leadership Joshua doesn't see America taking the lead on ESG, or other sustainability issues; however, he does see America leading relative to other economies that are trying to get their citizens into the global middle class. Innovation on various compliance and ethical issues is happening around the US, and this is because individuals are recognizing the need to respond. The impact of corporate decisions over the decades is being felt across the political spectrum. Scandals and breaches of ethics also have serious ramifications and consequences for businesses, and so it makes sense for leaders to step and lead with ethical conviction. Joshua's role as a philosopher is to expand the moral imagination of the leaders he works with, so they can ask the right questions and consider sustainable leadership possibilities they otherwise may not have thought of.
Resources Joshua Nunziato | LinkedIn | Twitter
In ESG programs, there are many different items to be considered. In this episode, Tom Fox takes a look at one of them - materiality.
The Materiality Debate The traditional view of financial materiality is that it directly impacts a company's economic valuation. Recently, SEC commissioners have discussed it in a broader concept, encompassing data that investors deem important. Materiality, today, is whether there is a substantial likelihood that the disclosure of an admitted fact would be viewed as having significantly altered a total mix of available information. “The impact of any particular piece of information thus remains a key element of materiality,” Tom says.
Information that Investors Tend to Call For The scope of information has expanded far beyond financial data, now including categories such as human capital, DEI, social justice, corporate governance, and climate change. Though some disagree with this development, much of the investing community does want to see a broader amount of information in materiality, going forward. It is Tom’s view that, “The time when investors could be satisfied with generalized statements certainly seems to be behind us.”
Questions Companies Should Ask Themselves about Their ESG Program Tom checks out a post by Lawrence Heim and discusses some of the questions that are detailed, including:
Is ESG determining your company’s competitiveness?
Does driving your ESG agenda mean sacrificing your company’s return earnings?
How are you navigating ESG tradeoffs?
How does ESG change due diligence?
Should you become a public benefit corporation?
Should corporations address societal concerns, such as racial equity? Tom cites what happened to Activision Blizzard as an example when answering this question.
How do you develop a global approach to ESG?
How do you build an ESG framework that’s future-proof for tomorrow’s economic reality?
How do you vet a company’s performance of ESG?
How does your corporation navigate the ever-changing landscape of ESG?
“As you devise metrics to track ESG, you have to be aware of current or other changes. But once again, this is what compliance officers do day in and day out,” Tom remarks. This is yet another reason Tom advocates that compliance should lead the ESG effort going forward.
RESOURCES Tom Fox’s email Ten Really Tough Questions Companies Should Ask Themselves About ESG The Materiality Debate and ESG Disclosure: Investors May Have the Last Word
Tom Fox has already established why he thinks compliance should be leading ESG programs. Today, he takes things in a different direction to discuss the role of compliance when crafting a strategy to tackle human rights violations in your business.
Human Rights Violations Tom explains the three categories of human rights violations:
Human rights abuse in the way companies’ products are made or delivered.
Human rights abuse in the way companies’ products/services are used.
Human rights abuse by regimes where the company operates.
Obligations to Address Human Rights Violations Both compliance and ESG have driven the discussion about the role of corporations in dealing with human rights issues. “Due to a statement by the Business Roundtable, companies are now being called upon to engage as responsible corporate citizens,” Tom states. Human rights should be considered a priority for multiple reasons; morality, legal considerations and soft laws, and reputation.
Crafting a Strategy Tom highlights the three key decisions needed to determine and execute the proper strategy:
Should you exit, voice, or stay silent?
Collective or individual approach?
Which actions and tactics should be chosen? (Either direct or indirect); He identifies two examples of possible outcomes of a company choosing to ‘leave’ when human rights abuse becomes intolerable, “The bottom line is, doing nothing is no longer an option.”
Compliance and Human Rights “As human trafficking and modern slavery become more publicized, international companies must work to assess and manage risks through a human rights strategy,” explains Tom. This is something compliance professionals do every day; they manage risk! Tom cites this as the reason for his belief that compliance is uniquely suited to lead the corporate effort of addressing human rights violations.
RESOURCES Tom Fox’s email Does Your Business Need a Human Rights Strategy?
Tom Fox welcomes John Katsos to this episode of the ESG Report. John is an Associate Professor of Management at The American University of Sharjah, a scholar, and a writer. In this conversation, they talk about issues in conflict zones affected by climate change, migration, and corporate responses like ESG to these issues.
Migration Then and Now "What's changed is the scale, but what hasn't changed is that environmental factors lead to migration," John tells Tom. The rapid climate changes in this century also mean that more people are being affected. The adverse environmental factors also lead to social strife. John adds that people migrate not only for job availability, but also for food stability, and where the government is able to sustain them. This is only going to get worse in the future as the human population is so much larger than it was in the past. "We're having to deal with lots of people from lots of places and the ability of countries to manage that is becoming more and more difficult," John remarks.
A Fraction of The General Global Refugee Population Tom asks John to share insight into what roles conflict, civil war, and rebellion play in migration. "The two main drivers of people to leave are political instability and violence on the one hand, and then environmental issues on the other hand," John begins. In conflict zones, most people move around, but usually to neighboring countries. The wave of people migrating to Western countries is not a big fraction of the general global refugee population. "When people are impacted by conflict zones, we often see they're not traveling far distances," John tells Tom. When refugees travel far, it is usually because they have the money and wherewithal to do so.
The Potential for Exploitation The risk of migration is that on one side some people are doing so legally, but on the other, others are using criminal networks and organizations to get them in or out of countries. These same criminal organizations are often exploiting people in other ways. The issue for business professionals with this is that very often, large corporations are not paying enough attention to how those organizations are utilizing their labor. "Companies have to be focused on making sure that they're not using labor that's being exploited," John tells Tom. Another issue is that also, less reputable companies will use cheaper labor and not record it in their books.
Doing Ethical Business In a Conflict Zone The two main questions business professionals must ask themselves when deciding to operate business in conflict zones are: why are you there, and do you want to be there. Companies need to think critically about this, and make sure that they're not conducting business that is exploitative. "If you're there to take something out as quickly and efficiently as possible and sell it somewhere else, you need to be really careful about where your funding is going, who you're paying, who you're employing, and how your operations are working next to or in concert with conflict actors," John stresses. If companies decide that they need to be in these zones, and are providing jobs and necessities for the people there, it is more harmful for them to withdraw. However, each company will have to come to that decision themselves.
Resources John Katsos | LinkedIn | Twitter
John Katsos is a scholar, educator, and writer. His mission is to ‘help people learn to start and manage better, more sustainable businesses and be better humans.’ He is also the co-author of Business, Peacebuilding and Sustainable Development. He joins Tom Fox in this episode of the ESG Report to discuss the importance of ESG and due diligence, particularly in conflict zones.
Due Diligence in Conflict Zones Tom asks John, “How do you counsel companies to think through due diligence in conflict zones?” First, make sure that you can do the due diligence, John responds, as you may not have access to the data you need in many conflict zones. Companies in these countries need to have a “very clear red line” if they can’t do due diligence, he continues. Assume that money is going to people and places it shouldn’t, and have a process for withdrawing or shutting down operations if necessary. Corporations should ensure that workers are not being exploited: what is happening on the ground should be what’s actually in workers’ contracts, John tells Tom. “There's lots of places where the contract will say one thing, and the contract they're providing for due diligence might not be the same document they're providing even to the government,” he remarks.
Reporting on ESG Can companies in conflict zones start to make a difference around climate change, and how do they report it, Tom asks John. Reporting is the easy part, John replies, as the reporting structures and benchmarks already exist. It would be harder to start from scratch. Tom comments that he believes 80% of ESG is what you’re doing already. Companies may be doing more ESG than they realize. John agrees; he adds that siloing is a problem in that data may not be shared across the organization. “That's why I think we see in a lot of companies a shift to hiring more data managers, and hiring more information specialists who can help bridge those types of gaps.” More companies are pushing for formal reporting, John remarks; he is also seeing more intent and financing toward reporting related to the UN sustainable development goals. Companies “are much more focused on trying to align what they're doing with what not only other companies are doing, but with what governments and civil society actors are doing on these sustainable development goals,” John says.
