Why should risk and compliance professionals care about the move to ESG?

ESG is all the rage in 2022. With many companies now turning towards more sustainable practices and investors making more sustainable investment decisions, why should those involved in risk and compliance care?

A recent post by Diligent has detailed why risk and compliance professionals should be paying attention to the growing take-off of ESG and how ESG initiatives are changing the game.

Diligent said, “Today’s investors want to know that the companies they invest in support ethical and sustainable practices, and have led the charge for introducing ESG policies. Thanks to their advocacy, as well as demands from customers, regulators, employees, and activists, many businesses today have adopted ESG initiatives to provide transparency and accountability in their actions.”

However, when adopting an ESG policy, the company claims it’s important to go beyond individual metrics for the initiatives that you are supporting, and focus on genuine organisation change on a holistic level – stating that your policy ‘can’t just pay lip service to diversity, green initiatives and other buzzwords’.

Diligent said, “Building a comprehensive ESG policy boils down to ensuring that you’re conducting proper risk management for all of your environmental, social, and governance-related initiatives.”

Before launching an initiative, it is key to do the research and evaluate all potential outcomes, Diligent states. In order to ensure the ESG initiatives don’t end up reflecting badly on a brand, it is vital to assess every opportunity through a risk management framework, using integrated risk management.

Diligent remarked, “IRM refers to both the processes and technologies that enable you to take a holistic view of your organizational risk. That means setting up an open, transparent culture in which risk management professionals and business unit managers share data and collaborate on risk and opportunity assessments. It also means using a centralized data platform that lets you gather data from all of your different tools and manual inputs, so that you can assess and report on your ESG risks in real time and analyse future opportunities through a risk analysis framework.”

In terms of a company’s ESG policy, Diligent claims this means that you can use an integrated tech solution to support organisation-wide risk assessment, mapping, monitoring, reporting and analysis of all a company’s ESG programs. Firm’s can gather all of their data within the framework of a broader risk analysis toolset, so that they can put it into any business context necessary for executive decision making.

The company added that, “With an IRM solution for ESG, you’ll be able to monitor your organisation’s broader ecosystem including the entire supply chain, so, for instance, you’ll be aware if a company you purchase materials from has signed an agreement with a contractor that has historically supported sweatshop labour, and can instantly end the business relationship. You’ll be able to get real-time insights into day-to-day changes in how well your company is meeting its goals, so that you can put mitigation measures in place when necessary.”

How does committing to ESG within a risk management framework benefit your business? First of all, it provides better resourcing for sustainability initiatives. Diligent claims that by using IRM to assess the viability of a firm’s sustainability initiatives, companies can conduct in-depth risk-benefit analyses for any potential sustainability investment – enabling them to determine which are the best fit and plan accordingly for them.

Other benefits include a bolstered brand reputation. The company cited research from the Natural Marketing Institute, which found that 58% of consumers research a company’s environmental and social policies prior to making a purchase and are more likely to purchase from those that have shown a commitment to sustainability.

ESG commitment also ensures better compliance with regulations. Diligent said, “In order to meet the burden of changing environmental regulations, it’s important to stay a step ahead and ensure that your company is in compliance even before new regulations are enacted. By using IRM, you’ll be able to adopt and implement compliance standards that go beyond what’s currently required of you, so that as regulatory bodies adopt new rules, your company will already be meeting their standards. And for existing regulations, you’ll be able to track and monitor your company’s compliance performance within one centralized dashboard, so that you’ll avoid fines or penalties.”

Other key benefits of using ESG within a risk management framework are new business opportunities as well as a stronger strategic focus. On the latter point, the firm stated that better risk management means that you are able to streamline efficiencies and reduce time spent on enforcing compliance. This enables a firm’s risk management team to spend less time on checking boxes and more time on strategic work that can drive a company forward.

Diligent concluded, “Bottom line? For risk management teams, a clear framework for building and managing ESG initiatives has gone from a nice-to-have to a necessity. By implementing an ESG policy within the broader context of IRM, you’ll be able to get a comprehensive view of your ESG risks and opportunities, helping you to make smarter business decisions.”

Find the full post here.

Enjoyed the story? 

Subscribe to our weekly RegTech newsletter and get the latest industry news & research

Copyright © 2018 RegTech Analyst


The following investor(s) were tagged in this article.