Eurosif (European Sustainable Investment Forum) publishes their thematic Corruption Report, which discusses the major business risks for companies that partake in corruption, as well as effective methods to avoid and remediate delicate situations. Vigeo performed the research for this report.
Research highlights:
- The World Economic Forum estimates that 38% of countries surveyed claim corruption to be the one of the most challenging factors for businesses.
- Half of international business managers estimate that corruption increases
project costs by at least 10%.
- Companies operating in extractive industries, and more generally companies that have relations with public officials, have the highest exposure to allegations of corruption.
- Legal risks and fines cause the most material damage to companies facing corruption allegations.
Industry, political and economic factors play key roles in the prevalence of corruption; it is shown that this phenomenon is more likely to occur in poor regions with weak political structures. Multinational companies are also at risk for corruption as their business spans over many geographical and economic spectrums.
As corporations continue to expand globally, their interaction with new regions, economies and politicians opens them to greater risk of corruption. Corruption allegations often cause companies to incur large legal fees as well as reputational damages. Thus, it is imperative that companies maintain a high level of transparency and that their investors hold them responsible to this standard. This report outlines best practices for investors and companies to adopt in order to avoid corruption.
Matt Christensen, Executive Director of Eurosif, states that “Corruption, in its many forms, undermines sustainability dramatically due to its impact on environmental, social and governance (ESG) issues. Thus, companies, investors, and policy makers must work together in implementing anti-corruption policies and practices to ensure improved financial and ESG performance on a global scale.”
A steering committee of financial executives oversaw the production of this report and provided their expertise regarding best practices to avoid corruption and the benefits of doing so. Representatives from CM-CIC Asset Management, ECODES Foundation, ECPI and Henderson Global Investors made up the steering committee.
The Head of SRI Research at Henderson, Seb Beloe, explains “bribery and corruption risk has long been a focus for SRI investors, but recent regulatory and industry developments suggest it is also becoming a greater concern for all investors. Eurosif’s briefing provides a very helpful and succinct overview of the issues at stake and what investors can do about them.”
Vigeo Institutional Methods and Relations Director, Fouad Benseddik, comments on the report: “We note increasing differences in companies’ ability to report in concrete terms on their strategies and actions relating to the prevention of corruption. The growing expectations of responsible investors paying attention to this issue should give an impetus to the development of good practices.”
These Eurosif reports aim to guide policy makers, mainstream and specialist SRI investors, and companies towards understanding risks that are not consistently integrated into traditional financial analysis, but which have the potential to influence companies’ shareholder value and fund managers’ investment decisions.
Eurosif will be planning events to communicate the findings from this thematic report in the near future where companies, policy makers and investors will be invited to attend.
To view the Corruption Report please go to: http://www.eurosif.org/media/files/eurosif_corruption_report_june2010