The first half of 2023 has seen key updates to a number of Risk Horizon datasets across environmental, social and governance topics. The underlying data is crucial in driving the inherent risk output whilst also contextualising the industry related risks for companies based on their operating locations. ESG data at a country level is vital part of screening both risks and opportunities in terms of ESG due diligence.
Focusing on some of the key risk factors that form the underlying scoring and rating mechanism of the Risk Horizon platform, we’ve highlighted 3 recently updated datasets which show the dynamic nature of ESG and how global shifts in risk are shaped by geopolitics and international borders.
This dataset is produced and published by the Walk Free Foundation with the latest Global Slavery Index produced in 2023. Modern Slavery is defined as ‘situations of exploitation that a person cannot refuse or leave because of threats, violence, coercion, or deception’. This can refer to forced labour or marriage, debt bondage and human trafficking and is the act of taking someone’s freedom for exploitation for personal or financial reasons. According to Walk Free, this can impact a range of industries but is most prevalent in the following sectors: industrial cleaning, meat works, hospitality, construction, manufacturing, agriculture, and fishing.
The Global Slavery Index is split into three sections:
- Estimating prevalence (how many people are living in modern slavery)
- Measuring vulnerability (are factors such as conflict and inequality contributing to a significant increase in potential vulnerability?)
- Assessing government action (what is the central government doing to prevent modern slavery)
These factors are determined through a number of sources and forms of data including collaborations with the International Labour Organisation and the conducting of surveys across 68 countries.
The previous edition of this index was produced in 2018 where it was reported that 40.3 million people were living in modern slavery. This has risen to 50 million people in the 2023 index. In 2023, the top 5 countries for slavery prevalence were: North Korea, Eritrea, Mauritania, Saudi Arabia and Turkey. It is estimated that $468bn worth of G20 imports are goods at risk of modern slavery. The alarming message from this latest index is that global slavery is rampant and not enough action is being taken by governments and businesses. A key indicator of this is that modern slavery is not defined in law and therefore is an umbrella term used to describe a number of scenarios and situations.
Overall, this update to the Global Slavery Index produced by Walk Free will allow us to report more accurately in respect to modern slavery and capture this risk when pertinent to the country or industry.
Our Ecological Impacts risk topic measures the health of terrestrial ecosystems. This acts as an indicator on the potential impact of business operations both directly and indirectly in preserving biodiversity, regulating water and climate cycles, preventing erosion, controlling floods, and maintaining soil fertility. Depending on key industries and associated materiality, this risk factor will highlight whether the target Company operates in countries with poor perceived performance in habitat conservation and species protection, as well as overall ecosystem health.
We updated this dataset last month using the State Resilience Index produced by The Fund for Peace. This Report comprises various pillars, including Environment and Ecology, which further details several sub-pillars such as Ecosystem Health. Healthy terrestrial ecosystems are critical for rural livelihoods, and as stated within the Resilience Index, are ‘essential for preserving biodiversity, regulating water and climate cycles, preventing erosion, controlling floods, and maintaining soil fertility’.
The Fund for Peace has been collecting and analysing data for over 18 years, and has been a world leader in developing practical tools and approaches for reducing conflict for over six decades. Their comprehensive and robust data provides crucial information on countries’ terrestrial ecosystem health. As the Biodiversity Crisis is increasingly understood to be inseparable from the Climate Crisis and in need of urgent attention, whilst many industries continue to have a significant effect on ecosystems globally, understanding and managing Ecological Impact risks and opportunities is vital.
Corruption is defined by Transparency International as ‘the abuse of entrusted power for private gain’. To inform our corruption dataset, we utilise the Corruption Perceptions Index (CPI), the most widely used global corruption ranking in the world. Published by Transparency International, the 2022 edition of this Index was released at the beginning of 2023 and measures the perceived levels of public sector corruption in 180 countries and territories around the world. The dataset relies on 13 independent data sources and uses a scale of zero to 100, where zero is highly corrupt and 100 is very clean. Final scoring reflects the views of experts or surveys of businesspeople rather than the general public.
Corruption has far-reaching consequences for countries and industries in which it is prevalent; high levels of corruption often go hand in hand with the high levels of conflict and poor security, as well as having significant social and financial impacts to the local population. In fact, Transparency International report that corruption is both a consequence and a cause of conflict, ‘causing and exacerbating rifts in society, undermining defence and security institutions, and eroding state legitimacy’. This also has a significant impact on industries where the risk of corruption is considered material by the Sustainability Accounting Standards Board (SASB), such as the aerospace and defence, and the metals and mining industries, where close links to government and associated contracts exist.
The 2022 Index shows that the scale of global corruption remains enormous, with an average score of 43/100. Western Europe and the EU is the top scoring region, with a score of 66/100, and Sub-Saharan Africa is the lowest scoring region with 32/100. Typically, the global findings show that countries with strong institutions and well-functioning democracies often find themselves at the top of the ranking, whereas countries experiencing conflict or where basic personal and political freedoms are highly restricted often rank at the bottom; where corruption is high, resilience to organised crime and security threats is found to be low.
However, the Index reveals a largely continued standstill in scoring over the past five years, indicating that ‘undue influence over decision-making, poor enforcement of integrity safeguards and threats to the rule of law continue to undermine governments’ effectiveness’. Some significant five-year movers do stand out in the 2022 Index, including the United Kingdom and Canada, which both dropped seven places relative to their previously published 2018 positions, and Angola and the Maldives, which gained 14 and 11 places respectively.
Overall, clearly global corruption remains a major issue, with much to be done to address root causes and ultimately improve scoring. Recommendations made within the Index state that ‘dealing with the threats that corruption poses to peace and security must be a core business of political leaders’, with businesses also needing to take responsibility for improvement by implementing appropriate policies to address such risks. Yet with such a turbulent world fuelling corruption globally, a reduction in the global average seems unlikely. However, these continuing trends do highlight the importance of the continued tracking and data reporting of global corruption behaviours in order to contrast and compare the performance of countries and industries to one another, and over time.
Tom Leckey, Senior Consultant – Corruption,
Tessie Hendry, Consultant – Ecological impacts
George Hearn, Consultant – Modern slavery
Article originally published by Landmark Information Group.
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