Audit Committee Bulletin: January 2014

Demystifying sustainability risk

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Why sustainability should be on your risk management agenda

The confluence of risks and opportunities associated with environmental, social and economic performance has made sustainability a strategic business priority.

Customers expect it, employees seek it and shareholders rely on it. Sustainability has moved from a feel-good initiative to a strategic imperative, driven by demands from more informed stakeholders who increasingly examine whether or not a company succeeds in a manner that supports sustainability.

Embedding sustainability into your organization’s enterprise risk management program creates a clear opportunity to increase the effectiveness of risk management practices and improve business performance.

In boardrooms across Europe, momentum is building for a more integrated approach to sustainability, including how to address the risks that it poses. Embedding sustainability into your   organization’s enterprise risk management (ERM) program creates a clear opportunity to increase the effectiveness of risk management practices and improve business performance.

The Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) ERM framework has historically provided a good starting point for organizations as they begin their ERM journey.

COSO identifies the following competitive advantages for including sustainability in an ERM framework:

  • Alignment of sustainability risk appetite to the organization’s corporate strategy and the new world view of company value
  • Expanded visibility and insights relative to the complexity of today’s business environment
  • Stronger linkage of company values and non-financial impacts to the organization’s risk management program
  • Better ability to manage strategic and operational performance
  • Improved deployment of capital

Questions for audit committees