Article

Aligning ESG risks with existing ERM program key for creating value, attracting talent

Jan. 23, 2023 · Authored by John Romano, Cassandra Walsh

Environmental, social and corporate governance (ESG) is a multidimensional term for strategies, reporting and action plans on various factors that impact an organization's sustainability. ESG presents an opportunity to build a more sustainable business and can be a key differentiator to enhance relevancy and trust with an organization’s stakeholders. These include external stakeholders (investors, customers, communities and regulators) and internal stakeholders (employees, management and board members). Built strategically, an ESG program can create value within an organization and be a catalyst to attract and retain talent by aligning ESG risks with your existing enterprise risk management (ERM) program.

Collaboration, coordination and leverage 

A successful and holistic ESG function should build on an organization’s ERM program and align with the organization’s strategic initiatives and priorities. This requires collaboration, coordination and leverage. 

The collaboration is among existing ERM functions (the board, executive management and risk owners) and perhaps newer ESG functions to facilitate a comprehensive risk management program. This includes knowledge sharing, education and leveraging the skillset of each function to understand, identify, evaluate and address risk and recognize opportunities across the enterprise.   

Coordination includes developing comprehensive risk management reporting for management and the board that incorporates both ESG and ERM risks. 

Finally, organizations should leverage their existing risk management processes to incorporate ESG and ERM; there is no need to start from scratch regarding ESG-related initiatives. 

Seizing the opportunity

Many organizations identify talent management, cybersecurity, and community relations as risks within their ERM program. Likely, organizations have deployed different initiatives to address these risks. For example, an organization may struggle with attracting and retaining talent; managing employee performance; training and developing employees; planning for succession; and addressing workforce shortages.