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Embracing ESG risks as business hazards to drive enterprise value
Organisations should also integrate ESG risks across the oversight structure, covering the board and management, policies, processes, and incentives to achieve the set goals.
Adopting environmental, social, and governance (ESG) enables organisations to improve risk management and tap new opportunities.
Therefore, by integrating ESG standards across an organisation, it can competently assess its future viability and strengthen its competitive edge. Having ESG as an integral part of the organisation provides financial, operational, reputational, and conduct benefits.
Recently, some organisations revised their ESG strategy to ensure that ESG risks and opportunities are included in every aspect of the business, from products to operations to people and society. For these organisations, it marked a change from having ESG risks and opportunities assessed on a parallel track to having them at the centre of the business.
To achieve ESG targets and commitments, ESG risks should be captured and managed as business risks to deliver value in the following areas:
From a financial perspective, focusing on customer satisfaction helps prevent poor performance in the short and long term. Applying ESG factors in credit analysis helps better manage credit and liquidity risks.
Operationally, implementing ESG across internal controls and risk functions ensures better risk management infrastructure and compliance with ESG reporting rules and processes. The benefits to an organisation’s reputation include a strong brand image, increased trust with stakeholders, sustained customer and sales growth, and the ability to attract and retain top talent, investors, and customers.
Managing ESG risks as business risks helps prevent sanctions from money laundering and corrupt practices. It helps to avoid greenwashing and limit the adverse impact of organisations on the environment and society.
Organisations should also integrate ESG risks across the oversight structure, covering the board and management, policies, processes, and incentives to achieve the set goals.
Finally, organisations should have robust reporting systems that promote transparency and accountability, build stakeholder confidence, and help drive enterprise value.
Organisations should avoid implementing ESG risks separately from business risks but integrate them into their existing enterprise risk management framework.
