We invite you to read the column written by our Compliance Group Director, Yoab Bitran, on the strategic risks of ESG rollback as a result of the actions taken by the current U.S. government.
After the first months of the Trump Administration, many business leaders have been perplexed by the retreat of what was thought to be certain consensuses reached and incorporated into the corporate acquis, at least in the West.
From the offensive against ESG criteria and the suspension of the Foreign Corrupt Practices Act (FCPA), to the halt of Diversity and Inclusion programs and the brake on the fight against climate change, we can see how the US went from leading to stopping these initiatives.
In fact, it went from actively preventing and sanctioning greenwashing – the exaggeration and false advertising in ESG matters – to coining the term greenhushing, understood as when an organization advances in such matters silently, without publicity.
Thus, it is reasonable that many boards and senior executives in Chile are confused and have doubts about how to advance in the management of these initiatives. While we could provide solid value or ethical reasons, I would like to put forward pragmatic arguments to support why it would be very unstrategic for a company to abandon or go backwards in its compliance, ESG, diversity and inclusion or anti-corruption programs.
The current U.S. administration will end in less than four years and a review of history is enough to understand that there is a strong likelihood that the political pendulum will swing. If this proves to be the case, the US could retake the lead in areas such as anti-corruption or diversity and inclusion.
In this regard, it is important to consider that the FCPA has a five-year statute of limitations, so a company could be investigated for acts that occurred even during this pause period in its application.
On the other hand, although the U.S. led for decades in some of these matters, today it is far from being the only relevant player. Europe has been leading significantly on issues such as data protection, with its General Data Protection Regulation (GDPR); supply chain responsibility, with its Corporate Sustainability Due Diligence Directive (CSDDD); and in the global fight against corruption with the new International Working Group, formed by the United Kingdom, France and Switzerland.
Even if we analyze only what comes from the US, we can see that a couple of months ago the State Department declared certain international cartels as terrorist organizations, including some of Latin American origin. Thus, a crime that many companies saw as distant, today is a major risk that forces to review due diligence procedures and identification of beneficial owners.
The path to better standards may be curvilinear and non-linear, but a company that backs down because of a misunderstood opportunity in a temporary political context would be making a blunder. It is a very bad idea to make long-term decisions based on short-term changes.
Column written by:
Yoab Bitran | Director Compliance Group | ybitran@az.cl
