Today it seems that the issue of Environmental, Social and Governance (ESG) is being talked about everywhere and has become a key focus for enterprise management teams, especially those responsible for risk management. But is this something new, or should it be viewed as part and parcel of a mature enterprise risk management infrastructure?
One thing is for sure. ESG has important implications for a wide range of stakeholders that includes directors, investors, employees, suppliers, and employees for whom performance against ESG objectives counts.
Indeed, the overarching themes of diversity, sustainability, and adherence to the standards and principles of good conduct that ESG encompasses are integral to an organization’s wider enterprise risk management (ERM) strategy for addressing the risks that could potentially impact a company’s financial and operational performance or brand reputation.
The rising prominence of ESG
Today’s stakeholders are asking hard questions about the ESG performance of companies. From assessing the environmental impact of their products and services, to evaluating if organizations treat employees, suppliers and partners fairly and equitably and appropriately monitor their supply chains. Failing to deliver against these expectations will result in a backlash from disaffected investors, customers and employees.
For example, a growing number of consumers are opting to buy goods and services from organizations based on their ethical practices and position on ESG-related matters. Similarly, employees are becoming more selective when it comes to working only for organizations whose values align with their own.
Meanwhile, ESG standards, regulations and reporting requirements in jurisdictions around the globe are on the rise. This means that action on ESG risk needs to go beyond lip service.
Getting to grips with ESG
ESG is a broad umbrella that covers a range of topics. Getting to grips with ESG begins with identifying which stakeholders have an interest or are affected with ESG, and viewing each stakeholder’s objectives through an environmental, social and governance lens.
For example, from an environmental perspective, what do consumers expect in relation to how products and services are sourced or delivered. Similarly, what specific requirements do environmental regulators have in relation to the company’s operations.
Changing social expectations mean that organizations …
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