Tag: Risk Management

By guest author Jon Munnery of UK Liquidators.

A director or shareholder dispute can create serious tension and disruption within a limited company.

This is why it is always worthwhile putting a policy in place to manage disputes before they affect operational effectiveness.

The bad feeling caused by a dispute can lead to neglect of the company’s day-to-day requirements, such as a failure to monitor cash flow or customer complaints. In these instances, the business could enter a financial decline unnoticed or experience a loss of trade due to poor customer service.

What are the common reasons for disputes within a limited company?

Conflicts within a limited company can arise for many reasons, but some of the most common triggers include:

• Disagreement over future business strategies.
• Director performance.
• Employing family members.
• Breach of director duty.
• Director salaries being too high.
• Dividend payouts being too low.
• 50:50 director or shareholder deadlocks.

So how can director and shareholder disputes be managed and resolved before they become too detrimental to the company?

Managing director and shareholder disputes

Disputes within a limited company may be managed using the company’s Articles of Association and/or a shareholders’ agreement if one is in place. It is advisable to draft a formal shareholders’ agreement at an early stage, although it is possible to create one at any point.

If a dispute becomes lengthy or appears to be impossible to resolve, expert intervention from a qualified third party may also provide a solution that allows the company to move forward.

Include a dispute resolution process in the Articles of Association

Detailing a formal procedure for resolving disputes provides a clear template for moving past a commercially dangerous period without jeopardising the company’s current success or future plans.

The Articles of Association are written rules on how the company will be run and they provide the perfect opportunity to lay out how disputes should be dealt with. As an example, the Articles might state that if the dispute cannot be resolved ‘in-house,’ the company can appoint a professional mediator to guide directors towards a resolution.

Use a Shareholders’ Agreement

A shareholders’ agreement is a formal written agreement between the shareholders of a company and often provides them with more rights than the company’s Articles of Association.

An agreement can cover various aspects of business, such as financing and management, but also how disputes will be resolved. Without a shareholders’ agreement that includes dispute resolution, conflicts may be more common and lengthy.

Resolution between shareholders or shareholders and directors would have to rely on the process detailed in the Articles of Association, which may not provide the same protection for shareholders as a formal agreement.

Removing a director

Sometimes a dispute cannot be resolved either in-house or by using mediation and the only way forward may be to have a director removed. This might be the case if the director refuses to resign, for example, and they have seriously breached their duties as a director.

The company’s Articles may state the circumstances in which a director can be removed, and how this should be done, allowing the company to progress without the distraction of a prolonged conflict.

Seeking professional assistance during a shareholder dispute

Obtaining advice from a qualified third party during a dispute can protect the company from protracted disruption and possible loss of reputation. If the potential for disputes is considered at an early stage, and dispute resolution is included in the business plan, it can ease a challenging problem and allow a company to reach its full potential.

Jon Munnery is an insolvency and company restructuring expert at UK Liquidators, a leading provider of company liquidation services to both solvent and insolvent limited companies.

Corporate investigations by ESA Risk

Our team of experienced corporate investigators is ready to support you with your investigation needs – from assistance with internal investigations to full-scale corporate investigations as an external investigations agency. We have access to digital forensics and data management technology, to aid investigations that involve large numbers of documents.

To instruct us on an investigation or for more information on our services, contact Mike Wright, Risk Management & Investigations Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

By guest author Chris Bristow of Real Business Rescue.

A degree of unpredictability will always be present in this challenging business area so it is important to identify the risks most likely to materialise and plan a strategy to deal with them.

External issues, such as adverse weather conditions and customs issues, can severely compromise the success of projects and transactions, and potentially damage a business’s reputation in the long term.

It is vital, then, that some control is regained so how can supply chain risk be mitigated?

Diversifying suppliers

Expanding their supplier base offers businesses flexibility if one supplier cannot fulfil or deliver an order. Operating with just one or two regular suppliers creates a challenging situation if a problem arises, introducing a greater risk of the supply chain breaking down.

