Anti-bribery and corruption measures are becoming increasingly prominent elements of ESG. Bribery alone costs between $1.5 and $2 trillion every year, roughly equivalent to 2% of the global gross domestic product. In turn, investors, regulators, and governments increasingly demand that companies demonstrate their anti-corruption credentials as part of an ESG strategy.
Corruption Reaches Everywhere
For instance, campaign group Transparency International targets the impact that corruption can have on the United Nations’ Sustainable Development Goals (SDG), citing that corruption in low-income states increases the inequity of access to healthcare, education and sanitation services, thus increasing poverty and depriving economic growth worth around US$1.26 trillion per year.
Corruption Impacts ESG Issues
A number of ESG issues hinge on tackling corruption. The Biden administration acknowledged this in June, noting that corruption “exacerbates social, political, and economic inequality and polarization”. In response, the administration launched the United States Strategy on Countering Corruption which is dedicated towards the need to address corruption on a government-level.
Greenwashing, along with wider impact washing, represents another avenue of corruption with implications for ESG. This practice knowingly sets up a false impression for investors and consumers that a company or product is more sustainable than it really is. A recent rising tide of lawsuits, complaints, and inquiries has taken alleged greenwashers to task, and more tools and education are becoming available to those looking beyond the label of sustainability.
ESG Investors Press for Action
Concerns about corporate wrongdoing and how to prevent it are gaining traction within the sustainability agenda for financial advisors and investors. In a recent survey on responsible investing, financial advisors and US respondents ranked corruption among corporations as the greatest ESG issue of concern.
What can investors do to ensure that the companies they invest in have adequate governance concerning anti-bribery and corruption? First, they can demand that the business leadership is addressing the risks among employees that are most likely to make these companies vulnerable. Investors should check that a company has developed procedures that are relevant to their activities, require ongoing staff training, and undergo regular updates.
In order to implement effective policies against bribery and corruption as part of a robust ESG strategy, companies also need to constantly monitor their supply chains and remain transparent in what they find. Investors should feel satisfied that the companies’ suppliers aren’t drawn into bribery and corruption.
Transparency Is Key
As bribery and corruption move into the spotlight alongside human rights and other sustainability issues related to governance, companies and investors may increasingly target transparency. Investors hoping to make an impact on these issues may gravitate toward funds, companies, and organizations that offer clear accounting of their practices and finances.