Draft guidance applies ERM principles to ESG risk

COSO is focused on complex, entity-level risks.

Recently issued supplemental draft guidance is designed to help organizations apply enterprise risk management (ERM) principles to environmental, social, and governance (ESG)-related risks.

The draft would be a supplement to the Enterprise Risk Management — Integrating With Strategy and Performance framework that was updated by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2017.

COSO is a group of five sponsoring organizations, including the AICPA, that provides thought leadership on ERM, internal control, and fraud deterrence. The draft supplemental guidance was issued by COSO and the World Business Council for Sustainable Development (WBCSD).

The supplemental draft discusses:

  • Methods to overcome ESG-related risk challenges, including identifying and assessing the severity of risks with uncertain financial consequences.
  • Innovative responses for addressing ESG-related risks and seizing opportunities.

"As ESG-related risks are becoming more widespread, organizations need to ensure they have processes in place for identifying, assessing, and managing these complex entity-level risks and opportunities," said COSO Chairman Paul Sobel.

The draft guidance is intended to help organizations respond to ESG-related risks ranging from extreme weather events to product safety recalls, so they can make better business decisions.

Comments on the draft will be accepted through June 30 and can be emailed to risk@wbcsd.org.

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