Mining the Gold in the Compliance Hills: Part 3 – Compliance and ESG Investments

Thomas Fox
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Compliance Evangelist

Welcome to a special five-part blog post series on how to unlock the gold in your program. I visit with Gio Gallo and Nick Gallo, Co-CEO’s of ComplianceLine, LLC, the sponsor of this series.

One of the ongoing issues in compliance is to demonstrate the Return on Investment (ROI) in your compliance program. One way to do so is by demonstrating the extended value of compliance literally across your entire company. When overlaid with an ESG component, you can begin to see the gold in your compliance hills. In addition to showing how you can unlock the gold in your own compliance hills, Gio and Nick discussed demonstrating ROI for your internal budgeting process which can provide to you the financial resource to strengthen and improve your compliance program. Today, in Part 3, we look at the role of the Chief Compliance Officer (CCO) and corporate compliance function in ESG investments.

We began with the basic question of why a Chief Financial Officer (CFO), or corporate finance function look at ESG investment and how it will be different than a CCO or compliance function would do so. Gio noted that finance will most probably be “considering the outcome and it is something else for me to figure out.” Yet they may well also see it as a new opportunity and a “new conversation that we can be a part of. We may be able to get to that head of the pack because through some early investments which might be in programs or just how we talk about it.” The impact is that finance types might see more opportunities in this than the E&C professional, which you should be conscious of as you enter this conversation. Gio stated, “if we can make something out of this zeitgeist it might be seen as a unique opportunity.”

Conversely, he also noted “there’s no F in the ESG, right? This means the finance lens for this opportunity might be to get better financing for the company.” This might present a funding opportunity, either through a loan, additional capital or other funding mechanisms. It might also work to lower the cost of capital because investors might see your company is really an attractive company. That is what ESG might end up meaning from the finance perspective. The beauty of this is that the approach is equally valid to a compliance-focused approach and demonstrates there are multiple reasons for implementing an ESG program.

Nick emphasized the opportunity that ESG presents. Not simply for each commercial organization but for the compliance function as well. He stated, “irrespective of whether or not your organization is serious about it, you need to take advantage of the opportunity and the window of opportunity that we have right now, because compliance speaks to every single one of those pillars in the ESG acronym.”

From the compliance perspective, there are several reasons for this. It is top of mind for investors and in mind of the marketplace. He said, “Use what you have in place already to show your organization is committed to ESG. Moreover, you probably already have 80% of this stuff done. We already have a speak-up line. We already have a training for our business ethics and corporate culture.” The bottom line is “there are probably a bunch of ESG type things that you are doing.” You can build on all of them. It is a massive opportunity. Do some research on what is publicly available on ESG reports, “grab a handful of those and start looking at what some of your competitors or what other folks in the marketplace are putting into their report. I guarantee there’s a massive overlap with some of the data points that already exist in your organization.” As a compliance professional “it’s about shifting your mindset and using this opportunistically, to take advantage of the amorphousness that is ESG right now.” Nick even compared ESG in 2021 to where compliance was in the mid-1990s after the release of the US Federal Sentencing Guidelines and the creation of the modern compliance professional. It took some 15 to 20 years for corporations to understand that compliance was a business differentiator and business positive and not simply a legal response to a long-standing law, such as the Foreign Corrupt Practices Act (FCPA). In the age of social media, the speed of the change in ESG will be much quicker. Simply witness the change from the Trump Administration which actively fought corporate ESG initiatives to that under the Biden Administration which has fully embraced ESG from a regulatory perspective.

We concluded by considering many of the tasks that a CCO and compliance professional are already doing. Nick provided the following examples, “You can pull that out of your case management system and look at some of the following issues: How many discrimination and harassment claims did you have last year? How many did you have this year? What were the turnaround time on those? How many days did it take you to close those? What can you take credit for? That’s really what ESG is kind of about.” The same is true for your basic risk management strategies involving your third parties and other business ventures.

It is a function of getting an understanding of who your audience is. From the compliance perspective do not simply focus on an audience of one, the government. Look at in the way the Business Roundtable did with their Statement on the Purpose of an Organization. There are multiple stakeholders that you can engage with and work with to satisfy their ESG concerns.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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