Boards of directors, risk managers, and internal auditors need to work more closely to meet the sustainability challenges facing corporations. Otherwise, there is an increased risk of not meeting legal obligations and market expectations. This is according to a new joint paper from FERMA, ecoDa, and ECIIA.
‘ESG embedding: are you ready? a call for Boards, Risk Managers and Internal Auditors’ says that when it comes to ESG it is important to move from the ‘duty to report’ to the ‘duty to act’; and to achieve this risk managers, internal auditors, and board members must complement each other’s efforts as ‘each of their respective roles are uniquely impactful and invaluable for companies’ ability to build resilience, take advantage of opportunities from the green transition and effectively comply with sustainable standards through a holistic approach’.
The paper recommends the following to help bring these to accomplish the above:
- The use of a common language and lexicon regarding sustainability risks and opportunities to ensure common, coherent dialogues and to avoid misunderstanding or confusion.
- A common understanding of the different value chains (For example, what are the companies’ indirect relationships?)
- A common understanding of the implications of double materiality upstream and downstream throughout all the value chains (What will be the impact for the operations and the products?)
- A clear alignment on the disclosure of the materiality assessment process and its results. Identifying the person who is responsible for concluding this assessment.
- A clear understanding of the relevant stakeholders involved in achieving sustainability objectives (Who are they? How to take their views into consideration? How to organize the dialogue among all relevant actors?)
- A corporate culture that embraces enterprise wide risk management (ERM) is a fundamental factor in determining how organizations approach and deal with sustainability. Managing sustainability risks and opportunities requires a mature risk management function and processes.
Read the document (PDF).