ESG ratings: How to undertake a proactive review to minimise any hidden fraud and corruption and improve a company's governance rating

Abstract

This paper describes a framework used by the European Investment Bank (EIB) — that would be transferable to interested compliance and investigation teams of corporate entities — to undertake proactive fraud reviews. These processes (at EIB known as Proactive Integrity Reviews but by other names at other multilateral development banks (MDBs), such as Detailed Implementation Reviews at World Bank) assess the weaknesses and gaps that may have been (or in the future could be) exploited by fraudsters. A key part of the review is to make remedial recommendations that, if implemented, would minimise fraud and corruption in corporate supply chains and other key processes. Conducting such reviews can be time consuming and costly but, when undertaken in high-risk processes where there is no actual allegation of fraud or corruption having occurred, can identify a number of fraud risks. Among the benefits of these reviews are (i) maintaining (or even improving) the company's environmental, social and governance (ESG) rating and share price; (ii) minimising fraud and corruption risk; and (iii) limiting the danger of: (a) related and potentially expensive litigation; (b) significant negative publicity; and/or (c) a law enforcement agency's criminal investigation and prosecution.