A geographical spread of supplier locations mitigates the risk of localised issues affecting the entire supply chain. Identifying suitable ‘backup’ suppliers can also help to keep the supply chain moving.

Creating a supply chain risk management plan

Preparing for supply chain difficulties via a risk management plan is key to operating a robust but agile business that can continue to operate effectively despite supply chain challenges.

A plan might include building flexibility into production or service delivery processes, for example, or expanding the supplier base as mentioned. Considering current supply chain risks is important, but potential risks that could affect a business in the future also need to be identified.

Narrowing these down to the most likely to occur, and those that would have the biggest impact on the supply chain, helps businesses to better manage risk and act immediately if a particular scenario materialises.

Using technology to mitigate supply chain risk

Transparency and collaboration are key elements in building a resilient supply chain and both can be achieved using technology. Being able to view each part of a supply chain allows for decisive action to be taken after an adverse event and keeps the supply chain intact.

Technology also enables real-time collaboration between supply chain members. This reduces the likelihood of irresolvable problems being experienced, and crucially, limits the negative impact as all members work towards a common goal.

Reviewing the risks regularly

Supply chain risks can alter considerably over time. Political unrest in supplier locations or on the supply chain route, for example, as well as climate change and industrial strikes, may not currently appear on a business’s risk radar but they might become an issue unexpectedly.

By regularly reviewing likely supply chain risks the management plan can be amended and potential disruption avoided. The risk management document can also be reviewed when a business uses a new supplier or changes its transportation routes or methods.

Benefits of mitigating supply chain risk

By staying one step ahead of supply chain issues a business can smooth out transactions and projects and ultimately improve profitability. It is difficult to underestimate the potential damage to a business when supplies or finished goods do not reach their destination on time, or services cannot be delivered because of supply chain delays.

Mitigating supply chain risks, therefore, is a key element in operating a competitive business that develops a solid reputation for efficiency and reliability. A clear and dynamic risk management plan and the use of technology are the foundations for this.

About the author – Chris Bristow is a business debt expert at Real Business Rescue, company rescue, restructuring and liquidation specialists with a wealth of experience in supporting company directors in financial difficulty.

Contact ESA Risk today

Managing and mitigating your risks effectively is key if you want to safeguard your commercial assets, enhance your reputation and maintain commercial advantage.

The risks businesses face will continue to evolve. Whether they are related to compliance, finance, operations, the political landscape, regulations or security, it’s critical that you have a well-defined strategy in place and can respond quickly to events and incidents.

If you require advice on risk management strategy, contact Mike Wright, Risk Management and Investigations Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

Although, what about external risks posed to the business that are out of your control?

The financial health of your supply chain is interlinked with the health of your own business, as if you’re highly dependent on a small number of contracts and any of these businesses run into financial difficulty, your business could be at risk. Therefore, it’s crucial to spread the risk, rather than concentrate the risk on a small number of clients.

Guest author Karl Hodson of UK Business Finance, a commercial finance specialist, runs through how to track the financial health of businesses in your supply chain through a combination of methods, including assessing data available in the public domain, analysing behaviour, and using specialist software.

Credit risk management software

Specialist software designed for credit risk managers supplies data on thousands of UK businesses. From financial health ratings, red flags, and detailed analysis of risk levels, it’s worth investing in credit risk intelligence software to mitigate risk and protect your business.

Red Flag Alert is an example of industry-standard credit risk software that provides key financial indicators to forecast potential insolvency. You can connect real-time alerts straight to your inbox so you can be notified of any changes to ratings.

Companies House

Companies House is a public register which means that the information is publicly available. It’s the central database that houses information on all UK companies, most information is free, such as company information, details of active officers, previous company names and insolvency information.

If there’s an incoherent pattern of events, such as a wave of officer resignations and overdue documentation, this may raise a red flag. The Companies House profile will also show the company status, including whether there’s an active proposal to strike off which means that the company is set to close. If the business is due to strike off, raise any claims that you may have with the liquidator.

