This Guidance that the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD) released is intended to help organizations worldwide respond to the increasing prevalence and severity of ESG-related risks, ranging from extreme weather events to product safety recalls. For the first time, it shows that ESG-related risk management can directly fit into mainstream processes for enterprise risk management.
“We want ESG risk management to be a tool that every manager is looking at.”
Larry Fink, CEO BlackRock - USD$6.3 trillion in assets under management
Last year, research among WBCSD member companies on sustainability and risk disclosures revealed that only 29% of material topics as published in the sustainability report were also included in the company’s legal disclosure of risks. Amazingly enough, for 35% of member companies this disclosure dropped to zero(!) demonstrating a feeble link between sustainability reporting and Enterprise Risk Management.
Furthermore, discussions and surveys with risk management and sustainability practitioners indicated that most practitioners (89%) agreed that sustainability risks could contain a significant impact on business. At the same time, more than 70% of the practitioners claimed that “risk management practices are not adequately addressing sustainability risks”. The current released guidance is designed to fill this gap, to help businesses and other organizations enhance their resilience against the increasing prevalence and severity of ESG-related risks.
The outcomes formed a critical starting point for WBCSD and COSO to work together to help businesses navigate and prioritize sustainability risks. Following an extensive public comment exposure, the new guidance is now available. It is designed to help risk management and sustainability practitioners apply enterprise risk management (ERM) concepts and processes to ESG-related risks. It helps entities, including businesses, governments and non-profits, better understand the full spectrum of these risks and to manage and disclose them effectively.
In summary, the guidance has five chapters that mirror the five components of the COSO ERM Framework. It starts with governance and culture, strategy and objective-setting, then moves through the ERM process focusing on performance (identifying, assessing and prioritizing and for responding to ESG-related risks) and finally the review and revision, and information, communication and reporting for ESG-related risks.
Source: WBCSD & COSO
The full guidance report is available at the WBCSD website.
A materiality assessment is one of the steps in the guidance to understand impacts and dependencies on all capitals in the short, medium and long term. At Finch & Beak, we link materiality assessment outcomes to ERM by including a connectivity matrix integrating business risks and opportunities. If you want to learn more, please contact Josée van der Hoek, Director, at firstname.lastname@example.org or +31 6 28 02 18 80.