ESG – From Buzzword to Requirement – Part 1: Who Owns It?
It is hard to think of a buzzword trendier than Environmental, Social and Governance (ESG) right now.
There is nothing really ‘new’ about it, it has simply transformed. What once was called corporate social responsibility, then changed into sustainability and has now evolved into ESG. There is however, a new perception on the topic making ESG transparency a key focus for decision makers, boards, and regulators alike.
What does ESG mean for companies?
Environmental (E), Social (S) and Governance (G) refers to the three central pillars in measuring the sustainability and societal impact of a company.
More information on how companies are managing the environmental and social impact that their business has on the broader community and how they are working towards a more sustainable future are questions expected to be answered by companies of all shapes and sizes.
Once upon a time, the CEO and Board members paid close attention just to quantifiable KPIs like revenue, percentage of profit, EPS, market share, share price growth, amongst others. Today, ESG has been added to the mix.
In the foreseeable future, the way in which organizations deal with ESG risks will directly impact their financial credit ratings, amongst other aspects of their business. Good governance is an integral part of every ESG strategy, and it will be up to leadership to drive these goals, implement sound practices and deliver transparency. In most cases, a robust governance framework is always supported by a sound internal system of controls and policies that drive effective business decisions.
Having the right team guided by the right decision makers is key to obtaining optimal results. So, where does the responsibility fall within an organization?
According to a recent Nasdaq article, for many companies that look to be compliant with ESG requirements, it will be a heavy lift to build ESG programs as they haven’t actually deployed any initiatives of this nature before.
Some heads of departments like risk, finance, audit, and sustainability could take the lead on ESG. However, there are two titles specifically within an organization that are ultimately better suited for the task: General Counsels and Chief Ethics & Compliance Officers. These two roles should possess the legal and regulatory requirements knowledge necessary to evaluate risk and ensure collaboration across departments to properly manage ESG.
It is important to note that businesses don’t come in a standardized shape. Organizations often have different team sizes, roles, and responsibilities. Sure, if your organization is in the position to have a dedicated ESG function this is the way to go. However, if it isn’t, assign the responsibility to one of your existing departments (risk, finance, audit). Ownership is crucial.
Now, let’s dive into a short video recap from Karl Viertel, General Manager of GRC at Mitratech,
The key takeaway here is that no matter the approach you follow or who you ultimately assign the responsibility to; a lead role must be placed, an ESG program must exist within the organization and there must be a collaborative effort that encompasses the entire organization.
Check out our latest White Paper for a detailed look at Mitratech’s capabilities and comprehensive mapping of ESG-related risks to provide your organization with valuable quantified value at risk through powerful risk analytics and assessments, designed to deliver cutting-edge Governance, Risk and Compliance (GRC) capability across your business.
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