The Gazette

The Gazette is the UK’s official public record that holds information on companies, including insolvency notices. It provides a complete notice timeline, from the date the petition to wind up the company was issued and the winding up order was granted. You can track businesses in your supply chain to check that they’re not exposed to any legal action from creditors, such as a winding up petition. Keep a close eye on the businesses in your supply chain so you can track any potential insolvencies.

Creditors commonly issue a winding up petition as a final resort if they believe that the company is out of cash. If this is the case, you’ll want to reach out to the liquidator and submit any claims.

Behaviours

If there’s a change in behaviour, such as inconsistent payments, payment delays or requests to extend terms, this may indicate that the business is experiencing cash flow problems. If it’s temporary teething problems, they may turn to a cash injection or formal restructuring to remedy the problem, but if it’s a deep rooting issue, they may need to seek professional help from a licensed insolvency practitioner and enter an insolvency procedure.

It’s paramount to track the financial health of your supply chain as if one business collapses, this could jeopardise the way you deliver your service which could have a detrimental impact financially. There’s also a risk of bad debt which is when money owed to your business is unlikely to be paid, and therefore written off.

Supply chain risk management support from ESA Risk

For advice and support on supply chain risk management, contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

This article was written by guest author Karl Hodson of UK Business Finance.

Environmental, social and governance (ESG) criteria have become an important tool for evaluating investment risks amid a growing regulatory push towards increasingly cost-effective clean energy.

Those risks include litigation, reputational harm and falling share prices arising when ‘sustainable’ funds fall short of their promises.

Research published by Morgan Stanley in 2018 indicated that 78% of investors identified risk management as “an important application for ESG data”. This is partly because ESG, unlike its predecessor corporate social responsibility (CSR), provides reporting frameworks for tracking compliance.

Consequently, funds invested in ESG assets are expected to exceed $50 trillion by 2025 – up from $22.8 trillion in 2016 to represent more than a third of total, global managed assets.

Nevertheless, there are understandable concerns that ESG is being abused by corporations and fund managers as a vehicle for greenwashing.

ESGreenwashing

Greenwashing involves duping investors and environmentally conscious consumers with exaggerated, outright false or otherwise misleading marketing claims about the sustainability of a company’s products, services or operations.

Recent allegations of greenwashing include unfounded claims about the sustainability of clothing manufacture, tree-planting schemes that fail because of slapdash planting practices, and even the world’s twenty biggest ESG funds holding investments in fossil-fuel producers.

While greenwashing undoubtedly occurs outside of ESG contexts, critics of ESG frameworks have claimed their shortcomings make ESG a particularly useful vehicle for corporate deception.

These claims are not entirely without merit.

A relatively recent phenomenon, ESG can potentially empower deliberate and unintentional greenwashing alike for want of adequate regulation, sustainable finance expertise, ‘gold standard’ reporting frameworks or a clear enough definition of ‘sustainable’ investments.

Add to that the expense and complexity of going green in many sectors, plus the regulatory incentives and penalties designed to facilitate the shift to a net zero economy, and you have the perfect recipe for overblown marketing messages.

Many investors are thankfully, it seems, aware of this problem. Research from Quilter found that misrepresented investments were the biggest ESG worry for 44% of investors.

“Greenwashing threatens to undo all the good work and progress that has been made so far in responsible investing,” said Eimear Toomey, head of responsible investment at Quilter Investors. “It is crucial that fund groups invest in the way that they say they will, so it is important investors hold them to account on this.”

Regulatory crackdown

The last two years have seen a flurry of ESG-promoting and anti-greenwashing regulatory moves both sides of the Atlantic.

The UK government’s 2021 ‘Roadmap to sustainable investing’, for instance, sets out how financial organisations will have to substantiate their ESG claims under the Sustainability Disclosure Requirements (SDR). Similarly, the Competition and Markets Authority (CMA) published a Green Claims Code in the same year that said firms making green claims “must not omit or hide important information” and “must consider the full life cycle of the product”.

