by GK Strategy 12th December, 2018
2 min read

Bribery and Corruption : How Do They Relate to ESG?

The governance component of ESG (environmental, social and governance) is too often largely identified with the architecture of board oversight – from board composition and remit, to specific sustainability responsibilities. But UN Anti-Corruption Day reminds us that bribery and corruption is of one the biggest issues that lies within the scope of governance. The UN states that this is “one of the biggest impediments to achieving the  Sustainable Development Goals (SDGs).” – these are the 17 goals the UN set for all countries to ensure sustainable growth in all its aspects. Bribery and corruption can also undermine good company and state environmental and social policies and processes, if standards are ignored by bribed officials.

Bribery and corruption is a major concern for investors and for GK when we assess ESG risk.

Risks – and perceived risks – of bribery and corruption can undermine trust in a company, as can perceptions that its processes and systems are not sufficiently robust to prevent bribery and corruption. Board directors can also be criminally liable for bribery and corruption in their companies in many jurisdictions.

Our ESG due diligence looks not just at the adequacy of controls – to prevent and detect bribery and corruption – but also the business model and incentives. Controls, however good they are, need to be supported by practices that minimise the opportunities and incentives for bribery and corruption by all parties.

Transparency International – the leading anti-corruption campaigning group –  rightly argues: “Corruption represents a major obstacle to reaching all the SDG goals as it hampers economic growth and increases poverty, depriving the most marginalised groups of equitable access to vital services such as healthcare, education and water and sanitation..”

Any investor or company considering expansion outside of the least corrupt countries (reliably indicated by Transparency International in its annual index – New Zealand leads; the UK is 8th) should consider whether its controls, business model and incentives are strong enough. They should also consider whether they have adequate oversight of their supply chains, as this is often where the most risk lies. A 2017  Economist Intelligence Unit report revealed that fewer than a third of major corporations looked to address such issues with their suppliers.

GK helps investors and companies assess their ESG risks, with a particular focus on how well governance works in practice to support environmental and social objectives. Our extensive experience of political and regulatory risk assessment means that we also understand the institutional dimension of bribery and corruption.

For more information on how GK approaches ESG in its due diligence and advisory services, please take a look at our ESG services page.

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