TAIPEI (Taiwan News) — ESG or Environmental, Social, and Governance seems everywhere these days, even in Taiwan.

ESG is more generally known for its role in assisting investors and companies considering sustainable and ethical investments. The Taiwanese public have, in recent years, shown strong support for those companies that not only endorse ESG’s goals but also show real commitment, particularly to ESG’s environmental and social aspects.

For example, a survey of 1,074 respondents conducted by the Election Study Center at National Chengchi University in July 2022 and commissioned by the Environment & Animal Society of Taiwan found that 80% of Taiwanese adults agree that companies that act on animal welfare are better placed to attract support from consumers, with 76% willing to pay more for animal welfare-certified products.

This year has seen the implementation of ESG reporting requirements for Taiwan’s listed companies, with many unlisted companies following suit even though not obligated to do so. There is little doubt that this requirement is causing some angst due to the lack of a globally accepted definition of ESG, but clearly, Taiwan’s government and the public see the need for ESG.

Whilst ESG remains controversial in some countries, such as the U.S., Taiwan’s government has drawn its line in the sand by linking ESG with its 2050 Net Zero Pathway goals. Opting out is not an option and there will be greater clarity as time progresses.

In this instance, at least, it is “Governance” which is worthy of attention, particularly as it appears to be having a positive impact on the fight against financial crime. Financial crime is not unique to Taiwan. It is a global scourge, and Taiwan is favorably recognized for its efforts in fighting against financial crime, domestically and in the international arena.

Financial crime refers to all crimes that involve taking money or other property that belongs to someone else, to obtain financial or professional gain. Financial crime is commonly considered as covering fraud, cyber-crime, money laundering, terrorist financing, corruption, and bribery.

Governance in Taiwan

This year saw Taiwan’s Financial Supervisory Commission (FSC) promoting corporate governance measures to implement its “Corporate Governance 3.0 – Sustainable Development Blueprint” policy (Corporate Governance Blueprint).

The FSC’s measures are part of the global ESG framework used to assess an organization's business practices and performance on various sustainability and ethical issues. It also provides a way to measure business risks and opportunities in those areas.

Listed companies must implement the following corporate governance measures:

• Appoint a corporate governance officer to ensure that board and shareholder meetings are conducted in accordance with the law, minutes are prepared, and directors and supervisors assisted to pursue further education.


• Independent directors must be appointed to overcome the all too often occurrence of the board chair and general manager being one and the same and independent directors cannot be employees or managerial officers of the company.


• Greater disclosure of corporate information in English. This applies to shareholders’ meeting manuals, annual reports, and annual financial reports.


• Strict reporting requirements for financial information in terms of form and date.


• Disclosure of sustainability information, thereby firmly entrenching ESG into the governance framework.


• Electronic voting capabilities for emerging-market companies to eliminate the old-fashioned closed-door shareholders meetings.

This gives Taiwan a state-of-the-art outline of governance, but how will this help fight financial crime?

Fighting Financial Crime

Good governance, and the Corporate Governance Blueprint allow Taiwan’s companies to fight against financial crime in the following ways:

• Strong board oversight, transparent reporting, and effective policies and procedures help deter financial crimes. Companies with effective governance structures typically have active compliance programs in place and this helps mitigate the risks of being the victim of financial crime.


• Companies with ESG reporting requirements are more likely to extend their reports to their anti-money laundering and counter-terrorism financing measures, leading to even greater transparency. Financial criminals typically avoid transparency as being too risky to their ‘back door’ operations.


• Good governance also leads to companies identifying, evaluating, and understanding their exposure to financial crimes with resulting measures being implemented, such as robust know-your-client procedures, on-going due diligence on their business partners and monitoring and surveillance of transactions.


• Recognition that poor governance can result in exposure to financial crime with associated ethical and reputational risks. We now see both institutional and individual investors insisting that their investments will only be directed to companies with effective anti-financial crime measures in place.


• Good governance leads to greater understanding and support for the activities of regulators, domestic and international law enforcement agencies in the financial crime prevention arena. No leading or aspiring company wants to be left behind in attracting investors by being on the receiving end of sanctions or fines for financial crime activities, or even being reported as a victim of financial crime. Greater information sharing also assists in these endeavors, but this issue still remains a somewhat contentious problem in Taiwan, but progress will come.


• Companies with sound governance systems in place are also attractive to quality employees. These same employees feel more empowered through training and a sense of partnership with their employer to look out for suspicious activities and report them to the appropriate authorities.


• The public are also now looking for ethical and appropriately governed companies, even for mundane shopping decisions. Companies with strong ESG credentials are increasingly attractive to Taiwanese consumers.

Conclusion

Good governance and related ESG factors promote transparency, stakeholder engagement, risk management, ethical investment, and collaboration – all contributing to fighting financial crime. Good governance has always been valuable, but perhaps even more so as Taiwan and its global partners fight against financial crime.