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How can ESG play a role in the risk mitigation process?

Che Sidanius
Che Sidanius
Global Head of Financial Crime & Industry Affairs, Refinitiv / Chair of the Europe Chapter, Coalition to Fight Financial Crime

Refinitiv’s latest white paper takes an in-depth look at the importance of both financial institutions (FIs) and corporates adopting a more holistic approach to risk management by including environmental, social and governance (ESG) considerations into the risk mitigation process.

  1. COVID-19 has made a significant change to risk management. Gaps in formal due diligence have widened and risk levels have greatly risen leading to a proliferation of financial crime.
  2. Companies need to consider the importance of ESG factors in risk mitigation as the millennial generation takes centre stage and the record flows into ESG funds continue to thrive.
  3. Refinitiv can provide companies with ESG data, reporting and technology capabilities to help them fight financial crime and their enhance risk mitigation process.

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The far-reaching consequences of COVID-19 have forever changed the risk landscape, leading to growing gaps in formal due diligence and significantly contributing to rising levels of risk.

A 2021 global survey commissioned by Refinitiv revealed that:

  • 73 percent found themselves under extreme or significant pressure to increase turnover in the wake of the pandemic; and
  • 65 percent believed the pandemic forced them to take shortcuts with their know your customer (KYC) and due diligence checks in order to cope

The due diligence gaps resulting from these shortcuts provide an opportunity for both heightened risk individuals and entities to remain undetected in global supply chains – in turn allowing them to perpetuate a range of crimes – from fraud, money laundering and theft, to bribery and corruption, cybercrime, modern slavery, and more.

Given that the consequences of these crimes are significant, and impact organisations, individuals and societies in immeasurable ways, these rising levels of risk demand urgent attention.

Read the full white paper: Risk mitigation and the pivotal role of ESG

65 percent believed the pandemic forced them to take shortcuts with their know your customer (KYC) and due diligence checks in order to cope

ESG is fundamental to a holistic approach

Alongside rising risk levels, ESG considerations are increasingly moving to global centre stage, and it is time for organisations to view these crucial factors as fundamental to every risk-related decision.

Two-thirds (66 percent) of survey respondents believed overall ESG considerations had increased in importance for their organisations as a result of COVID-19.

Moreover, 2020 saw record inflows into ESG funds. We believe that ongoing and substantial inter-generational wealth transfer will further accelerate this trend as millennials –  typically more alert to the importance of sustainability and ESG investing – take over the reins from older generations.

Drilling down, it is worth noting that green crime – which includes wildlife trafficking and broader environmental crimes – is a fundamental part of the environmental element of ESG.

Green crime continues to grow in terms of global recognition, and this is supported by the findings of a recent Refinitiv webinar focused on green crime, where 81 percent of participants “absolutely” agreed that green crime is a threat to peace and security.

David Craig, Senior Advisor, LSEG quote about the fight against green crime

Multi-faceted support to help with risk mitigation

Refinitiv supports the view that ESG considerations and broad-based risk management should not be viewed as separate siloes, since they are directly and inextricably linked.

With this in mind, we remain committed to helping organisations pinpoint and mitigate risk across their global supply networks.

Our data, reporting and technology capabilities offer tangible help to solve for the full range of risk challenges:

  • Data: Our ESG investing data covers 80 percent of global market cap and delivers over 450 key metrics relating to supplier performance in critical areas such as climate change, executive remuneration, diversity and inclusion, and more. Moreover, our proprietary World-Check risk intelligence database delivers accurate and reliable screening data to help organisations make more informed decisions.
  • Reporting: Where heightened risk is detected or suspected, our enhanced due diligence reports deliver deep, targeted insights.
  • Technology: The Refinitiv Due Diligence Centre empowers organisations to centralise third-party risk management processes and streamline due diligence across the third-party relationship lifecycle.

In addition, we are working to promote enhanced collaboration between all stakeholders, since we believe this to be critical to the success of the global sustainability agenda.

We will continue to focus on developing and delivering trusted data, supported by leading-edge technology and invaluable human expertise, and in so doing empower firms to implement more holistic risk management strategies, incorporate crucial ESG considerations, and improve risk mitigation outcomes.

As risk levels continue to climb, a new organisational mindset is needed – one that is holistic in nature and views ESG factors as a fundamental tenet of the broader risk mitigation process.

Read the full white paper: Risk mitigation and the pivotal role of ESG