Corporate Responses in Conflict Zones Tracking companies before, during, and after conflict is challenging, John tells Tom. Reliable data is hard to come by, and often casualty data is the best they have. He explains, “What that means from a studying standpoint is a lot of it is going to be secondary or indirect to what we actually want to measure. So when we look at things like the impact of a CSR policy or program in a conflict zone, it's often hard to know how much of an impact that program has, because there's so many other things going on around it.” Tom asks if there’s a role for for-profit companies in conflict areas in battling corruption. It’s everyone’s responsibility, John points out. “Everyone else is impacted by conflict. And so everybody else should be at the table trying to figure out ways to deal with this. And that includes for-profit companies.”
Resources John Katsos on Website | LinkedIn | Twitter
Dan Zitting, CEO of Galvanize (now Diligent), is back on this week’s episode of the ESG Report. He and Tom Fox check in about the progress of his company’s M&A with Diligent, reporting on ESG to the board, and ESG trends for 2022.
Becoming Diligent Dan tells Tom how Galvanize’s M&A with Diligent is progressing. “We’ve had a big year,” he says. Galvanize being part of Diligent means that they can now bring a truly integrated GRC solution from the board to the front line. “We are working really hard on technology capability that brings what GRC professionals do directly into the boardroom,” Dan remarks. “...We're creating the ability to say, ‘Hey, alongside that board book sits information dashboards and information and analytics about how other areas of governance and risk and compliance in the front line are working’.” Real-time reporting on ESG will help the board engage in governance more proactively, he comments.
Tom asks how the acquisition strengthens Galvanize. We have the opportunity to elevate our work all the way to the boardroom, Dan responds. Also, Diligent’s global scale means that Galvanize now has access to more resources and a bigger client market.
The Proactive Approach What are some of the key changes you’ve seen in the GRC space, Tom asks Dan. 2021 has accelerated progress toward an integrated risk management approach, he replies. Global pressure to take ESG seriously has also spurred this on. Both Tom and Dan agree that companies need to be nimble enough to pivot in anticipation of rapid change. “Traditional approaches just don't work,” Dan points out. “If the way we're going to evaluate these events is by auditing past history or looking at how we complied with controls in the past, it's just not good enough anymore.” The better, more proactive approach to risk management involves using leading indicators rather than historical auditing activity. He describes how an automated GRC platform can help companies achieve this goal. We encourage our clients to think about creating structures and systems rather than just focusing on the software as the solution, he tells Tom.
Reporting to the Board and ESG Trends “Particularly on ESG topics, the board is looking for the answers to simple questions,” Dan advises. Keep your report to just 5 points and their relevant benchmarks. Currently, two hot topics boards want to know about are carbon emissions and gender diversity. Dan believes the conversation will expand to other issues in the coming years, and that we’ll see ESG becoming more important throughout the organization. “I think a lot of organizations are going to be setting up a sustainability function that will ultimately have responsibility for doing that kind of accounting. We should be concentrating on that and then in turn connecting it to standards and compliance programs which is exactly what we know how to do as GRC professionals,” he remarks.
Dan shares his view on ESG trends for 2022 and beyond. The rapidly increasing pay rate for GRC professionals is a sign of how important and necessary this role has become. Boards and audit committees are also asking more questions and looking for guidance on ESG. That’s a good indication of what’s to come, Dan says.
Resources Dan Zitting on LinkedIn | Twitter Diligent Institute
Cécilia Fellouse-Guenkel is a well known compliance practitioner in France. She and Tom Fox have worked together in live as well as virtual conferences. She moved into the compliance industry when she joined a medical device company in the US. Since then, she says, compliance has been her passion. She eventually opened her own compliance consulting business, called Compliance For Good. The name of her company signifies that compliance is not only for the greater good, but for the long term. She and Tom talk about the evolution of ESG and how it has a positive impact on companies as well as the wider community.
Evolution of ESG Tom asks, “How have you seen ESG evolve in Europe and the EU over the past few years?” Cécilia responds that ESG is a broad notion, many aspects of which have existed for quite some time. “I guess what's changed now with ESG is on the one hand, how the investment and the financial world have been behaving recently,” she remarks. ESG-oriented investments have increased to the tune of US$30 trillion in recent times. Financial institutions are now willing to put a price tag on companies’ ESG efforts based on KPIs, which is an area compliance professionals are experts in. She discusses the strict ESG regulations in France and the EU - particularly the Duty of Care Act and the SFDR mandates respectively - which she says are catapulting ESG into the limelight as a critical issue for companies and compliance professionals. She and Tom talk about the impact on companies’ supply chain and the disquiet some stakeholders feel about these new regulations because of the presumption of responsibility now placed on businesses.
A Holistic Conversation What advice are you giving your clients about ESG, Tom asks Cécilia. Companies come to her with questions about the Duty of Care law and other ESG regulations. “What I love the most is to make it a more holistic conversation, a global conversation,” she tells Tom. She shows her clients how they can achieve both an impact analysis and Duty of Care plan at the same time. “What I like about ESG is that it’s a shift for compliance people going from mostly looking at the risks … ESG is also looking at the positive aspects. So it's really risk, opportunity and positive impact,” Cécilia comments. The conversation immediately becomes more strategic, efficient and helpful when you take this perspective, she adds. Boards also are more willing to listen. She emphasizes that this type of holistic approach is not new to compliance officers: another reason they are in a good position to lead the conversation around ESG.
Value of Compliance in ESG A recent report by McKinsey explains the impact ESG has on a company’s profitability, including lower risk of sanctions, higher employee retention, and attracting potential talent. Cécilia says that compliance professionals should make sure they’re part of the conversation. She shares practical advice from two books. Tom comments that some compliance professionals don’t feel as comfortable with the E of ESG, as they believe they lack technical skills in that area. He asks Cécilia to share her thoughts on the subject. Even though the environmental aspect is a technical area, she remarks, compliance officers can still offer their expertise, such as in monitoring and standardizing KPIs. Another key area where compliance has valuable expertise is in third-party risk management.
ESG Into the Future Cécilia wants compliance professionals to jump on the ESG train in the future. “It’s where we belong,” she tells Tom, “in the strategic sphere and the strategic role of ethics and compliance.” She likes Allison Taylor’s idea of the CCO as the Chief Integrity Officer. She is also hoping for more standard KPIs to move the industry forward.
Resources Cécilia Fellouse-Guenkel on LinkedIn
Aaron Nicodemus has been a reporter for over 30 years in the US and South Africa, having written for various notable publications including Bloomberg. He has been a writer/reporter at Compliance Week for the last 18 months. He is Tom Fox’s guest this week on the ESG Report. They discuss his recent article about the intersection of ESG and compliance, entitled “Compliance Must Carve Out Role in Company ESG Efforts.”
Inside the Mind of the CCO Survey “Every year for the past three years Compliance Week has conducted an Inside the Mind of the CCO survey,” Aaron tells Tom. This year the focus was on ESG since it has been a hot topic, and they wanted to gauge what ESG initiatives looked like across industries and organizations. “Almost all of the compliance officers who took the survey felt that compliance should be involved in ESG initiatives at their company,” Aaron reveals. CCOs believe that compliance is best positioned to lead ESG since it intersects with so many of their core functions. “Putting [compliance] in charge of the ESG initiatives would help make sure that [the company] meets all the regulations that they should, and also that they are reporting on data that is both accurate and informative,” he comments. Now that the SEC is poised to issue new mandates regarding climate change disclosures, compliance will most likely have to be front and center for ESG going forward. “When regulators get involved that tends to push compliance to the fore,” Aaron remarks.
Key Findings Tom and Aaron discuss some key findings outlined in the article. These include:
The actual role of CCOs in ESG - 73% of CCOs have an active role in ESG, either as advisor, primary overseer, or advocate.
