Corporates face ESG risks as Verisk index finds democracy ‘under fire’

One third of countries across the world have seen risks to their democratic processes increase significantly during the past five years, with corporates operating in poorly ranked countries facing ESG and supply chain threats, warns Verisk Maplecroft. Publishing its latest Democratic Governance Index (DGI), which measures threats to electoral processes, civil and political rights, Verisk reported that 61 of the 198 countries tracked have seen democracy scores fall. “Democracy is under fire… A volatile mix of interference in voting processes, crackdowns on civil rights and institutional decay is fuelling a global decline in democracy,” Verisk said. It flags 11 countries that have seen a significant rise in risks to their democracy during the past year, including Russia, which now ranks in 11th place, down from 19th. Other notable backsliders include Afghanistan, which now ranks as the sixth highest-risk country, from 35th last year, after the return of Taliban rule. Also falling were Hungary, Mexico and Tunisia, which fell 21 places to 100th after President Kais Saied seized judicial and executive powers. “Declines in democratic governance and slides towards authoritarianism not only affect the rights of voters, they weaken vital institutions, perpetuate corruption and affect the overall investment environment,” said Hamish Kinnear, senior analyst at Verisk Maplecroft. “No system of government is immune – over recent years, we’ve seen declines on the DGI across established democracies like the US and in authoritarian states like Russia.” Eritrea is ranked as the least democratic country and is joined at the bottom by North Korea, South Korea, China, Laos, Sudan, Brunei, Saudi Arabia and Syria. Verisk said 37 countries have seen the integrity of their voting process decrease. Access to free and fair voting has come under pressure across the world, it added. Verisk also warned organisations with operations in the index’s worst-performing countries of associated ESG implications. “The risk of being seen to be complicit with repressive regimes should be a foremost concern,” it said. Kinnear told businesses: “Investor and consumer perceptions are hardening when it comes to human rights, while new and emerging regulations and laws are demanding greater transparency. These risks can be reputational, such as when companies are subject to public criticism by media outlets, but they can also be more tangible, as was the case for the thousands of companies that divested from an increasingly authoritarian Russia following its invasion of Ukraine.” Verisk added that greater splits between democratic states in the west and authoritarian states, led by China, could increase supply chain risks. “Democratic countries, mindful of earlier vulnerabilities (such as Europe’s reliance on Russian gas) may look to encourage businesses to source from other democratic countries. Trends in the DGI are worth watching to see how far this systemic cleavage could go, and whether businesses need to strengthen their contingency plans accordingly,” Verisk said.

Corporates face ESG risks as Verisk index finds democracy ‘under fire’

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