Why leadership is critical in building an integrity-first culture

Sixty-one percent of emerging market respondents say the direction from leadership is the number one reason compliance standards have gotten better. Yet more than four out of 10 respondents believe there are managers in their organization who would sacrifice integrity for short-term personal gain, or for the short-term gain of the organization. A similar percentage of respondents admit they would behave unethically under certain circumstances. Fully half of respondents in emerging markets believe their colleagues would be prepared to behave unethically in one or more ways.

Although AI and generative AI (GenAI) are still in a relatively early phase of maturity, emerging market companies appear to be more mature in their understanding of, deployment and responsibilities toward AI than developed markets.

Eighty-seven percent of emerging market respondents say their organizations are either using, planning to use or exploring the use of AI in their compliance function in the next two years. In Latin America, the percentage rises to 94%. At a country level, 100% of respondents in Brazil, Chile, Colombia and Ecuador say their companies are committed to AI.

In addition to seeing opportunities to incorporate AI into almost every aspect of compliance, emerging market companies plan to deploy AI to manage risk, including cybersecurity (34%), data privacy (29%), ESG (29%), and international trade and import/export (27%). Eight out of 10 emerging market companies are also considering the use of AI over the next two years in their business and operations, versus 70% of companies in developed markets.

As committed as emerging market companies are to AI, their ambitions are tempered by key challenges. One-third cite a lack of in-house expertise as a barrier, while 31% say the data needed to feed into AI models is either inconsistent or missing.

Emerging market companies are also ahead in managing and safeguarding the use of AI. Half of respondents in emerging markets say they’ve personally received training or guidance from their organization about the permitted uses or risks of AI, versus 35% in developed markets. Rates in MEIA (60%), Far East Asia (59%) and Latin America (54%) are significantly higher than in Western Europe (35%), North America (32%) and Oceania (28%).

Additionally, generally speaking, more emerging market companies have measures in place to manage the deployment and use of AI across the organization.

Even as the new US administration works to potentially weaken regulations around the development and use of AI,² emerging markets can seize the opportunity to strengthen their leadership role in the ethical use of AI. In February 2024, countries in Far East Asia came together to publish the ASEAN guide on AI Governance and Ethics³. “From our experience, many ASEAN companies are keen to pursue innovation using AI and are actively implementing AI, but at the same time, concerned about potential risks of AI. This guide has been timely to provide practical guidance and use cases, some of which were contributed by EY teams, for organizations in the region to use AI responsibly, regardless of what is happening in other parts of the globe,” says Ramesh Moosa, EY ASEAN and Singapore Forensic & Integrity Services Leader.

Here are four actions emerging market executives can take to ensure the ethical use of AI.

1. Conduct a maturity level assessment. Emerging market organizations will want to continue to assess their level of maturity to identify critical gaps.
2. Develop formal standards and policies. Governance is the foundation for secure, responsible and transparent AI. Emerging market organizations will want to develop a formal AI policy and the means to implement it, including a governance framework. The policy should focus on standards and guidelines that heed people’s rights, safety and privacy; the fairness, accuracy and reliability of AI output; and the security of underlying data and models.
3. Optimize data governance and processes. Inconsistent or incomplete data that feeds into AI models is a significant challenge in deploying AI within the compliance function. As such, organizations will want to optimize their data governance and processes. This should include data mapping and lineage to know where the data comes from, as well as its level of quality and limitations. As the organization’s AI capabilities mature, it can focus on building a scalable, flexible and secure infrastructure that can safely manage a portfolio of AI algorithms.

Establish a regulatory response plan. Governments and regulators are increasing the scrutiny around AI, raising the importance of having an AI regulatory response plan to prepare for and manage a crisis event. Organizations will need to know who needs to be involved, who owns the data and where it lives.

Emerging market companies aren’t only leading the way with AI, they’re also ahead of the curve in their knowledge, focus, implementation and reporting of ESG than developed market companies. Forty-five percent of emerging market respondents say they know a great deal or a fair amount about ESG regulations and their impact, versus 33% of respondents in developed markets. Percentages are higher in Far East Asia (55%) and MEIA (54%). Moreover, nearly three-quarters (73%) agree that they have a good grasp on ESG regulations in applicable jurisdictions as compared to 62% of respondents in developed markets.

That emerging market companies are more focused on all aspects of ESG integrity than their developed market peers may be as a result of their sensitivity to the impacts of climate change. Overall, countries in emerging markets are experiencing the detrimental effects of climate change earlier and more fiercely than most developed market countries.

Emerging market companies appear to hold themselves accountable more than their developed market peers, with 70% of emerging market respondents rating their organization’s transparency and communication to the public regarding ESG initiative and progress as very good or fairly good, versus 57% of respondents in developed markets. Again, percentages are higher in Far East Asia (75%) and MEIA (79%). Moreover, 72% of emerging market respondents agree that their public ESG statements align with the organization’s actual conduct, as compared to 61% of respondents in developed markets.

Although emerging market companies appear to be more mature in maintaining ESG integrity standards, challenges remain. According to the 2024 Corruption Perceptions Index (CPI),⁴ corruption continues to plague key players in climate diplomacy from emerging markets, including:

• Azerbaijan, host of COP29, at which at least 1,773 fossil fuel lobbyists were granted access, scored just 22.
• COP30 host Brazil will be responsible for securing the US$1.3 trillion target of climate financing by 2035. However, in this year’s CPI it received an all-time low score of 34.
• South Africa, host of the G20 Leaders’ Summit, has dropped by three points since 2019.
• Some host countries with below-average CPI scores have also contributed to the opacity of these conferences by limiting transparency and the participation of civil society. This is a serious obstacle in developing effective climate policy and needs to be addressed moving towards COP30 in Brazil and the G20 Leaders' Summit in South Africa.