There are also proposals afoot to bring ESG ratings agencies under the ambit of the Financial Conduct Authority (FCA), which is due to consult on SDR for asset managers, certain FCA-regulated asset owners and the sustainable labelling system.

A similar agenda to the UK has been pursued in the last two years by the EU, through the Sustainable Finance Disclosure Regulation (SFDR), Sustainable Finance Roadmap and Renewed Sustainable Finance Strategy.

Over in the US, meanwhile, the Securities and Exchange Commission (SEC) has recently proposed ESG disclosure requirements for funds and advisers, and created an ESG enforcement task force.

A globally significant development, meanwhile, was the launch of the International Sustainability Standards Board (ISSB) in 2021 with a mission to establish baseline standards for evaluating sustainability-related investment risks and opportunities.

Some experts anticipate that this regulatory drive could herald a wave of litigation against firms for misrepresentation of ESG products. This presents investment risks given “greenwashing allegations are highly publicised and lead to a subsequent fall in share price”, lawyers at Farrer and Co have noted.

Due diligence

ESA Risk’s Mike Wright has written previously that “due diligence is a must to ensure you’re investing in a responsible, sustainable business”. With ESG definitions so subjective, he continued, “it’s important to undertake independent research, rather than to always rely on the opinion of an investment manager”.

According to an FT Adviser piece from Maria Lozovik, a partner at Marsham Investment Management, that research should have a hardheaded focus on an investment’s likelihood of delivering market share growth and strong rates of return, “taking into account strong government support and subsidies” for sustainability.

Essentially, the implication is that ESG or climate-related marketing claims are more likely spurious if they don’t appear to be in the firm’s best interest financially.

Indeed, ESG score provider MSCI admits its ratings aren’t “a general measure of corporate ‘goodness’”, but “measure a company’s resilience to financially material environmental, societal and governance risks”.

It also notes that a company’s ESG score does not precisely reflect its carbon footprint. The financial risks presented by greenhouse gas emissions will influence the scores of power and steel companies much more significantly than healthcare firms, for which “the most financially relevant risks lie elsewhere”, says MSCI.

While useful – and perhaps increasingly so given regulatory developments – ESG alone won’t give a definitive picture of the climate-related risks investors are exposed to.

Investors should therefore research more broadly when evaluating a company’s or fund’s green credentials. This should include watching out for significant legal action or further regulatory developments and considering the implications for their investment strategy – perhaps with the help of an advisor who specialises in ESG.

If investors and their advisers can successfully sidestep greenwashing threats, then genuinely ‘responsible’ investments can potentially offer enormous returns when you consider the regulatory incentives and the innovation they spur. As Square Mile chief distribution officer Steve Kenny told FT Adviser, the money needed to make the economy “net zero is off the scale”, so the companies driving this transformation “are going to be massive”.

How ESA Risk can help

Due diligence is an area where we possess the expertise and experience to help you and your business.

For advice on private investing or conducting due diligence, contact Mike Wright, Risk Management & Investigations Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

You can keep your workers safe with proper training as well as lone worker security devices. Such devices can tell you your employee’s location or send a warning signal when your employee has suffered an impact or stopped moving for a given period of time.

Keep reading to learn about six types of lone worker security devices that will keep your employees safe.

What is a lone worker?

Anyone working out of reach of supervisors or colleagues qualifies as a lone worker.

Being a lone worker does not always mean the employee is alone. It just means others cannot see or hear them. Thus, individuals working on the same job site as others but out of sight would qualify as lone workers. Here are a few other potential lone workers:

• Workers who work alone while others take a break
• Single employees working late
• Employees working away from other employees but still in public or populated places
• Employees travelling alone for business
• Employees working from home.

Lone workers can be construction workers on a job site working alone, healthcare workers caring for patients at home, and social workers conducting home visits alone. They could also be someone working alone at the office after everyone else has gone home.

Working alone leaves an employee vulnerable. Plus, the law dictates that all businesses must adequately protect their lone workers. Here are a few of the ways you can maximise your lone workers’ safety.

