As head of LRN Latin America, I recently participated in a panel discussion co-created with our partners at Refinitiv, an LSEG (London Stock Exchange Group) business and one of the world’s largest providers of financial markets data and infrastructure. The panel, “ESG & Compliance,” explored how ESG and E&C are connected and how they’re evolving in Latin America based on experiences from top financial services specialists in the region—including Diana Ramos, compliance offer at Daimler Financial Services; Rosario Dominguez, compliance manager at Konfio; and Valeria Cruz, compliance officer at Bank of China.
Why ESG is important to all areas of business
Environmental, social, and governance (ESG) factors measure the sustainability and societal impact of an investment in a company or business. ESG continues to influence a growing number of business initiatives.
- Investors are increasingly considering ESG metrics given direct connection with long-term business sustainability. In 2020, investors contributed $51.1 billion to sustainable funds compared with less than $5 billion five years ago.
- This year, the UNGC released a new framework to accelerate business action to help companies embrace transformational governance, a principles-based ESG philosophy that calls on organizations to be more accountable, ethical, inclusive, and transparent in their leadership and culture.
- Greater societal awareness has also influenced the rising ESG movement. There’s growing evidence that consumers prefer brands that are deemed socially responsible. Similarly, more employees want to work for companies with both a good reputation and values that align with their own.
How E&C and ESG are connected
The objectives of a company’s E&C and ESG initiatives and programs are more integrated than they might first appear. The Refinitiv panel shared three key ways the two are connected:
- E&C is part of the “G” in ESG. Naturally, governance includes ethics and compliance best practices. E&C teams are often best positioned to communicate and cascade their company’s ESG expectations, aspirations, and concrete initiatives by using tools such as training, due diligence, and policies. E&C also plays a role in monitoring and ensuring that the ESG commitments an organization has made to its stakeholders are part of a genuine effort and not just PR—or worse, greenwashing.
- ESG has expanded the scope of E&C. ESG has greatly broadened where E&C tools are applied in organizations. What began as training in mainly anti-corruption and AML has expanded to topics such as DEI. The process of conducting due diligence to review only sanctions, litigation, and potential conflicts of interest now includes analyzing the human rights and environmental track records of businesses.
- E&C and ESG share common goals. ESG and E&C initiatives employ different frameworks, metrics, and structures within companies. But despite those differences, their goals are very much the same: inspire companies do the right thing, and create more ethical, responsible, and sustainable organizations.
What this means for companies with Latin American presence
As a panel, we agreed that Latin American companies as well as multinational companies—especially ones based in the US or Europe—that have activity in Latin America play a critical role in promoting E&C and ESG best practices in the region. Here are three highlights of E&C and ESG’s implications in Latin America:
- We mentioned earlier how ESG is connected to finance: more investors want to support companies that have a better outlook for long-term sustainability. Accessing U.S. and European investments in particular ultimately involves investors asking questions about a company's ESG policy and E&C program. Therefore, Latin American companies that are interested in gaining US and European investments or issuing securities in those markets will want to adopt each market’s best practices.
- Currently, Latin America is a riskier market to conduct business in because it has fewer regulations and weaker enforcement in place compared to areas like the EU and US. But companies that use their voice to engage with all stakeholders and encourage higher compliance standards across the market (and others in which they operate) will help level the playing field and create a more just environment to complete.
- The increased focus from regulators on anti-corruption is forcing local Latin American companies to be more mindful of the associated risks and best practices in regions where they want a greater commercial presence. In order to globally expand, these organizations are looking at legislation like the Foreign Corrupt Practices Act (FCPA)—which sanctions companies with certain connection to the US if they bribe foreign officials in order to obtain or retain business—and guidance from entities like the DOJ and the SEC that are in charge of applying, investigating, and enforcing such regulations.
The key takeaway
Whether they are based in Latin America or have activity in the region, companies that continue to expand internationally from that market have more of a responsibility to follow and cultivate ESG best practices that resonate globally. Evaluating the efficacy of their ethics and compliance programs is a great first step in that process. To understand how your E&C program can better integrate with your organization's ESG efforts, get in touch for a consultation with our Advisory team. You can also learn more about our E&C initiatives in Latin America by going to the LRN Latinoamérica section of our website.