Why Risk Professionals have to step up to the ESG Challenge

Risk management professionals are constantly challenged to identify and mitigate potential risks. But with the increasing focus on environmental, social, and governance (ESG) issues, we must also be prepared to face the ESG challenges.?

Defining what ESG is and how it's crucial for risk professionals to understand?

Environmental, Social, and Governance (ESG) are essential concepts for risk professionals to understand. ESG focuses on the three core areas of environmental sustainability, socially responsible behaviour, and stakeholder engagement to create clear guidelines for making strategic decisions driven by how effective those decisions are from a long-term perspective. Understanding ESG gives risk professionals the insights they need to shape future business objectives while avoiding or minimising legal and financial liabilities due to poor decision-making or lack of industry expertise. Using ESG as a guide in their decision-making, professionals can ensure compliance with current (and ever changing) regulations and standards while remaining competitive in today's market. For any risk professional looking to stay ahead of the curve, knowledge of ESG and the inherent risk (and opportunites) it presents is essential.?

The benefits of integrating ESG into risk management frameworks?

Environmental, social, and governance (ESG) considerations are increasingly essential components of risk management frameworks. By understanding ESG risks, companies can anticipate and adjust to new challenges more effectively while protecting their long-term performance. For example, assessing the risks associated with climate change allows businesses to create robust mitigation strategies that reduce liabilities. In addition, identifying social risks such as labour poverty levels or human rights violations will enable companies to act accordingly and protect their business reputations. Incorporating ESG into risk management frameworks ensures that organisations can identify potential issues before they become unavoidable liabilities. As a result, these frameworks enable companies to proactively develop concrete solutions and move forward more robustly than ever before.?

How to get started with incorporating ESG into your risk work?

Incorporating ESG (Environmental, Social and Governance) factors into your risk management strategy is a great way to enhance returns and reduce risks. To get started, you'll want to assess your investments' sustainability impact and monitor their progress over time. Identifying any areas that may pose potential risks or conflicts of interest is also essential. Once these are identified, you can set up appropriate key performance indicators to ensure the ongoing success of your investments. Additionally, having an inclusive organisational culture that values diversity will create an environment where ESG practices can thrive. Starting today and making consistent progress towards meeting ESG goals will help you become a more responsible investor and demonstrate a commitment to delivering sustainable returns.

Australian Case studies of organisations who have successfully integrated ESG into their risk management?

Australia is leading the way in integrating Environmental, Social and Governance

(ESG) into organisational risk management strategies. For example, BlackRock

Australia has become one of the most innovative ESG companies in the country,

with its 'Climate Crisis' strategy aimed at encouraging a more sustainable and responsible investment model. Similarly, ANZ is shining a light on ESG investing as they look to transition to a low-carbon economy. ?The Endeavour Group was named as the Top ASX 50 company for ESG Reporting.?The success of both these organisations proves that thoughtful risk management practices that effectively consider ESG criteria can be highly successful in today's ever-evolving digital landscape.?

The challenges and potential pitfalls of implementing ESG into risk management?

Although transitioning to an Environmental, Social and Governance (ESG) integrated risk management system is becoming increasingly important, doing so presents significant challenges for organisations. Implementing ESG into risk management means rethinking the entire process and requires businesses to understand the pressing societal issues that could impact their operations. Strategic resources and industry knowledge are also necessary– from breaking silos between departments to receive data holistically to considering potential legal complexities before the actualising change. Moreover, companies must understand how inherently different ESG can be from traditional risk management systems and also acknowledge the accountability they will share with stakeholder audiences when a mistake is made, or a goal falls short. Finally, with careful planning and agility, businesses should take this opportunity to raise their professional standard of risk management engagement with key decision-makers.?

Next steps for risk professionals looking to take on the challenge of ESG?

As risk professionals looking to take on the challenge of ESG, they can raise the professional standard of risk management engagement with key business decision-makers. This means more than understanding ESG regulations and standards; it involves applying a risk management mindset to help organisations keep pace with the ever-changing standards to stay ahead of potential exposures. For example, risk professionals can blend their expertise in leadership, compliance and technical information with stakeholder engagement to identify non-financial risks from operational processes such as environmental degradation or human rights abuses. This allows businesses to make informed decisions about their strategy, operations and investments to help mitigate risks associated with their ESG activities. With ESG playing an increasing role in global business decisions, now is an ideal time for risk professionals to invest in building strategic capabilities that support organisational objectives while managing these important risks.? As the importance of sustainability

has become more mainstream, so has the integration of environmental, social and governance (ESG) factors into risk management frameworks. As a result, institutional investors are increasingly incorporating sustainability considerations into their investment decision-making processes, which presents opportunities and challenges for risk professionals.??

The RMIA's upcoming ESG for Risk Managers course will give you the skills and knowledge to take on this challenge and provide value to your organisation by integrating ESG into your risk management framework. Find out more and register today.?

?

Simon Levy

Chief Executive Officer, Risk Management Institute Australasia (RMIA)

LinkedIn: https://www.dhirubhai.net/in/simon-levy-gaicd-mrmia-2862068/