In recent years, the scope of environmental, social, and governance (ESG) criteria has transformed, with a particular expansion in the Governance pillar to include anti-financial crime (AFC) measures.
ESG refers to criteria used to evaluate a company's performance in three key areas:
These factors help investors and stakeholders assess a company's ethical and responsible operations and financial evaluation.
Traditionally, the "G" in ESG was focused on aspects such as corporate structures, board composition, executive compensation, and shareholder rights.
However, the increasing complexities of global business, the rise of regulatory scrutiny, and investor demands have shifted the emphasis toward more robust compliance frameworks and ethical behaviours, particularly in combatting financial crime.
Historically, governance within ESG frameworks has centred on ensuring that companies have sound management practices, equitable executive compensation, strong board oversight, and clear shareholder rights.
These aspects ensured that companies were managed transparently and focused on long-term success.
However, as financial crime - such as money laundering, fraud, corruption, and bribery - has become a more visible and critical threat, the concept of good governance has expanded to include protections against these risks.
Today, strong corporate governance is increasingly defined by a company’s ability to prevent financial crime.
Regulators, investors, and other stakeholders demand more accountability and transparency regarding how companies manage their risks related to financial crimes such as money laundering, fraud, and terrorist financing.
This shift underscores that ethical behaviour and financial crime prevention are legal obligations integral to a company’s governance strategy.
Strong governance requires companies to implement robust internal controls and comply with global anti-financial crime regulations.
Organisations must demonstrate that they can effectively identify, manage, and mitigate the risks associated with financial crimes.
These controls must be embedded within the company’s governance frameworks, from due diligence procedures to risk assessments and monitoring mechanisms.
Companies that fail to implement these measures face risks. Potential consequences of ineffective anti-financial crime measures include:
The increasing focus on anti-financial crime is not only part of regulatory requirements but also an essential component of a company’s ethical and sustainable business practices.
Anti-financial crime regulations, such as anti-money laundering (AML) laws and global anti-corruption standards, now overlap with broader ESG goals, particularly under the Governance pillar.
This convergence is rooted in the shared objective of promoting transparency, accountability, and ethical business conduct.
Companies now need to provide evidence that their anti-financial crime controls are not only in place but also practical.
This requires consistent monitoring, reporting, and improvement of compliance measures. In doing so, organisations align their governance practices with ESG objectives, fostering a more sustainable, ethical, and socially responsible business environment.
Investors and stakeholders pressure companies to demonstrate financial crime accountability as risks become more prominent.
Many investors now actively screen for companies with adequate anti-financial crime controls as part of their broader ESG risk assessments.
This shift reflects the growing recognition that financial crime, such as fraud and corruption, poses legal and operational risks and can potentially disrupt a company’s long-term success.
In the eyes of investors, the failure to manage these risks indicates weak governance, making the company a less attractive investment option.
On the other hand, companies with strong anti-financial crime measures are perceived as lower-risk and more likely to deliver stable, long-term returns.
In addition, as ESG investing becomes more mainstream, investors seek companies aligning with their ethical values.
A company's commitment to preventing financial crime is now seen as part of its broader ESG credentials, alongside environmental sustainability and social responsibility.
The inclusion of anti-financial crime measures within the governance pillar of ESG reflects a growing recognition that good governance goes beyond traditional corporate structures.
Today, it encompasses the company’s ability to protect itself and its stakeholders from the risks associated with financial crime.
By integrating AFC efforts into their governance strategies, companies comply with global regulations, build trust with investors, enhance their reputations, and position themselves as ethical industry leaders.
As financial crime prevention becomes a core aspect of governance, companies that fail to prioritise it risk damaging their ESG ratings, alienating investors, and suffering long-term consequences.
Conversely, those who embrace robust anti-financial crime controls can demonstrate their commitment to sustainable, ethical, and transparent business practices—essential qualities increasingly valued in today's ESG-focused investment landscape.