1. Lone Worker Apps

Technology and smartphones have boosted the world of security for lone workers. Smartphone lone worker apps can give employers real-time information about an employee’s location and wellbeing.

For example, some apps have safety features like a ‘man-down’ alert or panic alarm. They can also include a timed check-in and discreet panic function.

Some of the newer smartphone apps connect to a Cloud-based monitoring hub that gives employers real-time updates. They can see, at a glance, where their employee is and if they’re relatively safe.

2. GPS tracker

GPS trackers also provide personal security for lone workers. These security devices give employers real-time information on their employees’ locations without compromising the privacy of a smartphone.

For example, the Prime 3G GPS tracker has a powerful, reliable tracking device that you can use for vehicle tracking, on high-risk / high-value assets in transit, or for lone worker security.

When a lone worker uses the tracker, they can alert up to three different people by SMS with the device’s SOS button.

A ‘geo-fence’ can also be defined around a specific geographical area, triggering an alert when the device leaves that area.

3. Panic alarm

If you don’t opt for the savvier trackers, a more simple security system for a lone worker is a panic alarm. Your workers will have personal security knowing they can push the panic alarm publicly or discreetly should they need to.

The panic alarm is especially helpful when your lone worker feels like they’re in a potentially dangerous situation and needs assistance. A discreet alarm works especially well when a lone worker feels threatened by someone and does not want to alert that person to the fact that help has been called.

4. Non-movement alarm

A non-movement alarm will sound after your employee has stopped moving for a given amount of time.

The lone worker device will detect accidents and medical emergencies in which the worker cannot hit a panic button.

5. Impact detection

Some man-down alarms will also have impact detection. This means the alarm will sound not only when the worker isn’t moving but also when the device sustains an impact.

If your worker is in an accident or falls from a height and cannot activate the panic alarm, the impact detection alarm will be triggered.

6. Training and communication

You can best prepare your lone workers for the dangers they may face by giving them adequate training regarding safety protocols. Train your lone workers in every possible scenario.

Implement a protocol where workers report near misses, as well. These are situations where individuals come close to having an accident, even when following current procedures. A near-miss report will give you the data necessary to review and revise current procedures and keep your lone workers safe.

Risk assessments for lone workers are essential. For example, social workers who enter homes alone should be able to identify red flags for potential risks. This type of basic risk assessment  will ultimately keep your lone workers safer.

Lone worker security made simple

Proper devices, training and protocols will help you maintain lone worker security in your business.

For advice and support relating to lone worker security, risk assessments and suitable devices, contact us at advice@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

Broadly speaking, risk management is about identifying, evaluating and mitigating risks to reduce the likelihood and impact of those risks being realised.

Resilience is also about handling risk, but focuses instead on maintaining business continuity amid adverse events, bolstering an organisation’s ability to rapidly adapt to disruptions, and protecting its people, assets and reputation.

Resilience First, a non-profit founded in 2018 to foster greater business resilience across UK industry and critical infrastructure, has therefore described risk and resilience as “opposite sides of the same coin”.

Both concepts remain fundamental to enterprise strategy, but operational resilience in particular has grown more important in an increasingly unpredictable world where businesses have in recent years been hit by a series of unforeseen dislocations.

Risks motivating the rush to resilience

Threats include growing geopolitical instability, with the ongoing war in Ukraine demonstrating the risks of operating in authoritarian or politically unstable jurisdictions.

Brexit and the rise of populist leaders in several countries, meanwhile, have both threatened to make the trading environment less hospitable through protectionism, trading barriers and immigration restrictions.

And Covid-19 forced organisations, almost overnight, to enable their workforce to work from home and adapt to severe restrictions, such as the food service sector’s sudden reliance on food delivery. The pandemic is still disrupting supply chains and causing industry to question the wisdom of globalisation and the just-in-time (JIT) manufacturing model.

Other threats include rampant inflation, cyber attacks, rapid digitisation and the worsening climate crisis.

