GROWTH IN GOVERNANCE: INTEGRATING ESG FOR MORE EFFECTIVE RISK MANAGEMENT
Since the passage of the Sarbanes-Oxley (SOX) Act of 2002, responsibilities around governance, risk and compliance (GRC) have become critical infrastructure for organisations seeking to retain their licences to operate. Although the ‘G’ in GRC is an overarching concept that touches all aspects of company operation, many C-suites are overlooking the intensifying importance of turning the governance magnifying glass on emerging areas of interest, such as environmental, social and governance (ESG). Untangling the interplay and building ESG into GRC programmes is a key pivot for organisations looking to futureproof their GRC strategy.
Why ESG is more critical than ever
Financial regulators worldwide have been signalling that ESG and climate-related risk will soon move to the forefront of oversight priorities. While US financial regulators have not yet codified any specific sustainability goals, the European Union (EU) is moving in that direction with the implementation of the Sustainable Finance Disclosure Regulation (SFDR). This regulation demands that all EU asset managers disclose the specific ways sustainability considerations affect investment decisions, with the goal of pushing capital toward more sustainably focused investments.
As such, ESG data and reporting are becoming on par with traditional risk measurements in importance, and the C-suite must bring ESG under the umbrella of GRC if leadership is to maintain a sufficiently holistic view of risk and prioritise those risks appropriately.
Oct-Dec 2021 Issue
SAI360