There's no doubt that the intersection of ABC and ESG is a developing area that investors are thirsty for information about.
Michael Dixon, Partner in the Environmental, Social & Governance group
Anti-bribery compliance has become a fundamental part of an effective environmental, social and governance program. It's considered one of the most significant areas of risk for many companies and a key concern for investors and shareholders. In this episode of our podcast, Blakes lawyers Iris Fischer, Mark Morrison and Michael Dixon discuss how to develop a compliance program and measure its effectiveness.
Transcript
Jordan: Hi, I'm Jordan Virtue.
Nathan: And I'm Nathan Kanter, and welcome to this episode of the Blakes Sound Business podcast.
Jordan: It's no secret that sustainability has become a major focus in the corporate world. Investors and other stakeholders are increasingly relying on environmental, social and governance reporting to gauge an organization's long-term sustainability objectives and values.
Nathan: It's true, Jordan. That's why ESG remains an important part of an organization's strategy. And an intrinsic component of ESG reporting is having an anti-bribery compliance program.
Jordan: Today, we will be hearing from Blakes lawyers Iris Fischer, Mark Morrison and Michael Dixon from our Litigation & Dispute Resolution group. They will be talking to us about how anti-bribery compliance fits into the ESG equation and how to develop and measure the effectiveness of a compliance program.
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Nathan: Iris, I think it's safe to say that organizations are increasingly expected to report on environmental, social and governance, or ESG, metrics to investors and stakeholders. For anyone who may not be fully aware of what ESG is, can you give us a brief description?
Iris: Sure. As you mentioned, Nathan, ESG stands for environmental, social and governance, and those are the three pillars that represent an organization's non-financial risks, opportunities and commitments in its day-to-day operations. ESG has really evolved to an increasingly important framework that is frequently used by investors, financial institutions and other key stakeholders.
Because businesses are all different in nature, ESG criteria also differ between organizations. Historically, investors have relied more on corporate financial data and disclosures to forecast profitability and assess the worthiness of a business as an investment opportunity. And while all of this is still true, companies have really started to incorporate long-term sustainability objectives into their missions, values and their vision for their company.
Jordan: Mark, how does anti-bribery and corruption compliance, or ABC, fit into the ESG equation?
Mark: Thanks, Jordan. ABC compliance has become
a key and fundamental part of an effective ESG program because ABC
captures an area of risk, which is one of the most significant
risks faced by many companies and, as a result, is something that
the key stakeholders, such as investors and shareholders, are very
concerned about.
And in terms of where ABC fits within the ESG criteria, it
primarily, of course, fits under governance where a risk-based
anti-corruption compliance program is certainly part of good
corporate governance, as doing exactly what a governance program
should be doing, which is to monitor and moderate the risks of the
company.
It also, though, fits under both the social fabric of ESG in terms of the importance of anti-bribery and corruption compliance being embedded within a CSR program, that is, a community social relations program, as well as in the environmental component given the importance of, again, strict environmental controls and the impact of corruption on attempts to circumvent those controls.
Nathan: Mike, what are some of the common elements of an ABC compliance program?
Mike: So, from the big-picture perspective, there's really two key things:
- The first is not just having a policy but having a program, something that is living and breathing.
- And the second part, that goes hand in hand with that, is that program needs to be right-sized to an organizations risk profile.
What an effective anti-bribery compliance program looks like for one company who may be primarily focused on, you know, domestic operations here in Canada may be very different from a company operating internationally in high-risk environments, but there's risks in both settings. They're just different risks and require different right-sized compliance approaches.
In terms of key elements that distinguish having a mere policy from a living and breathing program, the made-in-Canada solution, we think, takes those different elements and distills them, really, into eight factors, and these factors have been used in the past by the Canadian courts to evaluate compliance programs. They are:
- Seniority, expertise, autonomy and resources
- Policies, procedures and controls
- Commitment to compliance
- Risk assessment and review
- Training and communication
- Proactive third-party risk management
- Confidential reporting, investigations and remediation
- And, finally, continuous review, periodic testing and improvement
Now, these factors are going to be different for each company in terms of how they're implemented and how they address each company's individual risk profile to come up with something that's bespoke and right-sized for the risk your organization faces.
Jordan: Iris, back to you. How does an organization measure the effectiveness of its ABC compliance program?
Iris: Thanks, Jordan. Continuous testing and improvement of an ABC compliance program can really be among the most relevant metrics to measure the effectiveness of the program.
Testing can provide key insights into whether and to what extent a program has been implemented as it ought to have been and really followed by the organization. And organizations should develop processes for assessing their ABC programs on a regular basis. The results of those testing efforts can really drive recommendations on how to improve the program.
The really key thing is actually using what we describe as objective and verifiable criteria in talking about your organization's ABC program and reporting on that program. These are the kinds of data points that can be measured and tracked over time and really are very useful for an organization in its reporting. They, among other things, can provide a greater degree of certainty for companies to rely on them, because they are objective, when they make public statements about their programs.
It's a lot easier to say the number of employees who have successfully completed anti-bribery and corruption training, for example, as opposed to something more subjective that, you know, there can be multiple viewpoints about.
Nathan: Mark, why should organizations consider including ABC metrics as part of ESG reporting?
Mark: That's a very good question, Nathan. There's two primary reasons why this is of importance.
The first is in terms of measuring the actual effectiveness of the program and promoting the effectiveness of the program for the company. Looking at various benchmarking criteria, looking at the kind of measurables which Iris was talking about, are a way for a company to measure internally the success of its program and to improve and increase the outward success of its program and to provide stakeholders similar level or degree of confidence in the success of that program.
And the second is more outward focused in terms of mitigating company risk especially through things such as class-action shareholder lawsuits, which a transparent reporting regime can assist with. While there's no set standard, there's no legal standard that's required, there's been a whole host of class-action lawsuits that have followed on the heels of bribery and corruption charges being brought, and those class-action lawsuits tend to have, as the common foundation, the concern that the company through its public reporting had failed to disclose the deficiencies in the compliance programs, which ultimately resulted in large criminal fines, large reputational impact and, typically, a loss of shareholder value.
So, the value in reporting on your compliance metrics is to try and mitigate against the risks which arise by being transparent in reporting and undermining the position of potential class-action litigants.
Jordan: Mike, you get the last question. Do you have any final thoughts you'd like to share?
Mike: The main take away here is that the intersection of ABC and ESG is a developing area. There's no doubt from the survey results that this is an area that investors are thirsty for information about, and organizations that have mature programs can take advantage of that by using objective and verifiable criteria to provide additional information to investors and other stakeholders about the quality of their program, which should inspire additional confidence about the integrity of your business.
For companies with less mature programs, this is an opportunity to make enhancements and respond to the market demand, dealing with compliance issues in the anti-bribery and corruption space and in ESG more broadly.
Hopefully, in implementing these solutions, investors are provided with information that gives them additional confidence.
Jordan: Iris, Mark and Mike, thank you for joining us today and providing some guidance on anti-bribery compliance and its role in ESG reporting.
Nathan: Listeners, to learn more about this topic and our podcast, please visit blakes.com.
Jordan: Until next time, keep well!
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