How to integrate ESG risk into risk management

Podcast moderator Chris Hagler from EY’s Climate Change and Sustainability practice talks with Paul Sobel, Chairman of the Committee of Sponsoring Organizations of the Treadway Commission (COSO), Rodney Irwin, Managing Director of the World Business Council for Sustainable Development’s (WBCSD) Redefining Value and Education, and Mark Weick, Former Director of Sustainability Programs at the Dow Chemical Company, about leveraging enterprise risk management to manage environment, social and governance (ESG) risks.

The podcast discusses guidance developed by WBCSD, in partnership with COSO, for “Applying enterprise risk management to environmental social and governance-related risks.” The objective of the guidance is to help an entity achieve:

1. Enhanced resilience: An entity’s medium- and long-term viability and resilience will depend on the ability to anticipate and respond to a complex and interconnected array of risks that threaten the strategy and objectives. 
2. A common language for articulating ESG-related risks: ERM identifies and assesses risks for potential impact to the strategy and business objectives. Articulating ESG-related risks in these terms brings ESG issues into mainstream processes and evaluations.
3. Improved resource deployment: Obtaining robust information on ESG-related risks enables management to assess overall resource needs and helps optimize resource allocation.
4. Enhanced pursuit of ESG-related opportunities: By considering both positive and negative aspects of ESG-related risks, management can identify ESG trends that lead to new opportunities.
5. Realized efficiencies of scale: Managing ESG-related risks centrally and alongside other entity-level risks helps to eliminate redundancies and better allocate resources to address the company’s top risks.
6. Improved disclosure: Improving management’s understanding of ESG-related risks can provide the transparency and disclosure investors expect and achieve compliance with jurisdictional reporting requirements.

Key takeaways

• Environmental, social and governance risks have become much more prevalent over the last decade. What might have once been considered extraneous “sustainability concerns,” are now viewed as business risks integral to the company strategy and success.
• Managing these risks through the enterprise risk management processes and activities is an effective way to elevate them through the organization.
• It is important that companies try to understand ERM principles, figure out how to apply them to ESG risks and make it real for their unique risk profile and circumstances.

For your convenience, full text transcript of this podcast is also available. Read the transcript.