Where they see their role - 23% of CCOs feel they should have more oversight over ESG than they currently have. Most persons surveyed feel that compliance should have a prominent role in ESG.
Whether compliance should lead all 3 aspects of ESG - Most CCOs see governance as their core function, while environmental and social concerns are secondary roles.
Compliance is the conscience of the company.
Stakeholders are demanding more information on ESG to influence their investment decisions.
Growth of ESG Tom sees ESG as the fastest moving corporate initiative. He asks Aaron if the survey confirms this view. “It's been a gradual process that has come to a head in Europe and in the UK,” Aaron responds. Similar climate change disclosure mandates are likely to happen in the US in 2022. Companies have been pursuing sustainability and D&I initiatives for several years. “ESG collects up some of those things in a tight little bundle, and you can really pursue a lot of issues under the ESG umbrella,” he continues. He sees ESG accelerating over the next few years, starting with climate change.
Resources Aaron Nicodemus on LinkedIn | Twitter | Email Compliance Week: Compliance Must Carve Out Role in Company ESG Efforts
Tom Fox welcomes Nick and Gio Gallo, brothers and co-CEOs of ComplianceLine, to this episode of the ESG Report. In this brief conversation, they talk about looking at ESG from a financial and corporate perspective, and helping compliance professionals navigate along that spectrum.
Finance Vs Compliance Financial professionals would view ESG as an opportunity, as opposed to another task they'd have to complete. For the finance professional, ESG is a new conversation they can be a part of and potentially take credit for; at the very least you can be ahead of the curve in terms of investments. Another distinction between the finance and compliance professional is that the finance professional would most likely look at ESG through a financial lens - in particular how capital markets view companies with strong ESG programs, and how that impacts the company as an investment.
Grasp The Opportunity ESG is an opportunity for ethics and compliance individuals to have more of an impact within their organizations, so it's a great opportunity to take advantage of. Executives should try to understand why their ethics and compliance professionals care about ESG so much. Compliance and ethics professionals, in speaking with their higher ups, should use the programs that are already in place within their organizations, as well as their reports, to explain why ESG is important. It's about shifting the mindset and using the opportunity that ESG provides for your company.
Take Credit Where Credit is Due There are people within organizations who are making an impact every day, and doing their best to make the world better, whose efforts can be aggregated through data pools and data lakes. Aggregate them into already existing programs within your organization, and start taking credit - not just for yourself, but for the broader organization. Part of how you do that is understanding your target audience, so you have some direction on how to build your company roadmap.
Resources Nick Gallo | LinkedIn | Twitter Gio Gallo | LinkedIn ComplianceLine
Tom Fox speaks on important issues to note in designing and implementing ESG programs. He shares an overview on the structure of ESG programs and explains why they should be led by compliance.
ESG Internal Controls ESG programs must be tailored to fit your company’s risk profile, Tom explains. Companies must be able to identify, measure, and address all risks within ESG. “The ‘E’ is going to be more focused on climate and the environment, but this means understanding your company's environmental footprint and your risks.” Rather than assigning this to the audit committee, Tom recommends ethics and compliance, as they have a similar responsibility and similar processes. “This tends to show how compliance lends itself to either leading or being a significant part of an overall ESG corporate response,” he adds. From an operational perspective, it makes more sense to then report directly to the board after these operations are put together.
Measuring ESG ESG operations consist of a cross section of corporate operations, environmental concerns, and social issues. Companies must identify issues falling under the ESG umbrella, tailor an ESG program, and select key measures of performance. “ESG disclosures open up an entire new set of standards, controls, and requirements around setting proper disclosure of ESG relevant information and performance,” Tom tells listeners. DEI is just one; climate change and environmental issues will raise another set of requirements. Companies will have to determine what information shareholders, stakeholders, investors, and others will focus on for the ESG evaluation process.
ESG and Compliance Both ESG and compliance programs involve risk assessments, policies and procedures, and controls to mitigate risk, to name a few similarities. Tom advocates that compliance is uniquely suited to lead a corporate ESG effort, as this new world “shares many operational principles with an overall ethics and compliance program.” Issue programs must be designed around five basic operational issues:
Information collection,
Accuracy and reliability of information,
Data collection procedures,
Coordination with the disclosure procedures, and
Testing, auditing, and monitoring the process to ensure accuracy and effective operation.
Resources Tom Fox’s email
Implementing ESG Programs: Structure and Responsibilities (Part I of III) - Corruption, Crime & Compliance
Building an ESG Structure and Program (Part II of III) - Corruption, Crime & Compliance
Basic Operational ESG Program Issues (Part III of III) - Corruption, Crime & Compliance
Tom Fox speaks on the role of boards and management in ESG in this episode of the ESG Report. He was inspired by a recent article in the Harvard Law School Forum on Corporate Governance, written by Jurgita Ashley, Randi Van Morrison, et al., entitled ESG Governance: Board and Management Roles & Responsibilities.
Oversight The board has the responsibility of oversight in ESG matters, which can include issues running the gamut from human capital to climate change to the supply chain. “There is no consensus right now on key topics or issues encompassed under the ESG categories,” Tom tells listeners. Each stakeholder may have their own criteria about what they see as a priority, but they all want to see “demonstrable and verifiable results”. More companies want to see enhanced board oversight and management responsibility for business-relevant ESG issues, but there is no universally accepted approach on how to structure board oversight as it depends on varying factors across organizations. “Key for companies,” Tom remarks, “is to develop an oversight structure with accountability - which can include both corporate charters and corporate governance guidelines as well as internal processes and procedures - which are appropriate for your organization.” The next step is to develop corresponding disclosures to inform investors and stakeholders how the board is overseeing these issues, he continues.
Board Oversight Approaches Tom shares ways ESG oversight responsibilities can be allocated within the board, including:
Full board oversight - suitable for smaller companies or smaller boards. This approach raises the profile of ESG in the company; however, ESG issues may not be fully examined or addressed for lack of time on the board’s agenda.
Mix of full board and committee oversight - the full board has oversight on the most significant ESG matters, and other matters are dealt with by appropriate standing committees who report to the board. “This approach can help integrate ESG considerations into business functions,” Tom points out.
Standalone ESG committee - this approach allows for regular and in-depth discussions of ESG considerations but runs the risk of separating ESG from broader strategic and financial discussions. If you choose this approach, Tom advises, include chairs from other representative committees.
Multiple existing board committees for oversight of discrete ESG matters.
Reporting to the Board Many compliance professionals struggle with what and how to report to the board regarding ESG. “I think the first thing to do is assess your Board of Directors’ ESG competencies,” Tom advises. Most board members will need to be trained on their role of ESG oversight. What you ultimately need to report, he points out, are the ESG metrics deemed most significant to the company. There’s also no universal rule on how often to report. The authors of the article agree, however, that “a regular reporting cadence is important in light of the directors’ fiduciary oversight at many companies.”
Resources Tom Fox email FCPA Compliance and Ethics blog Article: ESG Governance: Board and Management Roles & Responsibilities
Tom Fox continues to explain why he believes Compliance is best to lead the ESG effort going forward. In this final part of his solo series, he focuses on response and enhancement.
ESG Reporting Response and enhancement is familiar to compliance professionals as continuous monitoring leads to continuous improvement. Given the dynamic nature of ESG, companies will need to continuously improve their performance in these areas. ESG must look to more fundamental drivers to achieve real results and be rewarded for them, and the key to this is moving these initiatives forward through ESG program responses and enhancements. Corporate leaders need to step away from the mindset of only tackling compliance and ESG out of a need to protect their firms' reputations, and replace that mindset with an ambitious ESG strategy if they want to see real financial dividends.
ESG in Business Developing realistic benchmarks and strategies within organizations can rally the workforce, and prevent what Tom calls 'agenda tinkering' at the top. “Organizations that take consistent steps over time to reach specific sustainability goals often experience long-term operational savings," he says. When everyone is aware of common goals it helps to achieve a deeper understanding of how the supply chain contributes to overall environmental sustainability performance. Growing a business sustainably doesn't mean you see a finish line with every achievement. Even if business leaders see compliance as purely reactive, every compliance professional understands that the only way to maintain an effective compliance program is through continuous improvement. Companies should avoid a static approach that is merely focused on doing the bare minimum of regulatory requirements. You should strive to align your company's financial and ESG performance because it gives investors a more complete evaluation of your company's prospects.
