- Providing training and awareness programs for their employees, suppliers, and partners on the importance of compliance and the potential risks of non-compliance.

- Establishing mechanisms for reporting, investigating, and resolving any compliance issues or incidents that may arise.

- Engaging with stakeholders, such as regulators, customers, investors, and civil society organizations, to communicate their compliance efforts and performance, and to address any concerns or feedback.

By doing so, companies can not only reduce their sustainability risk, but also enhance their reputation, competitiveness, and value creation. As a sustainable investor we can check to see if these steps are put into place and reported on in annual reports.

We also have to see regulatory compliance is a key factor that affects the sustainability performance of companies. It refers to the extent to which companies adhere to the laws and regulations that govern their environmental, social and governance (ESG) practices. Regulatory compliance can have both positive and negative impacts on the sustainability risk and return of companies and their investors.

On the one hand, regulatory compliance can reduce the sustainability risk of companies by ensuring that they meet the minimum standards of ESG performance and avoid fines, penalties, lawsuits, or reputational damage. Regulatory compliance can also create opportunities for companies to gain competitive advantages, access new markets, attract customers and investors, and enhance their brand value by demonstrating their commitment to sustainability.

On the other hand, regulatory compliance can increase the sustainability risk of companies by imposing additional costs, constraints and uncertainties on their operations and strategies. Regulatory compliance can also create challenges for companies to adapt to the changing and complex regulatory landscape, especially in different authorities and sectors. Regulatory compliance can also expose companies to the risk of regulatory capture, where they influence or manipulate the regulators to serve their own interests rather than the public good.

Therefore, regulatory compliance is a double-edged sword that can affect the sustainability risk and return of companies and their investors in different ways. As sustainable investors, we need to assess how well companies manage their regulatory compliance and how they leverage it to create value for themselves and their stakeholders. We also need to monitor the regulatory developments and trends that may affect the ESG performance and prospects of companies in our portfolio. By doing so, we can identify and seize the opportunities and mitigate the risks that regulatory compliance brings to our sustainable investing goals.

Wishing you happy de-risked investing!

Disclaimer: Please be aware that the information provided in this article does not constitute personalized investment advice or a recommendation to make specific investments. All investors should conduct their own due diligence before making any investment decisions. Keep in mind that all investments involve risk of financial loss, and past performance does not guarantee or predict future investment results. Additionally, individual suitability varies based on factors such as investment objectives, risk tolerance, time horizon, tax situation, sustainability preferences and other relevant considerations.

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