Rising ESG risks and the evolving role of CCOs

Chief Compliance Officers (CCOs) have an increasing and critical role to play in the vast ESG (environmental, social, and governance) movement. Both the scope and scale of companies’ ESG-related commitments, products, and exposures (including through their third-party relationships) are elevating the importance of assessing compliance risk and bringing ESG forward into all core elements of an effective compliance program.

It is the dramatic speed with which ESG awareness and engagement is occurring, however, that demands CCOs act now, and decisively, to define and shape their role.

Daily headlines on climate change, racial equality, cyber events—all ESG concerns—have broadened public awareness and raised stakeholder expectations for companies to commit to, act on, and report about their ESG-supporting initiatives. Presidential executive orders and potential regulatory changes are also concerning for boards and executive management teams.

“The chief compliance officer must drive a sound and effective ESG compliance program, including ethical business practices, strong consumer and investor protections, and responsible third-party management. The importance and speed of ESG change demands that CCOs act now, working to both mitigate ESG risk and build market trust,” said Amy Matsuo, KPMG principal and national leader for Regulatory Insights and Compliance Transformation.

Una Neary, Global Chief Compliance Officer at BlackRock commented recently: "From a compliance perspective, ESG considerations are rapidly evolving, yet sustainable investing is quickly becoming the table stakes for many constituents. To address this, and to the extent possible, we are integrating ESG into our existing compliance program and processes. This gives us the flexibility we need to meet our clients’ goals while maintaining the long-standing integrity of our platform."

Matsuo said as companies take steps to meet those expectations, they must be cognizant that so much heightened interest and attention similarly heightens risk. For example:

  • Public statements and/or announced pledges regarding ESG issues must be matched by follow-through actions – “do what you say and say what you do” – as failure to do so increases reputation risk and threatens stakeholder trust.
  • Inconsistencies between ESG-related marketing disclosures, such as product labeling or financial returns, and actual results may lead to findings that the disclosures were misleading in violation of prohibited unfair or deceptive acts or practices rules and/or increases in customer/investor protection risks.
  • Aligning with vendors or forming third-party relationships with companies that do not hold to fundamental ESG tenets, such as employee health and safety, community development, pollution prevention, or business ethics, can directly reflect on the engaging company and may result in increased reputation risk as well as potential violations of other relevant laws and regulations (e.g., labor exploitation, anti-bribery and corruption).

Rising regulatory expectations

A Risk Alert recently issued by the Securities and Exchange Commission (SEC) highlights how traditional core concepts of compliance and control, such as accurate and meaningful disclosure, customer and third-party due diligence, and customer/investor protection, are directly applicable to ESG activities. The SEC includes ESG considerations among its examination priorities and is integrating ESG into its broader regulatory framework, reinforcing the importance of a compliance role in this increasingly prevalent area. (See KPMG Regulatory Alert here.)

If you would like to speak with Amy regarding ESG or the evolving CCO responsibilities, please contact Pete Settles.

You also can access other ESG-related content on our KPMG IMPACT: Your ESG solution website.

Media Contact

Pete Settles

Pete Settles

Director, Corp. Comm., Financial Services, KPMG US

+1 201-505-6065

 

 

Amy S. Matsuo

Amy S. Matsuo

Regulatory and ESG Insights Leader, KPMG US

+1 919-664-7100

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