Compliance Must Lead Response and enhancements of an ESG program are directly tied to compliance requirements of continuous improvement. One sign of an effective compliance program is the capacity to improve and evolve. Tom lists four steps to do with the information generated by their ESG program, including:
Having a strategic plan ready to implement your findings of continuous improvement;
Putting accountabilities in place for your plans of execution.
Overall, the process for designing, creating and running an ESG program are fundamentally similar to a compliance program and so are the goals. There is no conflict of interest in compliance leading the effort of corporate ESG as there are multiple levels of verification and monitoring.
Resources Tom Fox email FCPA Compliance and Ethics blog
Tom Fox believes that the compliance department is best positioned to lead the ESG function, and in this solo episode, he continues to explain why. He focuses on reporting and ongoing monitoring which, he says, should lead to continuous improvement.
ESG Reporting At first glance, ESG reporting may seem outside the scope of the compliance professional; if you look deeper, however, you’d realize that it’s a large part of what they do every day. Compliance understands and leads the process of detailed documentation in order to satisfy regulatory requirements. The problem for ESG is that there are no universally accepted reporting standards. Regulatory bodies around the world, particularly in the EU, have started to come out with ESG reporting frameworks, so the process is evolving. Compliance professionals should keep abreast of these developments. Tom comments that many companies are already doing ESG reporting in some form, as evidenced by their corporate reports which include ESG information. This matters, he says, because “companies with good ESG practices have lower cost of capital, better operational performance, and better share price.” These companies also are more attractive to investors and potential employees.
ESG Reporting for Compliance Professionals What should compliance professionals think about with regard to ESG reporting? Tom lists 6 key areas, including:
understand what your company is already doing on sustainability;
carry out an assessment of stakeholder ESG behaviors;
don't disregard sustainability as simply a cost, but see it as a way to make you a better company.
The efforts you make as a company to operate sustainably impact the wider community, and your reports are a way to have those efforts acknowledged. “The bottom line is that much of the work done by compliance can be used as a basis for your ESG reporting,” Tom reminds listeners. “Verifiable ESG reporting ...allows stakeholders to compare performance and make meaningful decisions. Transparency is critical to the process. ...This transparency and its reporting enables shareholders and stakeholders to gain a clearer picture of companies direction and progression.” He shares some additional ways companies can improve their ESG reporting, including integrating ESG data and mindset into everyday business operations.
ESG Monitoring You can't manage what you don't measure, Tom points out. Shareholders, investors, and stakeholders want to confirm that a proper plan is in effect to monitor ESG KPIs. Companies that take ESG seriously must have a central management committee. “The key is a standardized approach to ESG data collection and monitoring; this is because, without standardization leading to consistent reporting practices across an organization, it can be challenging to understand and compare performance progress towards targets,” he explains. Your framework must include quantitative and qualitative metrics. He gives some examples of ESG metrics, including those set by the World Economic Forum. These ideas are nothing new to compliance professionals, he remarks; another reason why they are best suited to lead the ESG function.
Resources Tom Fox email FCPA Compliance and Ethics blog
Mike Munro has worked with global companies such as Dell Chemical, Baker Hughes, and Transocean, for more than 30 years. His last position before founding Global Compliance Management and Response (GCMR) was as Chief Compliance Officer at Odebrecht Engineering and Construction in Brazil. He joins Tom Fox on this week’s episode of the ESG Report to discuss GCMR, as well as moving from compliance to ESG.
ESG Is More Than Anti-Corruption Mike believes that compliance is about more than just anti-corruption issues. “It was clear that the elements and the focus of compliance programs and efforts are really applicable to a much broader area,” he tells Tom. After his work at Odebrecht ended, he decided to establish his own company to “bring what all of us have learned over the years regarding compliance programs and their value and the things that they're focused on, and make sure that they can also bring value to other areas. And so that brought me into ESG because clearly, that is an area that does need a lot of help, a lot of work.”
From Compliance to ESG Tom asks Mike, “What are some of the skills you see that a compliance professional has, which really lends itself to either leading or being a part of the leadership team for a corporate ESG effort?” Mike responds that one such skill is the ability to work cross-functionally. “A company really has to bring in many different stakeholders within the company, make sure that all those stakeholders understand what the issues are, understand what they need to do, understand their role in compliance. And that is exactly what is needed in ESG,” he tells listeners. ESG covers many dimensions and requires people across the company to work together, so the compliance officer - who already has expertise in leading cross-functional teams - is well suited to take the lead. He and Tom discuss how compliance and ESG overlap and that ESG will evolve in the same way the compliance function did. “All of those things that happened with compliance programs early on,” Mike remarks, “where you started with a very basic program, and then you moved to training and then you moved to tracking and then you moved to running investigations. Those similar things need to happen with ESG.”
The Culture of Safety Many companies are already doing good things - particularly in safety and environmental compliance - but they don’t have a formalized ESG program, so they do not track or communicate what they’re doing, which means that they don’t get credit for their efforts. An ESG program ‘allows for more of the positive story to be told,” Mike comments. Tom remarks on the culture of safety in energy companies. Everyone knows why the safety rules are important, and they follow them religiously. He and Mike agree that this is the same direction compliance and ESG need to take.
GCMR and the Future of ESG GCMR has brought together a global team of experts who can address ESG issues with the local context. “We are just absolutely focused on making sure when we provide services to a client that we are first and foremost, stressing that local issues have to be understood,” Mike points out. Tom asks whether Mike believes regulators or stakeholders will drive the evolution of ESG. It will be the financiers, Mike responds. He comments on the push in the EU for sustainability elements to have the same financial standards and the implications for companies’ financial reporting.
ESG in Acquisitions GCMR has compiled a simple list of key ESG items. This is how they help companies quickly assess potential acquisitions. “Part of the value of ESG reporting is being able to tell the whole story, but I truly believe that sometimes people make this more complicated than it has to be,” Mike comments.
Resources Mike Munro on LinkedIn Global Compliance Management and Response
Tom Fox evangelizes on why the compliance department is best suited to run the corporate ESG program on this week’s episode of the ESG Report.
The Materiality Assessment Many regulatory frameworks view the risk assessment as the key foundational mechanism to identify risk for the corporate compliance program. In the ESG space, you need to understand material ESG matters, which transforms your standard risk assessment into a materiality assessment. It’s important for several reasons, Tom tells listeners, including:
It’s the starting point from which you manage your non-financial risks and opportunities;
It helps determine topics that should be considered in the business/sustainability strategic development;
It is the starting point for an overall sustainability framework;
It helps you gauge the impact of your business on society and the environment, as well as meet stakeholder expectations.
A Strategic Business Tool KPMG sees the materiality assessment as a strategic business tool. “This is because it provides an opportunity to apply a sustainability lens to business risks, opportunity trendsetting and enterprise risk management processes,” Tom explains. It’s a formal exercise whose objective is to engage stakeholders to find out which ESG issues matter most to them. “Insights gained can be used to create strategy and communication and help you tell a more meaningful sustainability story,” he continues. He outlines the 7 steps in conducting a materiality assessment.
Policies & Procedures Your ESG policies and procedures are your first line of defense when stakeholders come knocking, Tom argues. They should outline responsibilities for compliance within the organization, as well as detailed internal controls, auditing practices, and documentation policies. These policies should be regularly reviewed and updated. In addition, properly documented policies, that are signed by employees, serve as internal communication and control. “Together with a signed acknowledgement,” Tom remarks, “these documents can serve as evidentiary support if a future issue arises.” Regulators and investors want to see that you consider your impact on the environment, the community, and your employees.
