Outrageous Scam or Investor Must-Have? What ESG Means To Your Global Trade Business

By: Olga Torres, Managing Member, Derrick Kyle, Senior Associate, and William Klaess, Associate
Date: 06/02/2022

Lately there has been much chatter about Environmental, Social, and Governance (“ESG”) policies in business. Elon Musk has called ESG “an outrageous scam.”[1] And while there is no clear definition, investors and ratings agencies, as well as ultimate buyers and consumers, increasingly look for financially and morally sound companies that are committed to these principles, and the U.S. government is codifying various aspects of the wider ESG umbrella into law. Investors are increasingly active and interactive with the companies in which they invest. Because the financial incentivizes for appearing ESG-compliant are high, so too is the likelihood that companies will cheat on ESG reporting.

ESG principles are a growing part of compliance programs and the integration of ethics into business culture and identity are paramount. Companies cannot pretend to comply with ESG by simply ticking the right boxes. Businesses with international trade operations should examine how ESG principles are integrated into their operations. While commenters tend to focus much attention on the Environmental side, this article will look at the trade-related areas encompassed by the Social and Governance aspects of ESG, including Human Rights, Forced Labor, Trade Controls, Anti-Corruption, and other areas of trade-related corporate compliance.

Forced Labor

Human rights, which encompass issues related to forced labor, straddle the line between Social and Governance principles. ESG-minded companies do not want to contribute to human rights abuses, even indirectly through their supply chains. In recent years, the United States government has taken action to combat human rights abuses by preventing goods made with forced labor from entering the United States via a web of overlapping laws and regulations, including the upcoming Uyghur Forced Labor Prevention Act (“UFLPA”) which takes effect June 21, 2022.[2] The UFLPA creates a rebuttable presumption that any goods sourced from or produced in the Xinjiang Uyghur Autonomous Region of China are the product of forced labor and barred from entry into the United States. Customs and Border Protection will detain or seize such goods unless the importer can overcome the presumption of forced labor through a showing of clear and convincing evidence, which could prove costly in terms of time, legal fees, and supply chain disruptions.

A U.S. government multiagency publication, the Xinjiang Supply Chain Business Advisory[3] – originally published on July 1, 2020, and updated on July 13, 2021 – addresses the risks of continuing business that may involve such forced labor and provides guidance as to how companies may shore up such risks. Not surprisingly, these warnings and advice, which draw upon the International Labour Organization’s Handbook on Combating Forced Labour,[4] center on a key component of ESG policies generally: heightened due diligence, which comprises awareness of red flags and warning signs, and knowledge of the relevant governing agencies and their laws and regulations. This heightened due diligence facilitates other actions to combat forced labor from an ESG perspective. These include: 1) implementing ESG policies prohibiting forced labor within your organization; 2) auditing and mapping your supply chain; 3) establishing relationships with suppliers to promote ESG goals; 4) training of stakeholders both internal, such as employees, and external, such as vendors and suppliers; 5) recordkeeping in accordance with relevant government regulations; and 6) monitoring your ESG and forced labor policies and programs to identify strengths and areas for improvement.

Trade Sanctions and Controls 

Beyond the import ban on products of forced labor, to promote certain ESG principles abroad, such as human rights and other areas under the umbrellas of Social and Governance, the United States employs a variety of trade sanctions and controls. The Department of Commerce’s Bureau of Industry (“BIS”) administers export controls under the Export Administration Regulations (“EAR”). Under the EAR, BIS controls the export of U.S.-origin commodities, software, and technology for a variety of reasons, based on the nature of the product, including several reasons that fall within the ambit of ESG principles. These Social- and Governance-related issues include Anti-Terrorism, Chemical & Biological Weapons, Crime Control, and Regional Stability. The promotion of these goals aligns with ESG on its face, effectively ensuring bad actors do not have access to commodities and technology that could facilitate human rights abuses or other undemocratic or illicit activity.

Beyond Commerce’s export controls regime exist other governmental sanctions programs that companies must comply with. Chief among these are the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) countrywide embargoes of North Korea, Cuba, Syria, Iran, and North Korea,[5] and the regional embargoes of the Crimea, Donetsk, and Luhansk regions of Ukraine. In addition, OFAC administers sanctions programs, such as that enforcing the Global Magnitsky Human Rights Accountability Act,[6] targeting repressive regimes and human rights abuse perpetrators. Compliance with these programs is crucial for any business, not just those who engage in imports or exports. Beyond the obvious human rights abuses and social ills these sanctions programs are meant to combat, the consequences for violations of sanctions regulations can be severe. The penalties can be steep – up to $1,000,000 per violation in criminal fines[7] – not to mention the reputational damage that can come with, for example, designation on one of Treasury’s sanctions lists. Any ESG-minded business will want to avoid operations that run afoul of their ESG policies, and a robust sanctions and trade compliance program can bolster such policies.

