Ten years ago, the top global risks in terms of impact and likelihood didn’t include social or environmental issues for the most part. But today, many of the top risks are social or environmental.
A robust Enterprise Risk Management (ERM) framework that includes social and environmental aspects preserves value and reduces downside exposure, helping to connect risk, strategy and decision-making while enhancing corporate performance.
Leveraging and enhancing a company’s ERM framework is an effective way to reduce potential risk and capture opportunities.
The impact of economic and regulatory risks on business and society is giving way to existing and emerging social, environmental and governance (ESG) risks. Despite this, organizations are limited in how they identify, prioritize, manage and, if relevant, disclose these risks. Recent research shows a clear disconnect between “material” sustainability topics and the risk factors listed in corresponding legal filings.
This disconnect between disclosing ESG issues in sustainability reports and disclosing ESG factors in risk filings in statutory documents demonstrates that organizations find it challenging to integrate emerging ESG risks into existing risk management frameworks. In practice, this means that companies are exposed to a range of risks that are not being properly accounted for.
We researched this disconnect and found that only 29% of companies show some alignment between what they say in their sustainability report and what they disclose in their legal filings.
One way we’re addressing this is through our work with COSO (the Committee of Sponsoring Organizations of the Treadway Commission). On 23 October 2018 we jointly released application guidance to help organizations align ERM to ESG-related risks.
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