The line between ESG and financial crime is fading fast. As violations trigger legal and reputational fallout, compliance teams must unite to close gaps and stay ahead of the regulatory curve.
Key takeaways
- ESG breaches are increasingly linked to financial crime, raising legal and reputational risks.
- Companies can plug ESG into existing controls and risk assessments – not reinvent the wheel.
- Compliance teams must work together to embed ESG into core risk frameworks.
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Financial institutions (FIs) in Switzerland face new rules concerning climate-related financial risks from 1 January 2026, under regulations issued by the Swiss Financial Market Supervisory Authority. Meanwhile, the EU’s 6th Anti-Money Laundering Directive, effective from July 2027, classifies environmental crime as a predicate offence to money laundering.
These developments reflect a broader regulatory convergence between ESG and financial crime. ESG breaches, such as illegal mining and deforestation, are often linked to bribery, corruption, and money laundering, exposing companies and their supply chains to serious legal and reputational risks.
As the risk landscape evolves, regulators are responding. Global ESG-related fines issued by financial authorities surged by 98% to US$37.7 million in 2024, marking a jump from approximately US$19 million in 2023.
Companies must embed ESG into broader compliance frameworks or risk reputational damage, diminished investor trust, and regulatory scrutiny.
The roadblocks to ESG compliance
Businesses are adapting their risk assessments to identify compliance gaps stemming from ESG-related misconduct, however, certain integration hurdles remain.
Siloed compliance teams
ESG and financial crime compliance teams tend to operate separately – often with limited communication and information sharing.
The result is a siloed approach to risk management, where overlapping compliance gaps go undetected. Analysis from a 2024 report by the World Wide Fund for Nature (WWF) found that FIs face significant exposure to deforestation and land conversion risks, which frequently converge with financial crimes such as money laundering, corruption, and document fraud. Land conversion may also signal other financial crimes, such as tax or sanctions evasion.
To address these risks effectively, teams must collaborate to identify and act on these connections.
Cross-border regulatory complexity
ESG regulations may vary by jurisdiction, requiring companies with multiple operations to navigate conflicting requirements. Cross-border teams often face coordination challenges due to cost and logistical constraints.
A July 2025 report by the Organisation for Economic Co-Operation and Development found that companies face over 600 overlapping ESG reporting provisions globally, with 83% expecting compliance costs to rise due to regulatory complexity.
To manage jurisdictional differences and improve internal coordination, companies may form dedicated ESG task forces or regional compliance hubs.
Fragmented ESG data
ESG data is often inconsistent or fragmented due to disparate standards and metrics across jurisdictions, making it difficult for compliance teams to extract relevant information. This often complicates integration into financial crime risk assessments.
Companies can develop centralised ESG data platforms to reduce fragmentation and ensure consistency across departments.
How to embed ESG into financial crime compliance
Coordinating ESG and financial crime is essential for businesses to establish holistic and comprehensive risk management strategies.
Companies should consider the following practices to coordinate compliance efforts, build trust with stakeholders, and dilute their risk exposure.
Tailor risk assessments to ESG risk
Companies should expand and adapt their risk frameworks to incorporate ESG-related threats. This doesn’t require an overhaul as existing systems can often be reframed to address ESG considerations.
Risk assessments should cover all clients, third-party relationships, and supply chains.
This is critical for companies with cross-border operations or those in high-risk industries – such as mining or agriculture – where ESG and financial crime risks often intersect.
Risk assessments should be ongoing and updated regularly to reflect evolving regulatory benchmarks.
Enhance due diligence and screening processes
ESG risks are often overlooked in traditional in anti-money laundering or Know-Your-Customer due diligence and screening systems, exposing companies to undetected vulnerabilities.
To address this gap, companies should integrate ESG-related criteria into due diligence and screening processes for all clients and business partners. “Those procedures must be clear across the organisation from the top down, and they must be informed by a proportionate risk-based approach,” Min Wiggins, Legal Director at UK outfit Mishcon de Reya tells Lexology PRO.
This scrutiny should also apply at the onboarding stage by incorporating targeted ESG questions and evaluating customers’ risk profiles based on their environmental and social practices.
Coordinate ESG and financial crime staff training
Companies should deliver targeted training that equips staff with a comprehensive understanding of ESG and financial crime and their overlapping compliance challenges.
Businesses should keep training materials and messaging simple to avoid information overload and promote engagement.
Training should be delivered regularly and in line with shifting regulations. For example, the UK Failure to Prevent Fraud Offence, effective as of 1 September 2025, brings greenwashing under the scope of fraud – exposing companies to new legal and reputational risks.
“The introduction of the new failure to prevent fraud offence means that greenwashing is now a criminal risk for companies, not just a regulatory one. It is therefore essential that a company’s ESG / sustainability department work with its financial crime compliance team to ensure there are robust procedures in place to assess and manage any sustainability claims,” says Wiggins.
Staff should be aware of similar developments to ensure proactive compliance.
Leverage AI for supply chain transparency
As ESG moves further into the regulatory spotlight for financial crime, businesses are held to a higher standard of transparency around their supply chains and related operations, such as third-party contracts or sourcing practices.
AI can process vast and complex ESG datasets that are often too time-consuming or fragmented for manual review. For example, AI tools can analyse satellite imagery to detect illegal deforestation or draft community impact assessment reports.
To streamline ESG due diligence, businesses may leverage AI into existing systems to enhance transparency and risk detection. The WWF launched a digital screening tool in 2024 to help FIs identify and manage their exposure to environmental crimes. The tool’s geographic and sectoral filters allow businesses to tailor their due diligence and risk assessments more precisely.
Prioritising transparency also helps companies mitigate risk and build trust with stakeholders.