ESG fraud refers to deceptive practices related to Environmental, Social, and Governance (ESG) activities and data. This can involve data alterations, document falsification and breaches of trust, as well as environmental offences and human rights violations. ESG fraud is a result of intentional breaches of laws, regulations, internal policies and other codes of conduct.
At present, the risks of fraud related to ESG are escalating due to growing pressure from regulators and the public. Businesses aiming to comply with ESG standards must consider developments in regulations such as the Corporate Sustainability Reporting Directive (CSRD), EU Deforestation Regulation (EUDR), EU Battery Regulation (EUBR), the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) and the evolving EU taxonomy, among others.
To effectively oversee ESG fraud risks, companies should integrate these risks into their broader fraud risk assessments and prevention systems. We assist companies to identify ESG fraud risks relevant to their business and provide guidance on addressing these risks. By identifying and understanding these risks, we ensure that controls and detection processes are both effective and tailored to your needs.
We also evaluate the maturity of your current ESG fraud risk management program against standardised frameworks. Based on this assessment, we help you develop a detailed roadmap for improvements, including the creation of robust ESG compliance programs.
ESG intelligence involves open-source research to help you understand the ESG risks in your third party relationships and supply chain, whereby ESG-relevant information about target companies, including negative media coverage and legal disputes, is gathered.
Carbon emissions: Suppliers’ greenhouse gas (GHG) emissions that contribute to climate change.
Pollution: Air, water and soil pollution from manufacturing processes.
Waste management: Inefficient waste disposal and recycling practices.
Labour practices: Labour and employment violations in relation to working hours, overtime, accommodation, etc.
Health and safety: Workplace safety standards and health risks for workers.
Human rights violations: Discrimination, harassment and other human rights abuses. This includes Issues like child labour, forced labour and poor working conditions.
Compliance: Non-compliance with local and international laws and regulations.
Ethical conduct: Corruption, bribery and unethical business practices.
Supplier management: Ineffective oversight and management of third-party relationships.
To gather information, we utilise our access to global information databases, including sanctions lists, commercial registers and court and media databases. We compile reports on the target company, identifying key individuals and shareholders down to the beneficial owners.
If cases of deception, fraud, falsification of documents or other offences occur in the ESG context, an independent, professional and court-proof investigation may be crucial. Our team of knowledgeable and experienced forensic specialists leverages a vast network of resources throughout Europe and beyond.
We summarise the results of the investigation in a report that can be used in court. In addition, we use our comprehensive expertise to support the development of appropriate remediation measures.
Digital traces can be challenging to uncover, which is why we utilise computer forensics to secure relevant data. Our process involves identifying and analysing data within IT systems, computers and mobile devices. With our (AI-based) eDiscovery solutions, we can efficiently and effectively sift through vast amounts of information, including unstructured data. This allows us to search and tag application data, email histories and data on mobile devices, while adhering to forensic best practices to ensure that any identified evidence is usable in court.
We also support targeted data analyses to evaluate potential fraudulent behaviour. We select and tailor the most suitable analysis procedures (conventional data analyses and advanced AI-based algorithms, where possible) to match the specific requirements, available data sources and IT landscape.
When two parties enter into an agreement, no one expects it to go sideways, but disputes in business can and do occur. In an increasingly globalised, complex and regulated environment, litigation has become an integral part of business life.
PwC supports businesses through management analyses, clarification of issues and presenting expert evidence in court or at other tribunal hearings. Our in-depth dispute analysis examines your legal, economic and social position in detail and enables you to take the initiative in a legal procedure or arbitration. Based on our expertise, we help assess the damages suffered.
In today's interconnected global economy, companies increasingly rely on third parties, thereby exposing themselves to a variety of risks, including ESG risks. Third parties may engage in fraudulent activities to misrepresent their ESG practices.
Effective third-party risk management and due diligence practices are essential for identifying entities involved in ESG related issues, including false claims about environmental practices, labour conditions or governance structures. Additionally, due diligence can uncover instances of regulatory non-compliance in ESG reporting and may also uncover, for example, third parties who have been involved in greenwashing.