From Scrutiny to Regulation: New Corporate Behaviours

10 GLOBAL THEMES

Theme 10: From Scrutiny to Regulation: New Corporate Behaviours

In 2021, businesses experienced greater public scrutiny of Environmental, Social and Governance (ESG) issues, with the socio-economic impacts of Covid-19 perpetuating the risk of oversight. This will stay at the forefront in 2022 alongside other regulatory themes, such as cyber and business resiliency, competition law, consumer protection and data privacy.

Some countries have already responded as investors stress the importance of ESG-aligned policies. Oman, Saudi Arabia and the UAE are among those who advanced their ESG frameworks in 2021 as the race begins to secure a future beyond oil and gas. Meanwhile in March, the EU introduced its Sustainable Finance Disclosure Regulation (SFDR), forcing participants in the European market to consider how their future investments will impact the environment. Populations will increasingly call for tactical progress on these issues, including regulatory sanctions against businesses that fail to respond.

Given the difficulties of economic supply and demand in the aftermath of Covid-19, new requirements for supply chain resilience and corporate sustainability are liable to emerge across the world through 2022. Financial difficulties have also increased the public focus on income inequality, executive pay and opportunities for disadvantaged people, increasing pressure on businesses to present roadmaps on these issues despite the absence of concrete laws or regulation. Aligning corporate cultures toward long-term change will therefore be central to navigating these concerns.

In the US, President Joe Biden’s schedule for addressing cybersecurity threats with the private sector includes government regulation as a key motivator. This issue will continue to gain interest as the shift to remote working increases public awareness of ransomware and business email compromise (BEC). Given the distraction of midterm elections in November, any significant convergence between federal and state-level cyber regulation is unlikely next year. However, another “grey rhino” event comparable to the SolarWinds hack in 2020 might be enough to force a disruptive overhaul of IT supply chain regulations, with ripple effects overseas.

New Corporate Behaviors

Concomitantly, governance of Big Tech will move further into the spotlight as public scrutiny of user safety and fair competition grows. In the US, the issue has become a rare source of agreement between Republicans and Democrats, increasing the prospect of a regulatory push that will likely begin with child user protection in 2022. So far, the EU has struggled to find consensus on the wider scope of digital competition and policy, decreasing the likelihood of significant progress there as attention moves to elections in France, Austria and Sweden. Conversely, tech firms operating in the EU could face new information disclosure requirements on political advertisements before these elections get underway.

The rollout of artificial intelligence (AI) solutions will also face increased public interest in 2022, with attention increasingly focusing on data privacy and responsible usage. In 2021, the Center for Data Innovation predicted that AI investment in Europe will double from around EUR 13 billion to EUR 27 billion by 2023, even if the proposed Artificial Intelligence Act (AIA) goes into force. Although governments are aware of the need for a regulatory framework, there are challenges in striking the correct balance between compliance and innovation – a theme that will likely emerge again with quantum computing and nanotechnology.

Finally, the Pandora Papers revelations from October will continue to have a slow-burning impact on reputational risks. Previous revelations from the International Consortium of Investigative Journalists (ICIJ), from the Panama Papers (2016) to the Paradise Papers (2017), had already exposed deep inequalities in the global tax system and misuse of offshore jurisdictions for money laundering or corruption. The Pandora Papers did not significantly alter public awareness of this issue and in this sense, do not increase the likelihood of outrage towards businesses. However, the opening of investigations by some legislatures (as in Chile and Ecuador) will almost certainly force some companies to check their exposure.

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