ESG Risk

In 2022, the US Securities and Exchange Commission (SEC) fined the BNY Mellon Investment Adviser, Inc. $1.5 million for misstatements and omissions about Environmental, Social, and Governance (ESG) considerations in making investment decisions for certain mutual funds that it managed. This was based on a representation that the funds in question had undergone an ESG quality review, even though that was not always the case. The Deputy Director of the SEC’s Division of Enforcement indicated that the “Commission will hold investment advisers accountable when they do not accurately describe their incorporation of ESG factors into their investment selection process.” This is a clear indicator that regulators are increasingly examining how companies manage and present their approach to reviewing ESG risk exposure.  

Do You understand your company’s ESG Risk profile? 

Various stakeholders and customers are looking for increased transparency to ensure that business partners align with their own ESG-related goals and values. Accordingly, it is important to make sure that you can clearly and accurately articulate your company’s ESG profile and related policies. It is also important to ensure that you understand your risk exposure with any business, country or supply chain you intend to work with.

The last thing you want to discover too late is that you’ve entered into business with someone who has run afoul of environmental laws, regulations or a country’s social norms.  By failing to perform due diligence on the ESG footprint of your business contacts, you open yourself up to severe reputational damage or worse. 

You need to truly understand what your ESG footprint is if you hope to improve it and make any necessary changes.  Are you doing business in a way that is socially responsible?  Not if your supply chain in another country has ties to human trafficking that you don’t know about.

Or maybe the country you are operating in has different cultural norms and behaviors that are deemed acceptable in that country but could get you in trouble in the United States.  It may be considered extremely rude not to give a gift as part of a business transaction in one region, and a completely illegal act in another.

New and emerging technologies you employ in your business can create their own ESG risks.  For example, automation may lead to layoffs that affect your reputation as a business or even the viability of your industry.  Or you could be a victim of state-sponsored hacking, ransomware or even find yourself in the middle of cyberwarfare.

The only way to know what your exposure is to any of these risks is to have Infortal conduct a complete ESG risk assessment.  By looking at social, economic, technological and political trends, as well as doing due diligence on the jurisdiction you are entering and who you are doing business with, Infortal can map out any heightened ESG risks that could become a threat to your business.  You can then take that roadmap and create strategies to mitigate these risks before they impact you.