ESG Questionnaires Crowd Out the Fraud Risk Portfolio Companies Face

What's New

ESG questionnaires absorb diligence time that should go to fraud, the integrity risk most likely to cost a portfolio company money. Rupert Evill, Founder of Ethics Insight, argues this in a conversation with Ross Butler on Fund Shack. He sizes risk by context, controls and culture. Most diligence looks backward, though the investment itself changes the company's risk. Investors should replace long disclosure forms with a one-page action plan and a speak-up channel open to outsiders.

Why It Matters

Responsible investment teams often measure progress by the policies in the data room. Evill says AI now lets companies generate a policy for every question, which widens the gap between having a framework and using it. Compliance programs built around bribery law miss the larger exposure. Ethics Insight sells right-sized integrity diligence, so a case against standardized ESG work supports its business.

By The Numbers

• 0.7: Average UK Bribery Act prosecutions per year. Roughly 40,000 companies fall within its reach, by his count.

• 1 to 5%: Share of revenue Evill says routine fraud takes from a company, citing surveys by BDO, PwC and EY.

• $1.5 million: Average occupational fraud loss in the ACFE's latest report.

• 50%: Share of fraud tips that come from outside the organization.

Zoom In

An East African pharmacy and distribution business bought most of its stock from China and India. It sought investment to manufacture its own products. That shift brings opioid and fentanyl inputs into regions where al-Shabaab, organized crime and corrupt officials operate. It also brings construction contracts and manufacturing safety standards the team had never handled. Evill uses the case to show that diligence must forecast the company the new capital will create.

Memorable Quotes

• "The majority of these issues is people under pressure making very poor decisions and then compounding on it." Why speak-up channels work as early warnings.

• "None of them have a clue about fraud." His verdict on growth-stage compliance programs.

• "I know I'm not giving a one-size-fits-all answer, but that's kind of the point." The admission that his method resists standardization.

• "What's been totally lost is the gap between having and doing." The case against box-ticking in one line.

The Wrap

Evill's approach pays off where a GP has influence and time to act before the next growth phase. He notes it is harder to apply across a syndicated loan or a minority stake. It also depends on boards trusting judgment over standardized reporting, which some investor mandates still require. Fraud losses and speak-up data across portfolios over the next 2 to 3 years will show whether right-sized diligence beats the checklist.