Why Compliance Should Lead ESG Materiality assessments and policies and procedures are “directly in the wheelhouse of the compliance professional,” Tom points out. While there are some technical aspects, particularly in the environmental sphere, that need subject matter experts, they can still be overseen by the compliance officer. He advises compliance professionals to familiarize themselves with materiality assessments and ESG policies and procedures since ESG is here to stay. “But remember, probably 80% of what you do as a compliance professional - if looked at in a different light - would fall under the S and the G of ESG.”
Resources Tom Fox email FCPA Compliance and Ethics blog
Christian Perez Font, Managing Director of Thinkeen Legal, specializes in using data to help clients do traditional legal tasks. The legal department is a business support function, he tells host Tom Fox. He is licensed as an attorney in Venezuela and the USA, and opened Thinkeen Legal in 2018 to provide his clients with “business advice with legal content”, particularly in corporate, transactional, and compliance matters. In this episode of the ESG Report, Christian discusses with Tom about how ESG impacts the healthcare, energy, and the M&A space.
Healthcare Compliance & ESG Many healthcare companies donate to community initiatives and are often asked to contribute to social responsibility efforts. However, the healthcare space has specific compliance regulations, such as the anti-kickback statute which prohibits payment for referrals. These regulations are being enforced more strictly. How you set up your compliance program is so important, Christian tells Tom. You should have policies and separate structures for dealing with charitable contributions so that they can be audited and the data analyzed. He describes how he helps clients formulate an ESG program that incorporates modern concepts.
Energy Compliance & ESG Tom remarks on Venezuela’s social responsibility requirement for energy companies that was in place long before ESG became a trend. It was one of the first countries to mandate such measures, Christian agrees; the aim was for international companies to contribute to local communities. Personally, Christian does not like these mandates: he prefers companies to contribute voluntarily because it’s the right thing to do and because they want to get involved. “My philosophy in compliance has always been that we need to move the needle from compliance to ethics, where we do the right thing not because we're obligated to do it, but because we think it's the right thing to do,” he comments.
Tom asks, “How do we do this in the ESG, and then how do we document and report it to those ESG stakeholders who might be interested?” There’s no clear answer about who is best qualified to lead ESG in an organization, Christian responds, but somebody needs to do it. “Somebody needs to be tracking what the company's doing in terms of ESG and not only tracking but helping visualize it so that everybody can understand…”
M&A & ESG “Are you beginning to have discussions with clients about looking at testing or performing due diligence on ESG components of [M&A] targets?” Tom asks Christian. ESG is becoming a bigger part of the conversation, especially with younger investors, Christian responds. Your reputation as a business will play a big part in whether you can attract investors. They also want to see your commitment to social responsibility, governance, and transparency, all of which are ESG issues.
Resources Christian Perez Font on LinkedIn Thinkeen Legal | Email
This episode was aired on the Coffee and Regs podcast and is cross-posted here with permission.
Greg Hotaling is a Regulatory Content Manager at Compliance Solutions Strategies (CSS), specializing in global regulatory matters relevant to the financial industry. Marye Cherry is the EU Regulatory Counsel and Head of ESG at CSS. She is an expert in transparency and regulatory reporting issues in the financial services industry, including ESG. In this special two-part series, Greg and Marye demystify the complicated world of ESG including the latest regulatory developments, the complexity of ESG data, and what ESG actually means for investment managers.
Issues with Data “There is a current - and I think it will be a persistent - gap in the available ESG data as compared to the data that's being demanded by the SFDR,” Marye tells Greg. As such, investment managers may not have all the data they need to comply with coming regulations. They currently rely heavily on ESG data vendors to fill the gap, but there will be some shortfall for quite a while. This problem will be exacerbated for smaller companies, and those outside the EU jurisdiction when the regulation comes into effect, she points out. She is hopeful that proposed amendments to the NFRD and CSRD will bring reporting requirements in line with the demands of the SFDR.
Investment Managers Should Know Greg asks Marye, “If we took what you said and we wanted to wrap it up in two or three bullet points for the investment manager and their compliance department, what would you tell them?” The first thing, she says, is to have a data partnership that can evolve with the demands of the SFDR. She uses the taxonomy as an example of the “piecemeal development of ESG regulation within the EU”. The regulation will continue to evolve. “I think that the starting point is a data partnership that can respond to the evolving compliance challenges over time,” she comments. Having a global outlook is another key point, she says, because ESG regulations are being established in many countries, including the US and UK. The system you put in place should be flexible, and able to deal with the convergence and divergence across jurisdictions. ESG data firms don’t all collect the same type of data, nor do they report data in the same way, Marye says. This poses another challenge. She advises companies to use a partner that’s agnostic to the type of data provided and can process different sources of ESG data. This will put you in a good position once standards become clearer.
A Welcome Development The consensus by companies in the EU is that ESG regulation is a welcome development, as it answers the problem of standardization. It also addresses greenwashing of data. The Netherlands is ahead of the game, Marye says: “The Nordic asset managers have distinguished themselves by being able to classify on March 10th a very large percentage of their product offerings.”
Resources Greg Hotaling on LinkedIn Marye Cherry on LinkedIn | Twitter
This episode was aired on the Coffee and Regs podcast and is cross-posted here with permission.
Greg Hotaling is a Regulatory Content Manager at Compliance Solutions Strategies (CSS), specializing in global regulatory matters relevant to the financial industry. Marye Cherry is the EU Regulatory Counsel and Head of ESG at CSS. She is an expert in transparency and regulatory reporting issues in the financial services industry, including ESG. In this episode of a special two-part series, Greg and Marye demystify the complicated world of ESG including the latest regulatory developments, the complexity of ESG data, and what ESG actually means for investment managers.
About ESG ESG, green initiative, and sustainability are often used interchangeably; according to Marye, they all refer to the underlying principles of planet, people, and profit. She tells Greg that ESG is about “doing business in a way that exhibits concern for the long-term health of the planet and for the people who are impacted but still being able to do that profitably.” In the financial sector, ESG “refers to the integration of economic, social, and governance factors in the investment process.” It’s also called sustainable finance, Marye says.
What Investment Managers Should Know In the past, ESG in the financial sector was mostly based on voluntary frameworks and standards, but in recent years, regulation has become the norm. “ESG will be most relevant in terms of the regulations that are coming or that already exist,” Marye advises investment managers. The EU is the most advanced region in this regard: they have already established several regulations including the Action Plan on Sustainable Finance, and several new regulations are upcoming. Regulation is where the action is in the ESG space, Marye points out.
Save the Date Greg asks about important dates investment managers should keep in mind. The Sustainable Finance Disclosure Regulation (SFDR) is the upcoming regulation asset managers should focus on, Marye replies, and there are two dates to watch. The first date, March 10th 2021, was the initial implementation of SFDR. EU asset managers needed to classify their financial products under the articles of the SFDR and start to amend their documentation to disclose that classification. “The SFDR went into effect however, before the detailed technical standards were available to the market,” Marye says, and the pandemic further delayed the release of those standards. The standards as well as taxonomy linked disclosures will be released soon in the same document, so listeners should look out for that. The effective implementation date will be July 1, 2022.
Resources Greg Hotaling on LinkedIn Marye Cherry on LinkedIn | Twitter
Bryan Sillaman, Head of the Paris office of Hughes Hubbard & Reed LLP, chats with Tom Fox about two articles he recently wrote in this week’s show. They discuss how to establish a corporate policy for ESG, as well as the renewable energy market and what’s driving its evolution.
5 Steps to Corporate ESG Policy Bryan tells Tom that Larry Fink’s message about climate risk being investment risk, as well as the statement on stakeholder capitalism, helped shine a brighter light on ESG. Companies needed guidance on how to establish their own ESG policy, and his article, Five Steps to Establishing a Corporate ESG Policy for the Present Moment, provides a practical strategy for moving forward. Tom comments that it is a framework for responding to stakeholders such as regulators and investors, who are demanding more sustainability. When establishing a corporate ESG policy, start with what you can do and look at what you already have, Bryan advises listeners. It’s a process that will take time, and each company’s approach will differ depending on their circumstances. “This is a process, and it's important as part of the implementation, to recognize that you need to test and to modify and perhaps enhance things going forward…” he remarks. Compliance officers have skills that translate well into leading ESG, he continues: “Compliance is - at its very essence - a risk management and also a change management process.”
