INTEGRATING ESG, ERM AND STRATEGY – BEST PRACTICES AND LESSONS LEARNED
R&C: Could you outline the benefits to companies of an enterprise risk management (ERM) approach that effectively incorporates environmental, social and governance (ESG) issues with business strategy?
Zack: What drives an organisation begins with understanding its mission and developing its strategy. Environmental, social and governance (ESG) is the perfect example of ‘risk’ as it is defined in risk management frameworks: potential events with a degree of uncertainty that can affect an organisation’s strategy and business objectives either positively or negatively. ESG can pose risks that would have adverse consequences while also presenting opportunities for organisations. In today’s environment, it is important for management to view ESG strategically by identifying where business strategy intersects with ESG issues and incorporating those considerations into strategy setting and decision making. ESG cannot be an afterthought or a separate consideration. ESG considerations need to be prioritised and made a part of strategy setting, which is then used to develop business unit objectives and metrics. An example illustrates this. Suppose we are a company that manufactures and sells a particular consumer product, and our product is well-regarded with sales generally increasing at a rather steady rate for many years. But we source important components of our products from a supplier located in a country where human rights violations and poor treatment of workers is common.
Oct-Dec 2022 Issue
Society of Corporate Compliance and Ethics