Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels. This
is an extract from Finextra's The Future of ESGTech 2022 report.
Focus target 16.4: By 2030, significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime.
Peace and security are foundational to the creation and protection of economic development. Countries which suffer from societal instability will typically also struggle to succeed in sustainable development.
Sadly, the UN believes that the pandemic is intensifying children’s risk of exploitation, with child labour rising to 160 million during 2020 – the first increase it has seen in two decades. Additionally, just
82 countries were deemed to have independent national human rights institutions in compliance with international standards.
Under SDG 16.4 specifically, which seeks to significantly reduce illicit financial and arms flows, strengthen the recovery and return of stolen assets and combat all forms of organised crime, there are major factors which bear impact on a business’ operations.
The United Nations Global Compact explains that illicit financial flows move through bribery and corruption, money laundering, tax evasion and financing of terrorism or other forms of organised crime.
Illicit financial flows are particularly harmful to vulnerable populations, as these activities undermine efforts for a given country to invest in essential public services, economic and social development.
The
UN Panel on Financial Accountability Transparency and Integrity specifically pointed to the “massive scale of tax avoidance and evasion” which sees many financial institutions inadvertently or otherwise becoming involved as ‘professional gatekeepers’. Financial
integrity is imperative to the smooth functioning of a society, and inclusive societies are those which are able to prioritise sustainable development.
The UN Panel recommends the establishment of a centre for monitoring taxing rights to collect and disseminate national aggregate and detailed data about taxation on a global basis. It notes that the design of templates for data reporting would be particularly
useful to combatting illicit financial flows under SDG 16.4, but also to collate data that would assist countries with activities such as conducting risk assessment or determining capacity needs.
The UN Global Compact lists internal activities that companies can practice in efforts to meet the obligations under SDG 16.4:
Culture and board/management oversight: ensure the principles of good governance are adhered to at all levels of the organisation.
Awareness, education and training: develop and facilitate training that creates awareness to identify and mitigate illicit financial flows, human trafficking and other forms of organised crime.
Policies and processes: Develop and implement robust anti-corruption, environment and human rights due diligence to be applied wherever relevant across functions, operations and stakeholders, including client transactions and supplier relationships.
Grievance mechanisms and access to remedy: Develop, implement, monitor and adequately resource internal grievance mechanisms through which employees and external parties can safely report any adverse business, client or supplier conduct
relating to IFF, human trafficking or other forms of organized crime. These should also protect whistleblowers.
Reporting and risk management: Ensure that any risks with respect to illicit financial flows, human trafficking and exposure to other forms of organised crime are accurately identified, reported and effectively managed and audited.
A report by
EY explained that progress in achieving SDG 16 can also be accelerated significantly by financial institutions working to promote transparency and accountability at all levels internally, as well as across the supply chain and product portfolios.
The report read: “The financial services sector is not one many would immediately assume having significant social risks within its supply chain. Yet with its presence in the country firmly established, its impact is quite considerable.”
Human rights and labour practice assessments should also be applied to current contractors when selecting companies to partnership with, pressuring all companies associated with the financial institution to increase their own awareness and improve their
track record. Additionally, given their unique position in the market, financial institutions should also contribute to policy-making and legislative updates through the provision of expert information and their practical knowledge of the industry.
ACTION FOR 2022: Combat illicit financial flows through the promotion of transparency and accountability at all levels within financial institutions, and throughout their supply chains.