Clean Energy Tom asks Bryan to talk about another of his articles, Keeping the ‘Clean’ in Clean Energy. The booming demand for clean and renewable energy will bring many opportunities, but also several risks, Bryan responds. This inspired him and his colleague to write the article. Tom comments that a mix of energy sources could extend the life of fossil fuels which would be good for the energy market. Traditional energy companies are investing in renewable energy to diversify and to position themselves for the evolution of the market, Bryan agrees.
RESOURCES Bryan Sillaman on LinkedIn Articles: Keeping the ‘Clean’ in Clean Energy | Five Steps to Establishing a Corporate ESG Policy for the Present Moment
Jonathan Armstrong, Partner at Cordery Compliance, joins Tom Fox on this episode of the ESG Report to discuss important supply chain issues in the EU and Baltic regions. They talk about how legislation has evolved and the importance of looking at ESG risks with a holistic view.
Evolution of Due Diligence Legislation “What have you seen legislative-wise around supply chain due diligence from that part of the EU?” Tom asks Jonathan. He responds that he and his team have done major work in modern slavery and supply chain due diligence in the EU and Baltics. There has been region-wide legislation, as well as country-specific legislation, he comments. Tom asks how this plays into an overall ESG framework. Jonathan remarks, “I think there's almost three forces at play. There's the legislative changes; there's corporations trying to do ESG well and be regarded as good corporate citizens; and then there are potentially consumers voting with their feet as well … by not buying those products.” Consumers in the fashion and apparel industries particularly, ‘vote with their feet’ by refusing to buy from companies with bad ESG practices.
A Holistic Approach Tom comments that a regulatory framework as well as taking a holistic approach to supply chain management would lead more companies to put processes into place to comply with the law, which would ultimately lead to more efficient supply chain procedures. Jonathan agrees. Companies who do ESG well assess supply chain risks holistically, he points out. In particular, they look at where and with whom their suppliers transact business. Although some countries are prone to higher risk, it’s not as cut and dry as labeling those countries bad and others good. He shares an example of a UK manufacturer who brought slave labor from Asia to the UK. “He just imported the problem,” Jonathan says. His UK retailers felt good about buying locally, but unknowingly was still supporting child labor.
Not Easy to Fix “It isn't an easy problem to fix,” Jonathan tells Tom. “But that doesn't mean that we shouldn't try and have in place clear expectations of our suppliers.” Due diligence and training are important in addressing these issues. Jonathan comments that confusing legislation - the voluntary Modern Slavery Register in the UK is a prime example - is adding to the problem instead of resolving it. Companies have differing opinions about their responsibility to report, and some even have instigated litigation to oppose reporting. Overall, he says, “There is a real need for transparency, and there's also a need for corporations to invest more in doing the right thing and evidence that doing, rather than just saying they are doing the right thing.”
Resources Jonathan Armstrong on LinkedIn | Twitter Cordery Compliance Articles on modern slavery and supply chain management
Tom Fox is pleased to welcome Stephen Martin, Partner at StoneTurn, to this week’s episode of the ESG Report. Stephen, an expert in ESG CSR, helps clients proactively improve their ESG programs so they can be better corporate citizens. He and Tom discuss the ESG framework he developed with his team, why mission and governance matter, and the exciting future of ESG.
Mission and Governance at the Core Stephen believes that compliance professionals have the right skillset to help organizations understand their wider responsibility. It’s more than just making money, he emphasizes; it’s about making a positive impact on the communities you serve. Compliance officers can help companies make strategic moves to accomplish this goal. Stephen tells Tom that mission and governance are critical. Your mission - what your company is designed to do - would inform how you build out your ESG program and who you select to oversee it. Governance means that you assign the right people and resources to accomplish your objectives. “Until you define your mission and appropriately resource it,” Stephen points out, “you're never really going to be effective in moving forward on an ESG program front.”
5 Elements of ESG Framework Tom asks Stephen to outline the elements of the ESG framework he developed with his team. Stephen responds that the elements are:
Risk and materiality assessment - what risks and material impact does your ESG initiative pose to the company and stakeholders?
Policies, procedures, and controls - set these to streamline your processes to accomplish your goals.
Reporting and communication - to educate internal and external stakeholders on why this is important and what your mission is and how you're going to execute on it.
Verification and monitoring - ensuring the data you put out is accurate and that you’re delivering on your mission.
Response and enhancement - making refinements over time to improve the program.
The Future of ESG Stephen has seen compliance evolve into the robust infrastructure it is today. Tom asks him what he envisions as the future of ESG. “We're very much at the early stages of ESG and CSR,” Stephen replies, “but I'm very excited because this is going to be a game-changer on having corporations do more than just make money... You want to have strong economics, you want to have capitalism-driving things. But I think you really can be an organization that cares about the broader areas than just money; and more importantly, the companies that do it the right way, that really embrace this, can really maximize the performance of the entity in all ways.”
Resources Stephen Martin on LinkedIn | Email StoneTurn.com
Yven Heine is the Managing Director of StoneTurn. A risk professional with over 20 years of experience, he has worked as US CPA in all three lines of defense. He joins Tom Fox on this episode of the ESG Report to discuss a new German law on supply chain that has significant implications for ESG.
Germany’s New Supply Chain Law Any company with over 3000 employees that is based in or has a branch in Germany is subject to the new Supply Chain Act, Yven tells Tom. The law defines supply chain as all steps required to manufacture products and provide services. As of January 1, 2023, companies and their suppliers will be legally obligated by law to observe human rights and environmental due diligence along the supply chain or be fined up to 2% of their annual revenue. This is why companies need to prepare for this law from now, he says.
ESG in the EU Tom asks Yven what he thinks about the state of ESG in the EU. Yven responds that companies are slowly starting to establish ESG reporting and define risks for inclusion in their risk assessment process. It’s important to establish an ESG risk management system from now to safeguard your company and to ensure that you’re protecting human rights and the environment in your business operations, he emphasizes. This system should include your direct and indirect suppliers. He sees the new Supply Chain Act as a significant step towards human rights protection which has global impact. It effectively mandates that companies must ensure human rights and environmental protection wherever they do business, even in China or Bangladesh. He and Tom discuss ESG reporting by corporations in the EU. The financial services sector must now take ESG factors into account when making investment decisions.
Into The Future Tom asks, “Do you see ESG evolving or changing in the EU?” Yven responds it is evolving and because of this new law, companies have to act sooner rather than later.
Resources StoneTurn Yven Heine on LinkedIn
Lisa Silverman is the Senior managing director at K2 Integrity, and she joins Tom Fox on the ESG Report to talk about the evolving boardroom challenges that companies are seeing in the United States and around the world. They touch on the changes in representation in boards, how social issues are becoming more important, and accountability in the public eye. Resources K2 Integrity Lisa Silverman at K2 Integrity
Matt DiGuiseppe, currently the Vice President of Research and ESG at Diligent, started his career in proxy voting and corporate governance, a nascent ESG space, primarily around asset stewardship, engaging with companies around materials, environment, social, and governance topics. Back then – you were begging companies to come talk to you. The industry has come a long way, and now companies are excited to share the good works they’re doing in this area. He and Tom discuss the changes in the ESG over the last few years and the new tools and technologies that are helping companies implement effective programs.
A Changing Dialogue Tom asks, in addition to the name change from Asset Management to Asset Stewardship, what are some of the big changes Matt has seen. Matt explains that one was the availability of data and also a change in the willingness of companies to engage with customers on ESG issues. What once was hour-long conversations about compensation, now are multiple real conversations every year about ESG and how it links to broader strategy and the day-to-day functioning of the organization. He and Tom discuss how asset managers assess companies using the data and the conversations happening about it.
