Organizations that are confronting environmental, social, and governance-related risks can find new direction from guidance issued Tuesday by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD).
“Guidance for Applying Enterprise Risk Management (ERM) to Environmental, Social and Governance (ESG)-related Risks” was designed to bring ESG risks into a clearer focus for organizations around the world.
The guidance aims to help organizations strengthen their resilience as they are faced with frequent and severe ESG-related risks ranging from extreme weather to product safety recalls. The text aligns with COSO’s Enterprise Risk Management — Integrating With Strategy and Performance document, which organizations use to improve their risk management approaches.
“This is a major step toward the vision that business can speed the transition to a more sustainable world,” Peter Bakker, president and CEO at WBCSD, said in a news release. “When companies have a better grasp on their risks, they can make better business decisions — often with more sustainable outcomes. We believe this work will help drive positive change in corporate governance, worldwide.”
The guidance includes:
- Approaches to overcome ESG-related risk challenges across the ERM process, from governance to risk identification and assessment through to communication and reporting.
- Innovative responses to manage both upside and downside of ESG-related risks.
- Methods for developing and maintaining a culture of continuous improvement for managing ESG-related risks.
COSO, whose sponsors include the AICPA, is a voluntary private-sector organization dedicated to improving organizational performance and governance through effective internal control, enterprise risk management, and fraud deterrence.
— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA’s editorial director.