How well do you know your business partners, suppliers, investees and customers? We believe most companies are inadequately informed of business risks in emerging economies relating to environmental, social and governance (ESG) issues, i.e. corruption, pollution, health & safety problems, natural resource exploitation, industrial accidents, labour disputes, ethical allegations, community conflicts, human rights abuses, etc. The higher levels of ESG risk in emerging economies can damage reputations and threaten business continuity.
It has been estimated that only 50% of UK companies vet or audit their suppliers for compliance with the Bribery Act and other ethical risks.
Poor governance and endemic corruption in emerging economies can lead to ineffective operational controls, lack of transparency, weak enforcement and unwelcome ESG risks. Not good for business and a growing challenge for risk management and assurance.
Despite growing awareness, concern and government commitments, ESG risks don't go away. They are a major differentiator between doing business in emerging economies and developed economies.
Transparency international's Corruption Perceptions Index illustrates very clearly the difference between developed and emerging economies.
The web is now the de facto channel for reporting corporate performance - the good, bad and ugly. It's the eyes, ears and voice of society. Employees, communities, NGOs and local media use the web to report and escalate corporate negligence and malpractice. As well as mainstream news channels, blogs, whistle-blowing channels and social media are increasingly being used to publicise a wide range of allegations and incidents.
China's Environmental Protection Law now allows non-profit groups to bring public interest lawsuits against polluters.
Some ESG allegations and incidents appear in the international news, when big brands get involved in labour conflicts, factory fires and TV documentaries on exploitation. But many more are reported only locally and remain unnoticed by lenders, investors and customers - leaving a residual risk.
In emerging economies the use of the web for exposure of corporate behaviour is likely to accelerate for a number of reasons:
N I M B U S data indicate that the frequency of Chinese corruption, fraud and governance allegations on the web quadrupled between 2012 and 2015.
In business, early warning of potential problems is key to mitigating impacts and avoiding a crisis. If a supplier, investee or customer gets into trouble, the sooner you know the better. And when it comes to assessing new business partners, past performance can be a useful indicator of future risk. But where to get useful ESG information?
ESG risks in emerging economies are particularly difficult to get a handle on through traditional methods. Public records and corporate disclosures are of limited value because a lack of transparency and widespread corruption mean corporate data, even when available, is often unreliable.
Fewer than 30% of top Chinese and Indian companies publish independently audited corporate responsibility reports.
Due diligence and compliance audits can be used to identify key ESG risks. But audits only provide a snapshot view, frequently obscured by lack of data and uncooperative management. Past problems and many ongoing risks remain unidentified. Future problems may go unnoticed till it's too late. There is always an assurance gap. How big is the gap for your business and does it matter?
N I M B U S cost-effectively reduces the ESG assurance gap by monitoring corporate exposures on the web. It keeps track of thousands of companies and executives, 365 days a year, routinely scanning hundreds of web sites for news reports, allegations and negative opinion. These are logged as risk alerts and are available to subscribers via our web database or offline reports.
NIMBUS can support you at various stages of your business through the whole cycle of market analysis, due diligence and monitoring.