The merits of business resilience

In a Resilience First webinar on the topic, Lord Toby Harris has said risk assessments alone leave organisations unprepared “for not only the ‘black swan’ event (previously unobserved, hard to predict, high-impact) but also those ‘black jellyfish’ (known but more complex that may have a sting) and ‘black elephants’ (known and in plain sight but with which no one wants to deal)”.

While risk assessments often centre on a small number of easily understood risks, resilience offers a holistic approach involving scanning the horizon for a variety of threats and modelling crisis scenarios against which to stress-test an organisation.

Far from merely mitigating risk, resilience can therefore inform strategic thinking and give birth to business models more suited to volatile environments.

Barriers to resilience

There’s sometimes a tension between instilling organisational resilience and the imperative to build value and revenues. For instance, abandoning JIT models and building redundancy in supply chains can foster strategic resilience but higher costs are surely unavoidable.

Another barrier to embedding and maintaining operational resilience relates to human psychology. With disruptive crises being rare, it’s all too easy for leaders to lapse into complacency as short-term operational goals consume organisational focus. Moreover, crises typically trigger changes after the fact that mitigate a recurrence of similar adverse events, whereas it’s harder to argue for investments geared to preventing perhaps similarly likely, but more novel, outcomes.

Like many business objectives, achieving resilience is also undermined by business units operating in silos, as well as a lack of collaboration between government, industry and other stakeholders. This is where organisations like the Resilience Rising consortium, which brings organisations including Resilience First and communities together to promote resilience and share best practices, can come in useful. They can help stakeholders solve complex challenges that are difficult to solve on their own.

Finally, as with ESG reporting, targeting strategic resilience is undermined by a lack of universal frameworks for measuring performance quantitatively.

The route to business resilience

The Business Continuity Institute recently predicted that cyber attacks, natural disasters, the mental health crisis and – fuelled by ongoing Covid-19 restrictions in China in particular – supply chain disruptions including a global computer chip shortage, will pose the biggest challenges to strategic resilience in the coming months.

Bolstering your organisation against such threats is an undertaking that encompasses people, processes and technology. Organisations must evolve their culture, training, practices, business models and technical infrastructure accordingly.

Resilience must be organisation-wide, underpinning strategic decisions around risk, finance, operations, technology, human resources, product development and so on.

To give one example, technological and operational resilience was tested by the sudden need to equip employees to work from home at the outset of the pandemic.

Experts advise enterprises to consider not just the immediate impacts of crises but consequences further downstream, too.

It’s also important not to merely ‘fight the last war’ – to prepare for novel or long-forgotten threats as well as recurrences of recent crises.

Covid-19 offers a salutary lesson here. While the pandemic took businesses by surprise it was foreseeable – pandemics are guaranteed to happen, however rarely.

Resilience First also talks of moving beyond a “traditional linear approach to risk management” to a resilience management model that focuses on “preparing for the consequences of dangers in a generic sense rather than the causes of specific dangers which we cannot foretell”.

And, as well as preparing for these “generic dangers”, businesses must have early-warning systems in place to spot their initial signs.

Build your operational resilience

For advice and support on business resilience strategy, contact Mike Wright, Risk Management Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.

The vast majority of investors believe that interest in ESG will continue to remain a high priority even when the pandemic has passed.

PwC forecast that ESG assets will make up between 27% and 42% of Europe’s asset base by 2025; a significant increase from 15% in 2020.

The move is being driven by changes in the regulatory landscape within the EU and UK, alongside the creation of the International Sustainability Standards Board (ISSB), set up to deliver a comprehensive baseline of standards that will provide investors (and others) with information about companies’ sustainability-related risks and opportunities to help them make informed decisions.

Interest in ESG will remain high primarily because clients are demanding it. Research suggests that meeting clients’ needs outweighs the need to meet increasing regulatory requirements. Of the 3 elements of ESG, the main focus for consumers is concern for the environment. Investors not only want to see a return on their investment, but they also expect their money to do some good by being invested in a way that protects the environment and does no harm.

