The European Forum for Risk and Insurance professionnals
Last month, our CEO Typhaine Beauperin moderated an interactive webinar with risk management and sustainability experts, Paul J. Sobel and Rodney Irwin. The webinar aimed to help risk management and sustainability practitioners apply Enterprise Risk Management (ERM) concepts and processes to Environments, Social and Governance (ESG)-related risks.
Rodney Irwin is Managing Director at WBCSD (World Business Council for Sustainable Development), responsible for redefining value and education programs. Paul Sobel is Chairman of COSO, the well-known US private sector initiative for developing risk-related frameworks and guidance. Paul is widely recognised as a leading expert on governments, ERM, compliance and internal control, and was Involved in the 2017 update of the ERM framework.
Last year, Rodney and Paul’s organisations collaborated to publish their guidance on Enterprise Risk Management: Applying enterprise risk management to environmental, social and governance-related risks. Now, they have collaborated in our Webinar to explain the reasons behind their joint venture and what this all means for Risk Managers looking to contribute to sustainable growth.
Typhaine kicked off the webinar with a couple of interactive polls for the audience to take part in, followed by Rodney and Paul’s responses to the results.
Are ESG-related risk a priority for your organization?
With 35% stating that ESG-related risks are a high priority for their organization, 9% low and 56% in the middle, Paul explained that this result surprised him. Paul was expecting to see a higher ‘High’ response. Meanwhile, Rodney explained that he too was surprised, but for the opposite reason. He has found that ESG-related risks aren’t getting the attention they should be getting, and so was expecting to see more ‘Medium’ and ‘Low’ responses.
Do you play a specific role regarding ESG-related risks in your organisation?
Both of our guests thought the results for this question were optimistic. It’s great to see that 45% of the audience are involved and 23% are planning to be – a trend we will be seeing globally for the next few years.
Rodney and Paul on their collaboration: Applying ERM to ESG
Leading on from the responses to Q2, Rodney explained how and why WBCSD and COSO collaborated on their practical guide.
Rodney explained that the risk management landscape has changed – which he demonstrated with an extract from World Economic Forum’s report over the last 10 years. Financial risks have, over the last decade, been replaced with more ESG risks becoming increasingly likely, and increasing in impact. The majority of companies were not previously addressing this properly. Rodney shared examples of companies being impacted by the changing business context from Ford in the 1970s to BP in 2010 and Uber and Wells Fargo in the last couple of years.
“ESG risks are real. They’re happening to companies and having material impact.” – Rodney Irwin
On the topic of climate change, Rodney’s opinion is that this is not a risk – it’s a reality. Risk managers need to ask themselves: is our business model/product base/material facilities exposed to the effects of climate change? In the webinar, Rodney shows examples from Europe and shares his message on the importance and significance for businesses.
Research in 2015 shows that companies struggle to identify ESG-related risks. Rodney explained: “Companies are experiencing actual financial implications as a result, but there is a disconnect between the ERM function and the sustainability or ESG function. By collaborating with COSO, we attempted to address that bridge, hence the guidance launched last year.”
Paul explains his response to WBCSD’s desire to collaborate, the COSO ERM Framework, and the reason behind updating the graphic from the COSO cube – stating that this new graphic is intended to show the various stages of a business model. New to the updated framework are 20 principles, designed to articulate what needs to be present and functioning for risk management to be effective in an organisation to achieve the enhanced value.
Paul said: “The opportunity to take a deeper dive into ESG risks was something COSO felt made a lot of sense and was part of the evolution of this ERM framework.”
Readers to better understand how to apply COSO principles specifically as it relates to managing ESG-related risks.
Paul talks through how the guidance can help readers to better understand how to apply COSO principles specifically as it relates to managing ESG-related risks, and how to download it for free.
“Good risk management is about making better decisions.” – Paul Sobel
Typhaine closed the webinar with two further poll questions for the audience to engage with.
To what extent do you work with ESG specialists?
Rodney expressed how encouraging these numbers were. 76% of respondents have some kind of relationship, with 6% having responsibility themselves. These are the people the guidance is created for.
Paul was also encouraged by these results and predicted that A, B and D will increase over the next few years.
What is the greatest challenge to integrate ESG-related risk into the ERM process?
In the last Q&A of the webinar, Paul comments on the top results, including that ‘difficulty quantifying sustainability risks’ as a response does not surprise him. There is a decent amount of guidance on what materiality means when talking about ESG risks, it is not as quantifiable as financial reporting risks but there is a growing body of knowledge that will help organisations better understand and try to quantify sustainability risks.
Rodney’s advice is to not get hung up on the term ‘sustainability risks’. “The use of the term sustainability risks is part of the problem…Do you have difficulty quantifying operational risks?”
“Risk management starts off by having meaningful conversations” – Rodney Irwin
Rodney recommends sustainability and risk management professionals to come together in order to see the sorts of exposures and opportunities a company faces are actually strategic, operational, legal and financial risks – which is what the risk management community have always been comfortable dealing with. The guidance is full of examples of how companies can do this.
Paul and Rodney share their advice on facilitating the collaboration – start by having a good conversation between risk managing community and sustainability community.
“The most eye-opening part of going through this process with WBCSD was learning more about how to best communicate the impact that ESG risk can have on an organisation” – Paul Sobel
FERMA Forum is the place for European Risk Managers to engage in meaningful conversations.
Attend Rodney’s masterclass on Applying ERM to Environmental, Social and Governance Risks at FERMA Forum on 20th November 2019. Registration is FREE for Risk Managers. Register here.
Watch the Webinar replay:
Enterprise Risk Management: Applying enterprise risk management to environmental, social and governance-related risks
Download the practical guidance: here
Read the Executive Summary: here
Go further at FERMA Forum
Register here to attend Rodney’s session and much, much more around this year’s theme: Aim for the future – entering a new dimension in risk.
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