How to Integrate an ESG Framework into Your Risk Management Plan

Every aspect of a business is affected by ESG from its very inception through to production and market share. Incorporating ESG compliance at every stage is not only necessary but it will create great value for your business and establish your position for long term success. Don’t be fooled by its simplicity- the value of ESG is greater than the sum of its parts. 

How to Integrate ESG Risk Management Framework Into Risk Management Plan

ESG is made up of 3 components:

E is for Environmental. Possibly the most well known part of the ESG, this can include carbon footprinting, energy sources, recycling, hazardous emissions or waste disposal, and more.

S is for Social. Social issues covered by ESG include diversity, gender equality, mental health, forced labor, healthy working conditions, and parental leave, amongst others. 

G is for Governance. How a company governs their business has a great impact on its overall ethics and investability. Diversity in the boardroom, corruption and bribery, tax strategy, protecting shareholder interests and disclosing information on these topics all feature under Governance in ESG.

Rather than being some kind of “nice gesture”, an ESG framework gives visibility into matters (other than financial) that are relevant to value and performance within the company. Complying with ESG is proven to be more than just aligning your personal values with business practices. Sustainable business practices have been seen to have great positive influence over a company’s performance and even investment returns. There is a tremendous market enthusiasm out there for companies who take an ethical stance and align with the personal values of their consumers and the competitive edge gained adds to the long list of benefits. 

There are varying risks involved whose consequences have the ability to do damage, and to cripple a company at worst. Not practicing ESG can threaten the stability of a company and if not practiced properly, can be seen as a sign of unethical or corrupt behavior. 

For example, companies who are insensitive to environmental issues, or who do not treat their employees equally, or value diversity, can get significant backfire from all directions: investors, customers and employees. Large investment firms are enforcing smart ESG practices on the companies in their portfolios as they see the financial risk involved in being tone-deaf to ESG in today’s culture. This financial focus demonstrates how compliance with ESG helps to ensure portfolio companies are protecting their futures. 

Sustainable business practices will look different according each organization. It can include creating sustainable internal processes or achieving positive long-term outcomes through processes for employees, stakeholders, and shareholders alike.

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ESG Frameworks

It’s important to set tangible goals for implementing ESG and just as important to track your progress, analyze obstacles, and evaluate the results. The way to do this is following an ESG framework as a reference or guide. There are many to choose from and are offered free online, for example:

  • The Global Reporting Initiative (GRI) – The GRI standards are guidelines that assist with understanding, developing and communicating sustainability metrics. The framework can be downloaded from their website for free. GRI is an international and independent body and relies on voluntary disclosure, in the form of a report.
  • The Sustainability Accounting Standards Board (SASB) – The SASB is a non-profit organization who have developed a global standard to enable you to identify, manage, communicate and report financial ESG sustainability to investors, in language that investors understand. Their “Materiality Map” identifies the financially material issues and explains the standards, via 77 industry-specific metrics. Because SASB is very specific, it works well alongside another framework, like GRI.
  • International Integrated Reporting Council (IIRC) – The IIRC is a reporting standard, often used together with SASB. Its reporting framework can be used to report on ESG and was designed to drive sustainable development. 
  • The Workforce Disclosure Initiative (WDI) – This is created to help companies better communicate labor practices to stakeholders in an efficient way. WDI is starting to accept applications whereby companies can submit their ESG reports. 
  • The Task Force on Climate-Related Financial Disclosures (TCFD) – A group of non-profit organizations got together to form a task force that sets out to help organizations integrate information related to climate change in their financial reporting. It’s used across 32 countries by 374 companies. 

There really are a number of ESG frameworks to choose from and your choice will depend on your organization, the framework provider, and the disclosure requirements for your location. 

ESG Risk Management

Compliance with the appropriate ESG risk management frameworks will ensure you are covering your bases where ESG is involved. But how do you know if you’re compliant? ESG is incredibly broad and includes a vast array of guidelines. 

Adherence to an ESG reporting framework needs to be approached strategically in order to gain the most value for your company. As with any compliance, preparation and a full ESG risk assessment of your environment, including processes and systems, is a comprehensive foundation and necessary precursor to remediating any issues and improving your ESG stance.

ESG risk management is critical in order to identify, manage and mitigate all the risks involved. Focus has shifted for ESG to integrate the goals and controls into a risk management program. Just like every other realm of risk management, a healthy approach and appropriate tools will streamline the process and you’ll see that ESG assurance is far less overwhelming than you’d think. Look out for ESG software with automated risk management to drive the processes involved in assessing your company or your clients for their level of ESG practice.

Automated ESG risk management solutions should provide:

  • Easy onboarding
  • Integration between frameworks
  • Automated remediation steps
  • Progress tracking
  • Automatically generated reports
  • The ability to map answers to questions from other industry framework requirements. 

Centraleyes is an automated ESG compliance solution with pre-loaded frameworks to guide you through a comprehensive risk assessment and towards full ESG posture. Onboard in minutes and use our platform to assess, remediate and report, all powered by Centraleyes automation. Check out a free demo and see for yourself how to secure the future for your organization.

Start Getting Value With
Centraleyes for Free

See for yourself how the Centraleyes platform exceeds anything an old GRC
system does and eliminates the need for manual processes and spreadsheets
to give you immediate value and run a full risk assessment in less than 30 days