Finance Monthly - September 2022

53 Finance Monthly. Bank i ng & F i nanc i a l Se r v i ce s been deemed appropriate were forced to change as the role and size of legal and compliance functions were given more resources. In a similar vein, the global financial crisis of 2008 exposed practices that had been disguised by economic growth, and several infamous Ponzi schemes became emblematic of that era’s excesses. Those fraud cases, in conjunction with important global security incidents, provoked a seismic change and strengthening of anti-money-laundering and terrorism financing rules and standards, with Know Your Customer (KYC) checks taking on new meaning. These periods, where favourable economic conditions ebb and/or regulatory agencies catchupwithnew trends or products, suggest that ESGrelated litigation and enforcement risks will rise for companies and fund managers alike, regardless of whether it was a marketing misstep, confusion over new and evolving reporting requirements or deliberate slanting of data and evidence to lead an audience to a false conclusion. Learning from history, it is important that we resolve the common pull felt between fear of missing out (FOMO) and risk management. Executives that give sales teams an objective to grow, to secure market share, to aggressively pursue profits will always run the risk of people evading or bending the rules – especially if those rules are vague and their enforcers are seen to be catching up. But recent developments from regulators in the US, Europe and the UK surrounding greenwashing, climate-related disclosures, transparency, due diligence, accountability – among many others – all reflect the direction of travel. Today’s operating environment is complex, to say the least. However, for as long as compliance and risk management are perceived as constraints to innovation and growth, their potential as enablers of sustainability and resilience may not be realised. The debate over ESG will continue for some time while we determine what it represents, how it is measured and how related activities are enforced. It should not distract, however, from certain fundamentals. Sustainable, resilient, profitable companies consider risk in its entirety – not just the ESG subset – and on a continual basis. They determine their risk appetite and design structures that align with that threshold. Their policies and procedures provide parameters for their employees to operate within and safeguards for the organisation. And they regularly and routinely review their risk exposure to ensure they adapt to changing market conditions. Robust risk management may not be the most exhilarating of topics, but it should make for a compelling story to investors, an endorsement of a company’s values – key to employee retention – and, ultimately, a good night’s sleep for company leadership. “Learning from history, it is important that we resolve the common pull felt between fear of missing out (FOMO) and risk management.”

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