Today, the challenges that companies face can be nebulous and unpredictable, and often it’s difficult to understand risk exposure. From extreme weather events to abrupt resource constraints, it’s important for organizations to understand the impact of these issues, and how to respond.
“For many risks, like those related to operations or marketing strategies, companies are adept at predicting, understanding and managing their exposure. But for other risks, like emerging risks related to environmental, social and governance issues, companies are less equipped - which is becoming a serious problem worldwide,” wrote Rodney Irwin, Managing Director of Redefining Value and Education at the World Business Council for Sustainable Development. “Ten years ago, the top global risks in terms of impact included only one environmental, social and governance risk. But today, environmental, social and governance risks account for four of the top five risks in terms of impact, according to the World Economic Forum’s Global Risks Report. Historically, companies haven’t been able to deal with these kinds of risks very well.”
Through our Conservation and Financial Markets Initiative, we are supporting groups like the World Business Council for Sustainable Development in their work to support companies who seek more and better information to evaluate their risk exposure. While many companies recognize that environmental, social and governance risks loom large, there has been no standard, universally accepted way for business to identify, understand and manage this type of risk.
First-ever guide for applying enterprise risk management
That’s why we helped fund efforts by the World Business Council for Sustainable Development (WBCSD) and the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to draft new guidance for Applying Enterprise Risk Management to Environmental, Social and Governance-related Risks, to help organizations worldwide respond to the increasing prevalence and severity of environmental, social and governance-related risks.
Until June 30, 2018, they are seeking public comment on the document. This is an opportunity to provide feedback: by completing the online survey, uploading a formal/public comment letter to the COSO website, or sending comments to risk@wbcsd.org.
Worldwide, some 70 percent of all companies use the original COSO Framework for Enterprise Risk Management. Creating guidance for how to understand and manage environmental, social and governance risks augments that framework, and will be relatively easy and seamless for companies to adopt. What’s in it for the companies? Those that understand and manage their risks effectively will ultimately fair better in the global economy and at home.
And we all stand to gain. Better risk management and decision-making can drive positive change in corporate governance frameworks. It has the potential to shift the global financial system so those companies who manage the full set of risks – financial, social, environmental – benefit the most. And, this would reward the most sustainable companies by empowering and educating risk managers.
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