Why Supporting Whistleblowing is Key to a Strong ESG Program

by: lune

ESG, or Environmental, Social, and Governance credentials that include a whistleblowing channel are a crucial part of helping a business maintain its reputation with the public, promote compliance and accountability internally, and create a strong work culture. Having high standards for whistleblowing and ESG policies can help organizations mitigate the risk of having poor employee morale or negatively impacting the communities where they operate. 

What is ESG?

ESG business standards should focus on three things: an organization’s impact on the climate crisis and the environment; the level of engagement with its people; and compliance with regulatory requirements through decision-making and governance mechanisms. 

Environmental

Developing a set of ‘green’ credentials can give a business the tools to address the climate crisis through strong environmental policies like using eco-friendly products or publicly disclosing a company’s carbon footprint. Sustainability has become an important way for stakeholders and members of the public to measure the ability of a company to do business without causing harm to the environment. Public reporting on greenhouse gas emissions and production waste is one of the easiest ways to mitigate environmental pollution by corporations. 

Social

Creating and sustaining a ‘speak-up culture” means being more transparent about the way business activities are conducted. A strong social ethic can attract and help retain investors and quality staff members and is something regulators look for. For example, diversity and equity policies that are compliant with human rights laws and labour standards have become essential to creating a healthy and safe workspace. A ‘speak-up culture’ can give employees the confidence to speak out when they see misconduct, corruption, or potential criminality happening. 

Governance

Having good governance means making sure policies that affect employees, the public, and other stakeholders are in line with the company’s values and sustainable. This can involve putting in place anti-corruption mechanisms, ensuring transparency in decision-making, and having whistleblowing procedures that protect the whistleblower. 

Why is Whistleblowing so Important? 

On November 8th, 2021, former Facebook employee Frances Haugen testified in front of the European Parliament about the company’s user research. She revealed the platform’s algorithm was having a negative impact on consumers’ mental health. The Times later reported that the company’s stock had gone down nearly 13% in a 6-week period as a result of the disclosure. Facebook had failed to put public interests ahead of profit and Haugen’s difficulty in getting the company to take her concerns more seriously was at the heart of the problem. Haugen noted the risk of political misinformation, hate speech, human trafficking, violence, and teenage mental health as her main concerns, highlighting the importance of having ESG policies and tools that make disclosure possible and take employee concerns seriously. 

Putting people at the heart of a company means creating a space where speaking up is accepted and even encouraged. Businesses that put people first have seen a boost in employee engagement, improvements and innovation, job satisfaction, quality, and productivity, and higher customer satisfaction. ESG credentials can also enhance a business’s reputation, boost credibility, and improve employee retention and recruitment. 

Whistleblowing is the guardian of organizational ESG policies. Creating a ‘speak-up culture’ that supports whistleblowing is key to improving ESG credentials and ensuring compliance. The ability to protect whistleblowers is a central part of ensuring compliance with laws, mitigating the risk of wrongdoing, and guaranteeing accountability if something does happen. Having high standards for whistleblowing procedures is critical to creating healthy employee relations and building public confidence. This means actively listening to people’s concerns.  

In 2015, two of Macedonia’s Interior Ministry employees, Gjorgji Lazarevski and Zvonko Kostovski, exposed the illegal wiretapping of public officials, activists, and journalists by then Prime Minister Nikola Gruevski. Lazarevski and Kostovski were fired, criminally charged, and jailed in a retaliatory move by the political leader. A campaign led by the European Center for Whistleblower Rights eventually led to charges being dropped and their jobs were reinstated. They later received the Free Speech Award from the Southeast Europe Coalition on Whistleblower Protection (SECWP) and the European Center for Whistleblower Rights (ECWR).   

Whistleblowing procedures that work well can mean the difference between dealing with the fallout of negligent policies or decisions and ensuring company stakeholders and  employees are protected. 

What Makes ESG Credentials High Quality?

The EU has publicly affirmed it is a fundamental democratic right for employees to be able to report wrongdoings in the workplace. Having a whistleblowing channel in place is probably the most effective way an employee can reveal wrongdoing in good faith without facing repercussions. Whistleblowing means having the ability to flag problems like health and safety concerns, suspected fraud, corruption, or other improper activities. 

The EU Whistleblower Directive is designed to protect people who have credible information about wrongdoing and are willing to provide it to regulatory bodies. When businesses fail to prevent violations of the law, not only are they subject to costly fines, but they are also vulnerable to lawsuits and can face intense scrutiny from the public. They also risk damaging their reputation. Bad ESG policies are those that don’t include a whistleblower process. A bad ESG policy might have poor tracking goals that are hard to reach, use the wrong metrics to measure success, or fail to clearly communicate expectations to employees. A better ESG includes strong reporting and whistleblowing KPIs. This can mean tracking employee performance, having procedures for remediation, capturing trends in the data, and regularly reporting to the board.   

A strong ESG policy will provide your business with better loan and investment opportunities since banks and investors always have this on their checklists. Potential clients will also value this, especially if they have an ESG policy themselves. 

ESG credentials are essential, but targets should be achievable, and employees should have a way of giving input as these tools are developed. Whistleblowing can protect an organization and safeguard against weak ESG policies and tools. It’s one thing to have these policies in place. It’s another story to have an ESG program that isn’t effective or is rarely followed. 

Key Takeaways

  • Strong ESG credentials can enhance your business’ reputation, give you a better balance sheet, attract more investors and loan opportunities, boost credibility, and improve employee recruitment, retention, and morale.
  • Creating a ‘speak-up culture’ can help you flag potential wrong-doings and avoid severe penalties without punishing whistleblowers.
  • Ensuring tracking goals are realistic, using metrics that measure what you need to know, and clearly communicating your objectives to employees will enhance your ESG program. 
  • Actively listening to stakeholders and taking their concerns seriously can help you avoid damaging the company’s reputation.