Tom Fox evangelizes on why the compliance department is best suited to run the corporate ESG program on this week’s episode of the ESG Report.
The Materiality Assessment
Many regulatory frameworks view the risk assessment as the key foundational mechanism to identify risk for the corporate compliance program. In the ESG space, you need to understand material ESG matters, which transforms your standard risk assessment into a materiality assessment. It’s important for several reasons, Tom tells listeners, including:
- It’s the starting point from which you manage your non-financial risks and opportunities;
- It helps determine topics that should be considered in the business/sustainability strategic development;
- It is the starting point for an overall sustainability framework;
- It helps you gauge the impact of your business on society and the environment, as well as meet stakeholder expectations.
A Strategic Business Tool
KPMG sees the materiality assessment as a strategic business tool. “This is because it provides an opportunity to apply a sustainability lens to business risks, opportunity trendsetting and enterprise risk management processes,” Tom explains. It’s a formal exercise whose objective is to engage stakeholders to find out which ESG issues matter most to them. “Insights gained can be used to create strategy and communication and help you tell a more meaningful sustainability story,” he continues. He outlines the 7 steps in conducting a materiality assessment.
Policies & Procedures
Your ESG policies and procedures are your first line of defense when stakeholders come knocking, Tom argues. They should outline responsibilities for compliance within the organization, as well as detailed internal controls, auditing practices, and documentation policies. These policies should be regularly reviewed and updated. In addition, properly documented policies, that are signed by employees, serve as internal communication and control. “Together with a signed acknowledgement,” Tom remarks, “these documents can serve as evidentiary support if a future issue arises.” Regulators and investors want to see that you consider your impact on the environment, the community, and your employees.
Why Compliance Should Lead ESG
Materiality assessments and policies and procedures are “directly in the wheelhouse of the compliance professional,” Tom points out. While there are some technical aspects, particularly in the environmental sphere, that need subject matter experts, they can still be overseen by the compliance officer. He advises compliance professionals to familiarize themselves with materiality assessments and ESG policies and procedures since ESG is here to stay. “But remember, probably 80% of what you do as a compliance professional – if looked at in a different light – would fall under the S and the G of ESG.”
Resources
Tom Fox email
FCPA Compliance and Ethics blog