Meanwhile, in Russia, an audit found strong indications that millions of dollars were misappropriated from a project funded by the Global Environment Facility and managed by the United National Development Programme (UNDP).⁵ In Vietnam, systemic corruption, extending from lower-level to higher-ranking public officials, is driving environmental destruction and forest degradation.⁶

As ESG becomes less of a priority elsewhere in the world, companies in emerging markets are beginning to take more of a wait-and-see approach. Local regulators may follow. Governments are increasingly sensitive to the cost of doing business in the world and the cost burden ESG regulations can place on organizations. Yet there are many regions, including Singapore, which continue to push ahead with their move toward greener sources of energy. The Singapore Stock Exchange has mandated the need for sustainability audits for listed organizations.⁷ Similarly, although South Africa appears to be behind the curve on ESG,⁸ the government remains committed to decarbonization and has recently issued legislation mandating mandatory ESG reporting and that executive compensation be linked to ESG. These efforts will bring South Africa closer to international ESG standards. In Latin America, organizations may be talking about ESG less, but the convergence of ESG with corporate compliance means that organizations will continue to act. Conversely, in MEIA, there are signs that ESG may become less of a priority as the EU and US waver on their commitments.

Here are four ways for emerging markets to stay ahead of the ESG integrity curve.

1. Be clear about ESG priorities. Organizations will need to align ESG ambitions with its corporate strategy and be clear about who owns ESG within the organization.
2. Leverage technology. Given regulatory compliance pressures, emerging market companies will want to implement a more robust reporting process and consider using technology and automation to build workflows that can improve the consistency and accuracy of data gathering, analysis and monitoring of ESG performance.
3. Develop an ESG governance framework. To increase agility and responsiveness to evolving ESG regulations, organizations will want to develop an agile ESG governance framework and relevant processes. This should include a comprehensive risk assessment methodology that can incorporate new ESG areas and respond to changing international standards. Companies can then use the results from the risk assessment to develop key performance indicators (KPIs) and key behavioral indicators (KBIs) to measure the company’s progress and enhance accountability for its ESG performance.
4. Communicate, educate and build trust. Organizations will want to develop an effective communications plan that educates, drives consensus and builds trust and engagement at all levels of the organization.

In an era of constant change and persistent market uncertainty, companies find it increasingly challenging to maintain or strengthen their standards of integrity. Arguably, this is exactly the time to make integrity the number one priority – for everyone.

Positively, 79% of emerging market respondents say they are confident that they have the processes already in place to manage significant integrity issues, while 55% say their ability to do so has improved over the last two years. And yet:

• More respondents (41%) say regulators have taken action against their organization for breaching integrity standards or regulations in the last two years, versus our 2022 report (38%).
• Fewer respondents (65%) say their organization has taken action against employees for breaching integrity standards or regulations in the last two years, as compared to 69% of respondents surveyed in the 2022 report.
• More respondents (44%) admit their organization’s integrity standards have been discussed by the public, press or social media, versus 41% two years ago.
• The percentage (24%) of respondents who say it’s easy to bypass standard business rules and processes within their organization remains unchanged from two years ago.

By taking an agile, human-centered approach to integrity — one that puts the right programs in place to drive behavior to create a strong culture and a strong belief in their commitment to integrity — organizations can keep pace with evolving regulations and increasing societal expectations. Equally, by making everyone a leader in upholding the organization’s values and taking concrete action in response to misconduct, organizations can create a virtuous circle of integrity that sets a course to renewed trust within the organization, and among customers, investors, governments and societies. “There is a difference between box-ticking for compliance purposes and behaving ethically because it’s the right thing to do. Latin American companies are in the process of moving from one to the other,” states Rafael Huaman, EY Latin America Forensic & Integrity Services Leader.

Here are four ways to create a virtuous circle of integrity:

1. Implement a sound governance structure that integrates compliance and reputational risk management into day-to-day decision-making processes.
2. Embed integrity and compliance standards directly into operations and procedures to make integrity everyone’s responsibility.
3. Provide incentives and reward good behavior. Punishment may serve as a deterrent, but it rarely serves as an incentive.
4. Improve training, awareness and communication.

For emerging market companies, the benefits of operating with integrity are clear, according to EY 2024 Global Integrity Survey respondents: 31% say they have an open and positive work environment, 29% experience better financial performance, and 26% cite increased innovation and creativity, a stronger and more resilient business to deal with crises, and the ability to operate in an environmentally and socially sustainable way. 

While emerging markets are making meaningful progress in building a culture of integrity, there’s still a long journey ahead. True integrity must go beyond policies and processes — it requires sustained commitment from leadership, strong regulatory enforcement, and a willingness to act when standards are breached. The foundation is being laid, but maintaining trust in this environment will demand continuous vigilance and evolution.

Corporate integrity requires leaders who choose ethical courage over personal gain, do the right thing, even under pressure, and demonstrate integrity through their actions as much as their words. When leaders stand up for integrity, everyone else will follow.