Given the uniqueness and rapid acceleration of current and emerging Environmental, Social, Governance (ESG) related risks, companies are revisiting their Enterprise Risk Management (ERM) programs to look at how these risks can impact their organization. Here are some of the key reasons why:
1. ERM frameworks are changing
Committee of Sponsoring Organizations of the Treadway Commission (partnered to develop guidance to help companies better understand the full spectrum of ESG-related risks and how to manage and disclose them effectively. The guidance was designed to help risk leaders and ESG experts apply ERM concepts to ESG-related risks.1
2. The risk landscape is evolving
ESG-related risks are not necessarily new, but over the last decade, the awareness of ESG-related risks has rapidly accelerated. What companies used to view as sustainability initiatives, are now viewed as legitimate risk areas to the company.
3. Defining and mitigating ESG-related risks is becoming more important
Enthusiasm around ESG-related issues is continuing to increase and companies are facing societal pressure to adopt environmentally conscious and culturally inclusive business practices. Areas such as environmental sustainability, go green efforts, workplace diversity, carbon dioxide footprint, etc., are top of mind for risk leaders.
The ability to effectively manage and communicate these ESG-related risks by integrating into current ERM frameworks is critical to assess the impact to a company’s strategic goals and objectives and its long-term sustainability.
4. New ESG regulations necessitate disclosures
Governments and other regulatory bodies have stepped up their focus on ESG matters through a combination of global policy adjustments and international cooperation. In the US, the SEC recently issued the much-anticipated proposal for ESG disclosures and closed for comment . It is critical for Boards and Senior level executives to get ahead of these ESG disclosures and integrate ESG into their strategic planning and operations to better manage risks.
5. ESG is changing how investors are making investment decisions
There is a growing interest from investors seeking to understand how organizations are identifying and responding to ESG-related risks as more companies are impacted by these risks, not just those who have traditionally focused on them.
By considering ESG factors, investors get a more holistic view of the companies they back, which can help mitigate risk and identify opportunities.2
1 Source: https://www.coso.org/Documents/COSO-WBCSD-ESGERM-Guidance-Full.pdf
2 Source: https://www.forbes.com/advisor/investing/esg-investing/
How MorganFranklin Can Help
MorganFranklin’s ERM subject matter experts leverage the COSO ERM framework to provide our clients with a unique approach to stand up, launch, and maintain comprehensive ERM programs. We also work alongside our ESG team of experts to incorporate ESG-related risks into our framework. Learn more about our ERM and ESG services or speak with our experts by filling out the form.