The rise of ESG and its impact on compliance
By Andrew Doyle, CEO of AML software provider, NorthRow
Over the last few years, there’s been a welcome increase in Environmental, Social, and Governance (ESG) initiatives across industries worldwide. According to the Global Sustainable Investment Alliance, global sustainable investment assets reached $35.3 trillion in 2020, marking a 15 percent increase from 2018 and in 2021. And 90 percent of the world’s largest companies published sustainability reports, compared to just 20 percent in 2011, says KPMG.
This trend reflects a growing consciousness among consumers, investors and regulators regarding sustainability, ethical practices, and corporate responsibility. It means the call for more transparency and accountability in business operations, service delivery, and product offerings has become increasingly pronounced.
What this means for regulated businesses
The regulatory landscape surrounding ESG is evolving rapidly to address global sustainability challenges, and governments and international bodies are constantly introducing stricter standards and reporting requirements, which naturally falls on compliance to grapple with. In fact in 2023, 65 percent of companies surveyed by PwC reported an increase in regulatory oversight related to ESG issues, underscoring the growing importance of compliance in this area.
Financial institutions, given their pivotal role in capital allocation, in particular are affected by this because ESG considerations now influence investment decisions, risk assessments, and disclosure obligations, arguably reshaping the financial landscape. As a result, they are having to scrutinise their counterparties more closely as part of their onboarding processes, vetting and verifying the backgrounds of entities and individuals to ensure complete alignment with ESG principles.
Whether monitoring for adverse media indicating human rights violations, screening clients for any connections to sanctioned individuals, ensuring diversity across directors and beneficial owners, or prioritising the onboarding of entities with clear green credentials; it has never been more crucial for regulated firms to make well-informed business decisions that not only uphold their values but also contribute positively to both society and the planet.
This is backed up by data from Deloitte which show that in 2023, companies allocated an average of 15 percent of their compliance budgets to ESG-related activities, compared to just 5 percent in 2018. As such it’s no surprise that the demand for compliance professionals with expertise in ESG is soaring. In 2023, job postings for ESG-related compliance roles, according to LinkedIn, increased by 150 percent compared to the previous year, reflecting the need for specialised skills in this area.
The future
The rise of ESG is reshaping the business landscape, with profound implications for compliance practices. As sustainability becomes increasingly integral to business operations, compliance teams must adapt to evolving regulatory requirements and stakeholder expectations.
By embracing ESG principles and embedding them into their operations, businesses can not only meet their regulatory obligations but also foster long-term sustainability and resilience in a rapidly changing world.
About Andrew Doyle
Andrew Doyle is CEO of AML compliance software provider, NorthRow. Andrew has worked in the global technology sector for over 30 years and is passionate about using technology to protect businesses from the devastating effects that fraud and other forms of economic crime can have on individuals and companies.
