Every human being is rigged to be a risk manager.    

Enterprise Risk Management (ERM) is a compliance requirement in most jurisdictions and it’s something that all companies must do well in order to be profitable, successful – or even to survive.

For many risks, like those related to operations or marketing strategies, companies are adept at predicting, understanding and managing their exposure. But for other risks, like emerging risks related to environmental, social and governance (ESG) issues, companies are less equipped - which is becoming a serious problem worldwide.

Given this rapid shift in the risk landscape, many companies have not been able to keep the pace. Risk management is a profession that is very much dependent on a process, and new work from the World Business Council for Sustainable Development (WBCSD) and the Committee of Sponsoring Organizations of the Treadway Commission (COSO) aims to show the risk and sustainability communities that ESG risks can fit into that process very well.

It begins with establishing governance structures and processes and continues to move through ERM activities of identifying, assessing, responding, reviewing and communicating risks, while maintaining a line-of-sight to the business context and strategy, which sits at the center.

Companies who understand and manage their risks fair better in the global economy and at home. In many cases, they attract better employees and better investments which often translate into growth and sustained success.

As such, WBCSD and COSO both believe that better business risk management and decision-making will shift the global financial system to reward the most sustainable companies by moving capital allocation flows towards those companies who manage their all of their risks – from financial all the way through to social and environmental. 

The idea isn’t to put pressure on risk managers, but rather to empower and educate them. Business should be aware of all potential ESG risks and should be doing more to bring these risks into the conversation.

When businesses, investors and other organizations fully understand their risks, they have the power to make better decisions. Having all the information, including information on environmental, social and governance (ESG)-related risks will help organizations improve their risk management profiles.

Risk management has never been just about compliance, risk management is about doing good business, and on a basic human level, it’s about survival.

Source:WBCSD

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Picture credit to:Toni Lluch