23 November 2022

AFME/EY: ESG and the Role of Compliance

This report sets out observations on how compliance functions can support their firms in robustly and transparently managing the regulatory risks associated with Environmental, Societal and Governance (ESG).

In a compliance context, ESG is a broad term used to describe laws, rules, regulations and expectations regarding how environmental and social factors impact a firm and the broader impact of the firm on the environment and society, including obligations on a firm related to the offering of ESG-related products and services, how a firm manages its exposure to ESG risks, and ESG-related disclosure.

ESG compliance is a complex and changing area: most regulatory expectations are yet to be clearly established as defined rules and regulations, and regions are running at different speeds in terms of regulatory maturity. Global themes are nonetheless emerging around the importance of integrating ESG into enterprise risk management, particularly ensuring that firms manage climate-related financial risks and risks associated with ESG products and services (including ‘greenwashing’) and the importance of non-financial disclosure.

How this report should be used

This report has been prepared to be practical, to support the thinking and enable discussions within firms on shaping the role of compliance and ESG. The observations and considerations in this report have been prepared through a questionnaire and interview-based format; therefore, the report should not be treated as an audit report. When considering ESG risks and the observations in the report, firms should do so within the context of the firm’s risk taxonomy and control frameworks, in this context it is important to note that responsibilities for managing ESG risks may vary depending on the firm. AFME
members or other firms are not obliged to implement the considerations within this report....

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