New rules are being introduced by the EU, which the UK is set to follow with its own regulatory strategy. The EU has already set its own Sustainable Finance Disclosure Regulations in motion, for the first time requiring investors and asset management companies to provide information about their investments, the ESG risks and their impact on the planet and society. The EU action plan reflects a major shift in the way ESG factors are considered in the investment process.

In October 2021, the UK the government published Greening Finance: A Roadmap to sustainable investing, in which it sets out an ambition to make the UK the best place in the world for green and sustainable investment. The document outlines a vision for a comprehensive approach to ‘greening’ financial systems, mobilising finance for clean, resilient growth and capturing resulting opportunities for UK companies.

The roadmap will come in 3 phases:

1. Informing – ensuring decision-useful information on sustainability is made available to decision makers.
2. Acting – to mainstream the information to businesses and financial decisions.
3. Shifting – financial flows across the economy to align with a net-zero and nature positive policies.

Sustainability Disclosure Requirements (SDR)

The roadmap describes the new regime as bringing together existing sustainability-related disclosure requirements under 1 framework – building on existing and future global standards and best practice. Disclosures will be consumer-focused, with companies selling investment products having to provide consumer-friendly disclosures explaining the impact, risks and opportunities of the businesses they finance on sustainability.

The roadmap flags up that any form of ‘greenwashing’ will not be tolerated. In an effort to minimise the practice within marketing activities, financial organisations will have to substantiate any ESG claims made by their products.

Other proposals include an intention to bring ratings agencies under FCA control to reflect the increase in importance of ESG ratings to investors. The FCA have just published a discussion paper, seeking views on SDR disclosure requirements for asset managers and certain FCA-regulated asset owners as well as the sustainable labelling system. The aim is to build trust in the market and enhance transparency in the interest of consumers and meet the information needs of institutional investors. The input they receive will inform policy proposals to be issued for consultation next year.

The changes announced by the government represent an ambitious and comprehensive package of measures designed to help improve the flow of investment towards financing the transition to a sustainable economy. By encouraging investors to redirect investment towards sustainable technologies and businesses the measures will be instrumental in aligning the financial system with the UK target for a net zero economy by 2050.

International action: COP26 and sustainable investing

Of course, these shifts in mindset and policy aren’t isolated to the UK and EU.

Investing in sustainable industries and commodities was 1 of the main topics of discussion at the World Leaders Summit Action on Forests and Land Use at COP26.

At the summit, more than 30 financial institutions signed a commitment to move away from portfolios that invest in high deforestation-risk supply chains. These institutions include companies with $8.7tn under management, meaning the stakes are high for non-sustainable industries once private finance pours into companies that are aligned with sustainability goals and regulations.

Tuntiak Katan, Coordinator of the Global Alliance of Territorial Communities, representing communities from the rainforests of Africa, Latin America and Indonesia, said:

”We welcome the announcement at COP of the Joint Statement on Advancing Support for Indigenous Peoples and local communities that has raised to an unprecedented level their visibility as a climate solution.

“At the same time, we will be looking for concrete evidence of a transformation in the way funds are invested. If 80% of what is proposed is directed to supporting land rights and the proposals of Indigenous and local communities, we will see a dramatic reversal in the current trend that is destroying our natural resources.”

Sustainable investment due diligence

Katan makes a key point about evidence. When it comes to investing, it is important to see the full picture. Some private companies claim to work sustainably and support ESG goals but are greenwashing. Investors must always screen potential opportunities before committing. Due diligence is a must to ensure you’re investing in a responsible, sustainable business.

Investment managers often use ESG portfolios to inspect the status of a company before they invest. However, definitions of ESG can be subjective, and it’s important to undertake independent research, rather than to always rely on the opinion of an investment manager.

How ESA Risk can help

Due diligence is an area where we possess the expertise and experience to help you and your business.

For advice on private investing or conducting due diligence, please contact Mike Wright, Risk Management and Investigations Consultant at mike.wright@esarisk.com, on +44 (0)343 515 8686 or via our contact form.