Ethics, Culture and ESG
That's not all for the state of Fintech Legal. Ethics, culture and ESG also deserved a worthy mention as lawyers balance their fiduciary duties with supporting the company and stakeholders' best interests, and the relationship of legal with ESG.
Culture
It is widely acknowledged that having a healthy corporate culture makes good business sense as it can help to promote innovation, effective decision making, and the retention of talent. However, culture is also increasingly seen as a matter of risk. In a number of high-profile instances of misconduct, cultural failings have been identified as a key root cause of harm, and news of cultural issues can also lead to significant reputational damage. Culture is also now a key focus for regulators, and regulated firms and individuals are expected to embed a healthy culture as part of their regulatory obligations.
There is no single way for a fintech to have a healthy culture, but there are certain features common to many firms. Crucially, engagement and cultural leadership across the organisation is required, not just at the Board level. This includes legal teams, who are often in a unique position to promote positive behaviour, influence other departments and drive cultural change. Fintechs with healthy cultures typically have a clear purpose that permeates the organisation, and implement effective policies and processes which reflect their cultural values and purpose. Healthy cultures value and promote diversity and inclusion, and also understand the importance of ensuring psychological safety (that is, providing an environment in which everyone feels safe to speak up).
"To help promote a healthy culture and manage cultural risks, fintechs should make sure they:
- set clear expectations and incentivise positive behaviours;
- assess and monitor their culture, and address any weaknesses identified; and
- take action if things go wrong, and hold individuals to account."
- Eleanor Matthews, Senior Associate, Clifford Chance
Ethics
Pav Gill delivered the keynote address at Fintech Day 2023. He spoke about his experience as a whistle-blower at the infamous and now collapsed German payments processor, WireCard. In-house lawyers at the event shared a general sentiment of “it could have been any of us.” Indeed, ethics, and particularly whistle-blowing, are core issues for in-house lawyers who are managing the fine line between being both business partners to their companies and regulated professionals with their own fiduciary duties and regulatory obligations. Gill’s experience shows that global branches of the same company do not always operate to the same standards – and the serious risks that can arise as a result of that.
Q&A on what start-ups and SMEs are thinking about ESG
With Natasha Ballantine, deputy general counsel of tech company Foundry
Within the wider fintech sphere, you have companies at a variety of different stages and different sizes. What are they having to think about when it comes to implementing an ESG policy?
When an SME, or a start-up, is looking to put pen to paper and write themselves an ESG policy, their first consideration should be their ‘why’, what is the purpose that they want to fulfil by having a policy in place. A common reason for start-ups, where they are in the early stages of growth, will be that investors, particularly banks or private equity, often want companies they invest in to have a policy in place. Alternatively, if the SME already has funding or is a more mature company, they will be required to report on some ESG aspects by law and having a policy or some internal guidance in place brings together the requirements so it becomes easier to report on and keep track of improvements you are required to make through time, for example a percentage reduction in carbon emissions year-on-year. A company may also want to consolidate what they are doing on ESG to attract or retain employees or customers.
Q&A with Natasha Ballantine, deputy GC at Foundry
Foundry is owned by US listed corporate, Roper Technologies Inc. Natasha also works with Fintech iPipeline, owned by the Roper group.
Looking at the “E” in ESG, what insight do you have about the various legal and ethical considerations?
This is an area that will be relatively new to most SME tech companies. We have worked hard to get to the stage where we now have an Environmental Policy. This is a work in progress, and as such we currently report on our Scope 1 and 2 emissions annually and are starting to work on Scope 3 emissions, with the aim of reporting them in the next year or so.
After UK companies cross the threshold of 250 employees or £44 million in turnover/ an annual balance sheet of £38 million+ you are classed as a ‘large undertaking’ by the Environment Agency and need to comply with the Energy Savings Opportunity Scheme. Streamlined Energy and Carbon Reporting’s thresholds for compliance are similar with the same amount of employees, but at £36 million annual turnover and £18 million balance sheet, and you only need to exceed two of these three thresholds.
The reporting is complex but includes companies logging their carbon emissions across the board whether that is looking at your gas bills, flights taken, and recording other data and reporting to the authorities on these (the Environment Agency and Companies House). Like most companies with private equity or large public investors, we also report our emissions annually to our shareholders.
The "S" and "G" sides can often get overlooked or overshadowed by the "E" - can you tell us a bit about the “S” and “G” side of ESG?
The “S” Social side is taken care of by our People team. It includes having in place checks and balances in relation to DEIA initiatives, family leave policies and community engagement, amongst other items. It is quite common within SMEs and start-ups for certain sections of ESG to lie in different parts of the business.
On the “G”, being Governance, this relates to the governance of the frameworks we implement internally to reach our environmental and social aims. For us this involves cross- departmental effort working together with Finance, Cyber and IT. Together, we ensure that we have the right procedures in place to not only have these policies but to implement them effectively across the company. This could be related to conflicts of interest or anti-bribery measures.
