Due Diligence's Role in Next Year's Risk & Compliance Trends

17 January 2022 00:00

EDDM Trends

After two turbulent years marked by uncertainty and disruption, the pressure to proactively manage risk is higher than ever. Take a look at some of the top-of-mind risk and compliance trends and how they may influence the ways organizations handle due diligence  and other aspects of a robust risk management process.

Trend 1: Regulators Tackle ESG Transparency

As we noted in an earlier blog , Environmental, Social and Governance (ESG) factors dominate the predictions being made for risk and compliance in 2022. ESG has gained momentum for multiple reasons, but regulators are pushing for more.

  • A resolution passed by the European Parliament in March 2021 promises legislation supporting Mandatory Human Rights, Environmental and Good Governance Due Diligence—and that’s just one of several new or proposed actions the EU is considering.
  • The UK is expanding ESG-focused regulation as well. UK law firm Simmons + Simmons notes, “Lately we have seen a legislative push towards corporate accountability for ESG issues, as well as the English Courts paving the way for companies to be held legally responsible for the ESG impacts of their subsidiaries, and even the third parties in their supply chain.”
  • In the US, regulators have also turned their attention to ESG, leading Kyle Brasseur, Editor in Chief of Compliance Week, to write, ““Mandatory environmental, social, and governance disclosures at the Securities and Exchange Commission (SEC) are a matter of when, not if.”
  • Regulators across the Asia Pacific region are quickly catching up on the legislative front. Regulatory agencies in China, Hong Kong, Singapore, and Malaysia have begun introducing guidance and rules focused on the environmental aspect of ESG disclosures and due diligence. A survey found that 46% of business leaders in Asia Pacific report that ESG and sustainability issues have moved up on their agendas since 2020.

Ongoing efforts to formalize ESG taxonomies and implement mandatory disclosures worldwide are signals that legislation mandating ESG-related due diligence won’t be far behind. This will contribute to the next trend on our list.

Trend 2: Third-Party Risk Management Widens Its Focus

Third-party risk management (TPRM) will evolve (again) to keep pace an increasingly complex risk landscape. In the past, onboarding due diligence of third parties emphasized financial stability verification, along with sanctions and PEPs checks to mitigate bribery and corruption risk. But the narrow focus and one-and-done approach to due diligence may not be enough. Already, reports Gartner, “More than 80% of legal and compliance leaders tell us that third-party risks were identified after initial onboarding and due diligence, suggesting traditional due diligence methods in risk management policy fail to capture new and evolving risks.”

What’s more, now that ESG risk is a consideration beyond Financial Services, many companies will want to expand the depth of due diligence beyond tier one suppliers to assess risk potential from relationships without direct contractual connections. The regulatory pressures from Trend 1 are just one reason. Being associated, even tangentially, with environmental damage, forced labor, or corruption can lead to serious reputational risk.

Taking a more holistic approach can help. Risk comes from many directions, so working in departmental silos restricts visibility. Procurement, compliance, risk, and information security departments that collaborate and share data-driven insights can help position organizations to thrive in 2022 and beyond.

Regulators worldwide have emphasized the importance of maintaining strong third-party risk management programs. As the scope of TPRM programs adapts to the surge of new regulations and risks related to ESG factors, cyber security, and more, resources will be stretched to their limit. And that’s a driver behind the final trend on our list.

Reputation Management Tools

Trend 3: Harnessing Technology & Data to Support Resilience

According to Compliance Week’s “Inside the Mind of the CCO” survey, 25% of compliance and risk professionals say that “lack of support and resources” is the part of their job that keeps them awake at night. That’s where adoption of time-saving technologies and alternative data will help in 2022.

In 2020, many organizations fast-tracked digital transformation out of necessity. In 2022, the momentum will continue, with a shift from optimizing for remote work to optimizing for decision-making and resilience.

  • Flexible SaaS solutions for conducting comprehensive due diligence and third-party risk monitoring according to an organization’s unique risk considerations.
  • Use of data visualizations  to surface potential risks more quickly.
  • Automating manual processes, such as adverse news screening , to better manage increased data volume and velocity while freeing up resources for analysis and decision making.
  • Integrating relevant datasets into in-house applications to improve analysis

Tech and data adoption will help organizations create scalable, time- and cost-effective risk management processes that keep pace with regulatory change and deliver the insights needed to drive sustainable growth in the future.

Ready to tackle 2022’s compliance and risk management trends? Find out how our data and technologies can help using Nexis Diligence tool.

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