When Compliance and Sustainability walk hand in hand

Every day it´s more evident that society, employees, customers, and stakeholders are demanding added value from the organizations around them. However, this value is not the one generated by the quality of the product/service they produce and/or sell, but rather by its market reputation; by the company`s values, and undoubtedly by the way these organizations contribute positively to the community and to the environment.

This contribution is verified through non-financial criteria that measure the impact of the organization on environmental, social, and governance issues… this standard is called ESG - Environmental Social and Governance.

Applying ESG practices is more relevant than ever before and is no longer a "nice to have" practice but rather a "must" to comply with global regulations.

Markets such as Europe (Supply Chain Act-EU Disclosure Regulation), Asia (Singapore MAS regulations), North America (US SEC Enforcement force task) and even here in Latin America already have regulations regarding ESG and its processes. Recently, the Fitch Ratings rating firm published a report summarizing that countries such as Brazil, Chile, Colombia, and Mexico have been strengthening their fund market regulations and investment managers, including ESG in their investment processes.

The trend is becoming more relevant – sustainability measures that were voluntary are becoming legal mandates and here is where Compliance goes hand in hand with Sustainability, both working together to comply with laws/regulators, and seeking to create a more sustainable society.

There are for me 3 major objectives if you want to integrate ESG standards into existing ethics and compliance processes: (i) comply with laws and be up to date with all regulations related to ESG, (ii) know your risks and manage them - including environmental and social risks, (iii) align with the organization`s strategy.

Effective ethics and compliance programs must constantly be enhanced and updated with the latest regulations (country specific) through monitoring/audit processes and a structured program maturity matrix. Compliance departments must evolve to adopt and incorporate in their codes of conduct for employees and suppliers, standards and expectations related to a social, environmental, and governance culture. A notable example of Codes of Conduct from organizations that integrate ESG in their values and expectations are Natura & Co, Unilever and VMware.

A settled compliance team, with the right advisory, can be well positioned to integrate ESG standards into their program, as it has already the expertise in detecting and mitigating governance risks (corruption, bribery, and fraud, among others) so it will only be necessary to assess new possible environmental and social risks involved in a day-to day operation. Additionally, if the compliance area already has a risk management platform or system, it would be ideal to incorporate ESG risks having a broader view and be able to work on them in a holistic and centralized way.

It is necessary that the compliance program and the ESG standards are embedded and aligned with the organization`s strategy. A key to success is having all the parties involved aware, conscious, and willing to work together to comply towards ESG implementation. Having a well-defined strategy with honest purpose known for "walking the talk" will deliver lower risk, cost of capital, and regulatory intervention while creating higher growth, talent attraction and retention.

Creating trust, providing transparency, having a purpose of service, and generating positive impact on the environment naturally builds a solid organizational culture, with great opportunities and competitive advantages. Compliance and Sustainability are necessary and complementary to achieve an ethical business and long-term value for all stakeholders.