Old Systems Aren’t Up to the Task Business systems that are in use now were really not designed to report on or assess ESG issues. Matt talks about the Embankment Project for Inclusive Capitalism, which brought together investors and other stakeholders to develop new accounting metrics for ESG topics. The participants brainstormed different metrics that would be useful, and the companies in attendance tried to apply them to test the concepts being developed. It turned out that the information was very difficult to obtain from the information systems being used. Diligent is helping to bridge that gap with tools that can gather data from different systems using advanced technologies. Tom has had similar experiences and seen the availability of data increase in his areas of practice as well. - he always tries to tie it back to overall business efficiency and profitability.
Regulatory Issues Tom notes that the Biden Administration has made a lot of changes around ESG, and Matt talks about how on a global basis you’re seeing regulators almost race to set standards for industries to meet. Regulations are coming to investors as well as companies themselves, which means there is another market for clear, comprehensive data on ESG.
How Diligent Is Helping Companies Report on ESG Matt shares some of the tools and features available from Diligent, and how they can help companies track, monitor, and report on their ESG programs.
Automated Data Collection through an RPA –Robotic Process Automation allows you to take unstructured data and turn it into something decision-useful.
Collection Calculation and Reporting of Greenhouse Gases in a way that is auditable.
Customizable Reports and Real Time Dashboards. Management, boards, and executives all need different amounts and kinds of information.
Importing External Data. Being able to see not just your own company’s data, but the public perception of it, as well as how your peers are performing provides a much more meaningful understanding of your metrics.
Final Thoughts Tom says the three most important things about any compliance program are document, document, document, which he has amended to include data, data, data – and ESG marries these two concepts. Matt agrees and goes on to share some of the ways the Diligent platform is helping make this possible so that if a regulator comes knocking, organizations are confident and prepared.
Resources Diligent.com The Diligent Institute
In this episode of The ESG report, Tom Fox discusses why Compliance Professionals should be leading the way when it comes to ESG initiatives - they’re uniquely suited to do it! From the importance of governance and transparency to the increasing value shareholders and investors are placing on it, to new tools and strategies for reporting and communicating returns and concerns, ESG should be top of mind.
Exxon Gets Called Out Carbon Neutrality Governance doesn’t often get as much attention as the Environmental and Sustainability part of ESG - but its impact shouldn’t be overlooked. Just ask Exxon Mobile, who says several board members were soundly defeated by a shareholder nominated slate, citing the importance of carbon neutrality. Exxon forgot a fundamental law of capitalism - shareholders are the owner of the company - not the managers. As the Bank of America determined through a poll of executives and leaders, governance can be seen as transparency, and that is how shareholders are made aware of and can make changes to the actions of companies.
A Change in the Air Exxon was already seen as a leader of the opposition when it comes to action on climate change, but if the corporate culture is willing to listen, it could mean a massive change to organizational priorities and actions. The shareholders who voted against the board members did so at the cost of short-term financial gain in the interest of a longer-term play - not something you usually see!
ESG and the Biden Administration SEC Chair Gary Gensler has made it clear that ESG reporting is going to be a priority for the Biden administration, and the commission announced the creation of a Climate and ESG task force in the Division of Enforcement. This means that there are going to be more tools and resources available for identifying ESG misconduct. Institutional investors are equally committed, identifying ESG as a key metric. A strategy recommended for communicating ESG initiatives is a quarterly earnings call.
This process includes:
Laying the groundwork
Adapting the earnings call schedule
Reporting on and explaining the return on the ESG investment
Developing cross-functional collaborations
Treating the earnings call as theater.
Being thorough and above all, engaging about ESG goals and progress towards them will “...ensure that the ESG story is told in a way that animates and informs everyone present,” say the authors of the recommendation.
Why Compliance Is Critical to the ESG Effort. The elements of ESG are directly within the wheelhouse of compliance. Compliance sets up frameworks and allows you to measure against them - exactly what you need in ESG initiatives. The DOJ laid out how to think through your compliance program - risk assessment, manage the risk and monitor the risk management strategy, so you can improve it as you see gaps and problems. This framework works extraordinarily well for ESG as well - assess the materiality, map the materiality, and put systems in place so you can monitor it. Environmental programs, diversity and inclusion initiatives, and transparency - these are all areas where compliance professionals can lead the way, and make huge, beneficial impacts on an organization.
Tom Fox welcomes Karen Woody, Assistant Professor of Law at Washington and Lee University and “uber SEC watcher”, to this week’s episode of the ESG Report. They have an engaging discussion about how the SEC views its role in advancing ESG, and how ESG can impact potential investment opportunities.
Pushing ESG Forward The SEC is driving the conversation on ESG disclosures, Karen tells Tom. Their new reporting guidelines on climate risk will be out soon, and they believe there should be more robust reporting in other ESG areas as well. Corporate America should not be surprised, Karen says, as “there’s a very clear link between climate risk and even investor risk and financial risk…” Better reporting will ensure that investors have a better understanding of their investment risk.
ESG Overlap The Exxon shareholder revolt is a great example of how environmental and governance issues can overlap. This case, Karen remarks, “says a lot about governance and activists and the power you can have with what was a very small sliver of control.” Another area of overlap is between social and governance, especially regarding compensation. “It’s an interesting time to be watching this field because it hits on every aspect of life in some ways,” Karen comments. Investors are increasingly looking at ESG as a material factor in deciding where they want to invest.
Part of the Total Mix More investors see ESG as part of the total mix when deciding if an investment is sound. Karen believes that the SEC will move towards more robust ESG reporting standards, but these will be qualitative rather than quantitative. They’re also becoming more strict about enforcement, she tells Tom. Tom asks her to contrast the difference in approach toward ESG between the Trump and Biden administrations. She responds that the ESG is more of a priority under Biden and explains how the SEC is helping to further that agenda.
Resources Karen Woody on LinkedIn | Twitter | Washington and Lee University of Law
Gwen Hassan has been championing the fight against human trafficking for quite some time. The heartwrenching story of a young girl in SouthEast Asia brought the issue to her attention but realizing that human trafficking is also a local issue spurred her to take action. “And since that time,” Tom Fox commends her, “you have been one of the leaders to talk about this issue in the context of either supply chain and overall corporate approach or compliance programs.” In this week’s show, Tom and Gwen discuss why fighting human trafficking is a compliance issue, and where it fits in ESG.
Part of Compliance Human trafficking takes place everywhere, including in the US. Gwen tells Tom that there’s already an existing infrastructure with regard to third-party diligence, which could be used to fight human trafficking as well. She remarks, “...Why not start using that same set of controls and processes and power to make sure they're doing their part to root out trafficking from their supply chain as well?” Her belief is that stamping out human trafficking should be part of every corporate compliance program. “The synergy with corporate compliance really came to the forefront with the UK Modern Slavery Act,” she points out.
Why US Companies Should Care Why should fighting human trafficking be an issue for companies who don’t trade internationally, Tom asks Gwen. “One of the biggest, kind of, eye-openers for me was learning about the extent of trafficking that's right here in the US,” she responds. Even if your company does not do business overseas, you could still be contracting with businesses that engage in or support human trafficking. It’s imperative that you do your due diligence about third parties and even their subcontractors.
S or G? Tom sees fighting human trafficking falling under the S in ESG. Gwen agrees that it does relate to social justice issues in a broad sense. In her opinion, it also is a G: companies should practice good governance, which includes robust third-party diligence. “The process side and the diligence aspects of a sustainable ethics and compliance program, fit very nicely with human trafficking… [and] the reasoning behind why you want to have a good program for human trafficking prevention relates back to social justice and the fair treatment of everyone who's in your organization,” she remarks. Most business leaders immediately understand the reputational risk human trafficking poses to their companies. “Once you educate people as to the extent of the problem - the fact that it impacts everyone - it really makes a difference in their openness and their willingness to then invest,” she tells Tom. Government actions are helping the fight: once leaders know that there could be enforcement actions against them, they’re more willing to listen.
