Enterprise Risk Management

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, four of the top five business risks are social or environmental. Historically, companies haven’t been able to deal with these kinds of risks very well.

This needs to change, and that’s the aim of this project.  

A robust Enterprise Risk Management (ERM) framework 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 challenge

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. This made clear in an apparent disconnect between “material” sustainability topics and the risk factors listed in corresponding legal filings.

The business case

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 social and environmental 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.

The solution

We researched this disconnect and found that only 29% of companies show alignment between what they say in their sustainability report and what they disclose in their legal filings.

This project aims to address this disconnect. 

One way we’re doing this is through our work with COSO (the Committee of Sponsoring Organizations of the Treadway Commission). On 7 February 2017 we jointly released draft guidance to help organizations align ERM to ESG risk. It’s open for comment until 30 June 2018. 

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Rodney Irwin

Managing Director, Redefining Value & Education

Mario Abela

Director, Redefining Value

Eleanor Leach

Associate, Research and Co-ordination