ESG and sustainability: More than just Compliance

Embedding positive sustainable change

Since the signing of the Paris Agreement in 2015, policy development to support global- and country-level climate and wider sustainability goals have massively ramped up.  With new rules to comply with, Compliance is unsurprisingly often at the forefront of championing and implementing any required changes.

There is no doubt that the Compliance function plays a crucial role in supporting environmental, social, and governance (ESG) and sustainability efforts within firms. However, whilst many of the core drivers for these initiatives are regulatory driven, embedding sustainable business practices goes beyond ticking boxes and simply meeting regulatory requirements. It represents a fundamental shift in the way firms approach business and value creation.

It requires firms to integrate environmental and social considerations into their decision-making processes and day-to-day operations. This cultural transformation involves engaging employees at all levels, promoting awareness and understanding of ESG issues, and empowering them to contribute to sustainable outcomes. By embedding ESG principles into the firm’s culture, companies can demonstrate their commitment to long-term value creation and positive societal impact.

It can also give firms a competitive edge. As stakeholders increasingly prioritise sustainability in their consumption of products, services and their investments, companies that proactively integrate ESG considerations into their strategies are more likely to attract capital, build investor trust, and access sustainable finance options.  In addition, embedding ESG can drive innovation by driving the development of new products, services, and business models that address environmental and social challenges.

Embedding ESG considerations and more sustainable business practices can also enhance a firm’s risk management and resilience. By considering a broader set of risks, including environmental and social factors, firms can identify and mitigate potential risks more effectively. This proactive risk management approach can help avoid reputational damage, regulatory sanction, and other potential adverse consequences associated with non-compliance or failure to address ESG issues.

There are a number of ways in which Compliance functions can support their firms in embedding these positive sustainable changes.  Some examples include:

Horizon scanning:

Firms are often reliant on their Compliance teams to stay on top of the complex regulatory landscape, particularly where there are cross-border operations and sometimes conflicting requirements. By ensuring the relevant business functions and management are kept up to date with applicable regulatory changes and developments, Compliance can ensure not only that the firm is on top of its obligations but also how the future of sustainability-related regulation may impact the firm and its strategy in the future.    

Integrating ESG into governance frameworks:

Compliance teams work closely with all areas and all levels in firms, providing guidance and acting as trusted advisors.  They are perfectly placed to work closely with all relevant stakeholders to ensure regulatory obligations and best practice are well understood and that ESG factors are appropriately addressed in decision-making processes and risk management frameworks.

Training and competence:

Compliance teams provide training and guidance on compliance-related matters, promoting a culture of integrity and responsible decision-making, fostering a culture of good conduct and accountability.  They can also help educate employees about ESG and sustainability principles and policy, ensuring all business functions understand the importance of responsible practices and their role in achieving any sustainability goals.

Enhanced monitoring:

As firms get to grips with new ESG and sustainability-related obligations, carrying out enhanced levels of monitoring activity can help provide additional assurance, reducing firm risk and identifying areas requiring further development or focus.

Conducting Effective Due Diligence:

Compliance should be testing their firm’s due diligence processes when engaging with third parties, including suppliers, vendors, and business partners, to ensure their ESG practices align with the firm's standards, any associated regulatory requirements and stakeholder expectations.

How we can help

As an increasing burden is placed on the Compliance function to support their firms embed ESG and sustainable practices, Avyse is here to help.  We have deep experience of supporting our clients across these areas and are committed to supporting them in their move to a positive sustainable future.  Whether looking to roll out training to your board on incoming ESG regulation, assess your marketing content for greenwashing or looking to deep dive into ESG risk in your supply chain in preparation for the Corporate Sustainability Reporting Directive (CSRD), we can help.