Resources Gwen Hassan on LinkedIn | Email
Laura Tulchin is ESG Solutions Lead at Exiger. Her role involves ensuring that the company’s products and services provide comprehensive coverage of ESG risk. She tells Tom Fox that more and more companies are focusing on ESG as part of their mainstream risk management programs. She joins Tom in this episode of the ESG Report to talk about doing ESG right by managing risk and value generation.
Getting ESG Right “Where we get ESG right, we have the potential to have decades of positive impact on the world around us,” Laura tells Tom. ESG is having a moment now, she says, so now is the time to take the steps necessary to move the industry forward. Getting that right will have a lasting impact. She and Tom discuss global and local advancements in ESG regulations. US regulators are getting serious about ESG, Laura says. She talks about the SEC Enforcement Task Force as well as the ESG Disclosure and Simplification Act. This demonstrates that regulators want companies to back up their ESG claims with real data.
The Need for Standardization There are multiple ESG reporting mechanisms existing today, Laura tells Tom. This causes fragmentation and is costly and ineffective. Also, she argues, it “allows companies to choose the reporting standard that might make them look the best from an ESG perspective.” For this reason, five of the leading standards setters have agreed to work together on a comprehensive standardized ESG reporting system. She acknowledges that no one system will perfectly cover every ESG situation, but standardization is an important first step. Tom asks why she thinks companies are pushing back against standardization. They’re mostly worried about the legal ramifications, she responds. “ESG is so impactful,” she remarks, “that if we don't have a single benchmark it makes it really difficult for consumers, for investors, for risk managers, for compliance people to really understand ESG risks as well as the potential for ESG value generation.” Ultimately, ESG risk needs to be balanced with ESG performance to measure net impact, Laura says. That’s where the industry is going.
The G in ESG Tom asks Laura to share her thoughts on the recent Exxon case. Should there be more focus on the G in ESG? “Good governance should ultimately lead to strong environmental practices and strong social engagement,” Laura agrees. The Exxon case demonstrates that going forward, companies need to engage shareholders and stakeholders, even though their views on ESG issues may be different. These changes are here to stay, she argues. Forward-thinking companies will try to understand ESG net impact and craft programs that respond to these types of actions.
Resources Laura Tulchin on LinkedIn Exiger on Website | LinkedIn
Lawrence Heim, the editor of PracticalESG.com, has been working in environmental sustainability for over 30 years, moving from one area of the industry to another and developing a deep knowledge of the space. PracticalESG.com is designed to help professionals approach program development, program implementation and disclosure, as well as understanding the basics from a practical point of view. He and Tom discuss how legal work led to a passion for ESG, and the HBR paper that changed his whole way of thinking. (Green and Competitive) It was in the late 80’s and early 90’s that meaningful linkages between environmental management and business value started to be made, and that is where today’s guest found his stride in the industry. A Risk Management Focus Tom asked how Lawrence’s experience has helped him create a risk management focus on ESG. Lawrence explains how he didn’t know a thing about what risk management really was. Even today, he is of the opinion that most people don’t really understand what risk is. It’s critical that ESG professionals discuss and work alongside traditional risk management folks, or different terms, definitions, and benchmarks are going to be in play, which is really ESG shooting itself in the foot in terms of credibility. Changes over the Pandemic Tom points out that the pandemic has really focused attention on supply chains and procurement, and the importance of responsible sourcing. Lawrence explains how this has been an evolution over time, starting in the garment and textile sectors, and how public as well as corporate awareness started to shift the needle. The Rana Plaza incident and the rulings around conflict minerals have really advanced the conversation. They also discuss what changes have happened internally in organizations over the pandemic – particularly the impact on how companies are treating employees. Too Much Information Getting started in ESG can be overwhelming because there is a huge amount of information, much of it conflicting. Lawrence recommends that people just begin reading and learning, but remaining skeptical, and being on the lookout for contradictory information. Learning which sources you can trust, and which have the best reputation takes time, but if you start broad, and remain skeptical, you will start to gain a full understanding. Long Term ESG Strategy Lawrence gives his thoughts and predictions about what the coming years will mean for ESG – he posits that ESG is going to become fully integrated in organizations, rather than a standalone issue. He further posits that if companies aren’t considering water use and availability now, they should be. Resources Lawrence Heim: LinkedIn | PracticalESG.Com | Lheim@Ccorp.com Green and Competitive – HBR Article Killing Sustainability
Trysha Daskam is back for part 2 of The ESG Report. In this episode, she and Tom Fox are discussing what investors are looking for regarding ESG, the rise of ESG products, and making your ESG policy actionable and regulator-friendly.
ESG is a Must-Have Tom and Trysha discuss what companies seeking investment need to have regarding ESG. “Maybe a year ago,” she remarks, “ESG was nice to have... today we are really in an environment where ESG is a must.” Placement managers and individual investors are demanding that firms state their position on ESG risk, as well as how they incorporate ESG into their investment strategy and how they manage those investments. In addition, Trysha points out, the industry is maturing so there are more tools companies can use to define their ESG programs. “I think we're in a place where if you do not have a perspective on ESG you’re really behind at this point,” she comments. More companies are communicating their ESG commitment through their websites as well as their marketing materials, she tells Tom.
Key ESG Risk Areas “Highlight some of the key ESG risk areas you see,” Tom asks Trysha. Companies struggle with how to put their ESG policy into action, she answers. Two other risk areas are that ESG policies may be too vague or may prescribe practices that the company has no competency to implement. She reminds listeners, “You must do what your policy says… It is better to have a policy that is very small in terms of its perspective but is accurate; that you are actually able to accomplish.” You can always build on your policy as you grow. Also, she emphasizes, appoint someone to check that you’re actually implementing your ESG policy. “The greatest risk with any policy or procedure at a firm is that you would not be able to substantiate that you did what you said you were going to do.” Most importantly, your ESG policy must effect some change. “If you're a firm that has an ESG program that doesn't require anybody to do anything, then what is the point of that policy? Why even have it?” Trysha argues.
ESG Trends US investment managers are trending towards an ESG integration strategy, while for managers in the EU, launching an ESG product is the foremost strategy. There has also been an increase in ESG tools and benchmarking products, which “create a landscape for firms to think through the tools that they can use to tell their ESG story more elegantly,” Trysha says. However, you should vet whichever tool you choose with the same thoroughness as you would vet a third party vendor, she cautions. Tom asks where a company should start around ESG. Start by evaluating how comprehensive your ESG policy is, Trysha advises.
Resources Silver Regulatory Associates How EU Climate Regulations May Affect US Private Fund Managers
Introducing The ESG Report with Tom Fox ESG has exploded into compliance and business consciousness in 2021, so as a compliance industry professional, you need to be up to date. To open up the show, Tom Fox is speaking with Trysha Daskam, the Head of ESG Strategy at Silver, a premier provider of regulatory compliance, ESG, and due diligence advisory services to the investment management industry. She and Tom are talking about regulatory shifts, the G7, trends in reporting, and key risk areas.
Trends and Shifts at Home and Abroad Trysha talks about how ESG stakeholders in the states have been paying close attention to what is happening in the EU, and specifically regulations that are coming out of the European Commission. She talks about what they mean for American companies and other entities. Investors are very interested in the indirect impacts from what is happening across the pond. She goes on to talk about the first ESG alert that is identifying the riskiest practices in the space.
The G7 Summit The early focus of ESG was on the link between environmental and investment risk, but it is much broader now. Tom and Trysha discuss the climate conversation, the focus of the Biden administration, and the different governmental and other bodies involved in it. Of particular interest is the strong stance the G7 leaders took on the Task Force on Climate Related Financial Disclosure.
The Business Case for ESG Analysis Tom and Trysha talk about the portfolio of ESG risks, and how there was a shift from looking at it as primarily environmental to a much broader spectrum of risk. There are hundreds of factors that fall under the ESG profile, and investment managers are looking at them to fully understand the benefits and risks of different opportunities. A strong focus on governance has been a hallmark of being a manager to other people’s assets. Trysha shares an example about Exxon Mobile, and their lack of transparency about risk in the Gulf Coast.
Resources: Silver Regulatory Associates How EU Climate Regulations May Affect US Private Fund Managers