The heads of the Departments of Commerce and the Treasury, along with those of the Departments of Justice, Homeland Security, State, Energy, and other U.S. government agencies, constitute the Committee on Foreign Investment in the United States (“CFIUS”).[8] Under the Foreign Investment Risk Review Modernization Act (“FIRRMA”), CFIUS reviews foreign investment transactions for any national security risks they may pose. In certain situations, domestic companies with foreign investors must disclose certain information to CFIUS. While “national security” is not defined by CFIUS, it is likely that the constituent agencies review any foreign investor’s ties to undemocratic or repressive regimes for possible national security threats. Thus, a trade-related ESG program should incorporate controls or procedures related to possible foreign investment to the extent appropriate.

Anti-Corruption Laws

Companies doing business outside of the United States must straddle the line between legal U.S. business practices and local customs: a typical payment or gift in one region may be viewed as bribery by the U.S. government. Bribery and corruption have negative downstream effects on society, the kind that ESG principles seek to remedy. The Foreign Corrupt Practices Act (“FCPA”) criminalizes corrupt payments or offers to foreign officials for the purpose of obtaining business and applies to all U.S. persons and certain foreign issuers of securities.[9] Thus, preventing bribery and compliance with the FCPA is not just a best practice for effective ESG programs, it is also the law. Further, the FCPA requires companies to meet certain accounting requirements, reiterating the need to integrate ESG principles into the core functions of a business.

ESG Reporting and Disclosure

Lastly, much is being written about ESG in the context of Securities and Exchange Commission (“SEC”) disclosure, reporting, and enforcement. April 2022, a year after the formation of the ESG Task Force,[10] saw the SEC’s first major ESG enforcement action. The SEC charged Brazilian iron ore producer Vale S.A. with securities fraud, alleging that the defendant made false and misleading ESG disclosures regarding the safety and stability of its mining operations.[11] The case is ongoing, but the announcement of enforcement action demonstrates that companies need to carefully scrutinize any reporting or disclosure related to ESG – including any of the areas discussed in this article – and signals that the SEC is serious about promoting ESG principles.


Because the principles encompassed by ESG are so broad, it is necessary to evaluate the whole of a company’s operations to assess where they may be integrated. Just like there is no one-size-fits-all compliance program, there is no one-size-fits-all ESG program. Embedding ESG principles into operations can be timely or seem overwhelming. If your organization is unsure where to start, conducting an enterprise-wide ESG audit can help address key areas where ESG policies or goals can be implemented. This can be used to create ESG-related metrics, a Code of Conduct, or an entire compliance program to ensure your company is best able to meet its ESG goals and attract ESG-minded investors.

For more information about ESG programs or trade compliance, please reach out to the attorneys at Torres Trade Law.

Further Reading:

Due Diligence and Best Practices to Avoid Forced Labor in Supply Chains

U.S. Government Takes A Hard Line to Stop Human Rights Abuses

Manufacturer Accused of Using Forced Labor

Uyghur Forced Labor Prevention Act

Trade Law Insights


[1] Elon Musk (@elonmusk), Twitter (May 18, 2022, 11:07 AM) (

[2] Pub. L. No. 117-78.

[3] Department of State, “Xinjiang Supply Chain Business Advisory” (Jul. 13, 2021) (available at The parties to the advisory include the Departments of State, the Treasury, Commerce, Homeland Security, and Labor, and the Office of the U.S. Trade Representative.

[4] International Labour Organization, Combating Forced Labor: A Handbook for Employers & Business (2015) (available at

[5] See, e.g., Executive Order 13810, 82 Fed. Register 44705, in response to “the provocative, destabilizing, and repressive actions and policies of the Government of North Korea.”

[6] See Executive Order 13818, 82 Fed. Register 60839.

[7] 31 C.F.R. 501.701(a).

[8] 31 C.F.R. § 800 et sequitur.

[9] 15 U.S.C §§ 78dd-1 et sequitur.

[10] Securities and Exchange Commission, “SEC Announces Enforcement Task Force Focused on Climate and ESG Issues,” (Mar. 4, 2021) (available at

[11] Complaint, Securities & Exchange Commission v. Vale S.A., 1:22-cv-02405 (E.D.N.Y. filed Apr. 28, 2022), ECF No. 1,