Whistleblowing, or acting in good faith to report wrongdoing, is a concept that is appearing increasingly frequently in the public sphere. But is this topic relevant from the perspective of ESG? The answer is yes, and the reason is twofold.
Whistleblowing and corporate governance
In 2019, the EU passed the Whistleblower Protection Directive. This marked a turning point in the implementation and management of systems for reporting wrongdoing, as the directive is the first document that regulates these issues in such a comprehensive manner â it both imposes obligations on a very large group of entities in the private and public sectors regardless of the industry and defines a wide range of specific requirements for such entities.
The EU member states were required to implement the Directive into national law by 17 December 2021. In doing so, they were given certain leeway. For example, the member states are free to decide whether acceptance of anonymous reporting will be mandatory. Irrespective of these differences, the Directive provides a clear framework that imposes such obligations as the requirement to designate staff members responsible for accepting and following up on reports, implementing a procedure for reporting wrongdoing, and providing access to confidential channels of communication. Although the deadline for the implementation of the provisions of the Directive into national law expired a long time ago, very few countries have complied with this requirement. In Poland, a draft act has been written and consultations have been held, but we do not know the final wording of the act, let alone the date of its entry into force. Nevertheless, the requirement to create a system for reporting wrongdoing, although delayed in time, is inevitable.
This brings us to the first argument confirming that whistleblowing is a necessary element of compliance with ESG requirements. We cannot say that corporate governance is functioning properly unless it guarantees that the organization complies with applicable laws, and the introduction of whistleblowing mechanisms into the Polish legal system is required by EU law. Intuitively, whistleblowing could be classified as falling under the governance of ESG. However, for reasons related to the specific characteristics of systems for reporting wrongdoing, whistleblowing can also have a significant impact on both environmental and social aspects. How did we come to these conclusions?
Intuitively, whistleblowing could be classified as falling under the governance of ESG. However, for reasons related to the specific characteristics of systems for reporting wrongdoing, whistleblowing can also have a significant impact on both environmental and social aspects.
Implementing a whistleblowing system will bring significant benefits. Building solid foundations for corporate governance may be received favorably by the public and help meet both the expectations of employees, investors and regulatory requirements.
Benefits from implementing a whistleblowing system
Regardless of its size, every business has a certain impact on the environment. The same holds true for the potential irregularities that may occur in an organization. Whistleblowers make it possible to detect various risks that would otherwise be difficult to identify. Reporting by whistleblowers may pertain to the negative impact that an organization has on the environment or to incidents of intimidation. Therefore, identifying such behavior and taking steps to remedy the situation will reduce the risk of undesirable situations from an ESG perspective.
In addition, an effective system for reporting wrongdoing demonstrates managementâs genuine commitment to the organizationâs policy and values. Enabling employees and other stakeholders to share their concerns, followed by a thorough verification of such reports, demonstrates that the managers are not afraid to face real challenges and do not want to âsweep certain issues under the rug.â Readiness to follow up on reports of wrongdoing shows true care for the organizationâs ethical culture, and therefore reflects the implementation level of ESG policies.
A system for reporting wrongdoing that is trusted by employees can be a very valuable tool, on the one hand, for preventing fraud by making potential offenders aware that their actions are more likely to be disclosed and, on the other hand, for identifying problems and risks much more effectively.
Implementing a whistleblowing system will bring significant benefits. Building solid foundations for corporate governance may be received favorably by the public and help meet both the expectations of employees, investors and regulatory requirements.
Having a system for reporting wrongdoing means that the organization first of all complies with the laws in this field, and secondly will be more effective in identifying irregularities concerning environmental protection, employee issues, and compliance with procedures. That is why it is imperative that businesses do not wait until the last minute to address this issue. Such an approach will certainly pay off in the future, especially in the context of ESG.
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