5 Steps of ESG Environment in Compliance Space
Introduction
In this week’s blog, we’re sharing insights based on our latest interview with Christine Uri. She shed light on how the ESG environment is coming more into the compliance sphere and how we should be thinking about this from a risk management perspective. Christine is the chief legal and sustainability officer at ENGIE impact. ENGIE Impact is a company that operates in the primary sphere of guiding corporations through their sustainability transformation. Her responsibilities in the company include legal, internal sustainability programs, as well as ethics and compliance.
Over her 15+ year career, she has advised start-ups, technology companies, non-profits, and global enterprises. She has also led multiple functions, including legal, human resources, health and safety, sales operations, and data governance.
Our topic for today is how the ESG environment is coming more into the compliance sphere. It’s an interesting one and an eye-opener too.
The Definition of ESG and its Effects on Companies Today
ESG (environment, social, and governance) is a set of nonfinancial measurements of the performance of companies. In the market today, we are witnessing investors, employees, and consumers asking companies about their ESG. This is a question that non-financial performance metrics and governments are asking as well. So this is becoming a legal requirement and has been implemented in places such as Europe, the United States, and the United Kingdom.
The ESG is becoming more of a part of company security disclosures, and there is definitely a brand pressure to perform exceptionally well in these areas. It is time for risk and compliance professionals to step-in further in ESG space because there’s an opportunity for them to have a unique approach in leadership on these topics.
The process of looking at ESG is the same as a general risk management process. For instance, if you think about this in terms of carbon, since carbon is a very hot social topic right now, you will notice a lot of governments are beginning to regulate it. So if you start the process and you don’t have anything in place with respect to carbon, you are still advised to follow some steps:
Step 1: Calculate the Risk
Start by gathering your key stakeholders to find out what your curve and risks are. For instance, you could be running a professional services firm and it’s all about travel when we aren’t in a pandemic time. On the other hand, another business would be that your industry is involved in significant industrial emissions. That is the point where you start to gauge what your risk is. Then you move to the second step.
Step 2: Phase of Data Collection
The data collection phase is relevant because you need to know what your baselines are.Here, you’ll probably need a little bit of expertise, or perhaps an external engagement with a carbon accounting firm. It can be difficult to figure out how exactly those measurements are made.
Step 3: Gauge the Extent of the Risk
Next, look at your risks based on your carbon footprint, industry and region. Take a look and see if there is any disclosure or regulations related to those aspects. Most of these disclosures and regulations require a certain kind of reporting.
It’s important to know what your regulatory context is and expand a little bit beyond that. This can also affect your risk management from a reputational standpoint. Investors and insurers are putting a lot of emphasis on this because, as we move into a climate change reality, a lot of investments are going to be impacted by climate change.
So you should be focusing on looking at certain factors, do a risk analysis, and put together a standard mitigation plan.
Step 4: Set Mitigation Measures.
Figuring out your carbon footprint is the starting point of a mitigation plan. Identify where it’s coming from and plan to make a difference. Start with things that are easier to resolve.
On high-impact matters, you can also involve finance partners because there can be financial costs and financial benefits. For example, you might be using a lot of carbon through your lighting system. If you upgrade your lighting system to LEDs, you’re going to have a significant energy cost savings, but doing that will require a capital outlay in order to get it going.
Step 5:Repeat the process.
Repeat the process every year or every two years because being fully ESG compliant is not going to be perfect overnight. Important thing is to just start somewhere and don’t let the fact that you may not be perfect overnight stop you from taking any action because this issue isn’t going to go away. It’s going to continue to grow in importance over the next decade.
Takeaway Points to Start Your ESG Approach
Keep in mind that ESG stands for environment, social, and governance. As a risk and compliance professional, you are already required to be very familiar with governance. That’s how you structure oversight of the organisation, ethics, and compliance. You probably already have those in place because they are more traditional. Your social components would be more around labour or perhaps around diversity, equity, inclusion, or human rights. This all depends on the industry you are in.
Next, you need to think about the environment, which includes carbon, water, and waste. So if you’re set, you have to select what is really the biggest risk and the biggest impact for your company that you want to go after. For example, let’s say you think your biggest risk is in labour. So it could be that your company outsources labour to markets that might not have the best labour practices. So you’d want to set up some control mechanisms for subcontractors and your partners and make sure that they are following the labour practices that you would expect, even if they may not be legally required in their country.
On the environment side, carbon is the buzzword right now because of the urgency of climate change and focusing on carbon is a great start since this is the greatest concern at the moment from regulators. Of course if you work in a specific industry, let’s say water, these could be more urgent for you to focus on as well. For many businesses, starting with simple things can also have a great impact. For example, If you’re purchasing airline tickets, you can opt to buy offsets at the same time, or choose to fly less. Some small adjustments, like commuting, can have a really significant impact on your carbon footprint. With the particular increase in hybrid and remote working, a flexible approach to commuting to work everyday could also be an another great example.
Closing Words
The opportunity to bring in the environmental and social components to governance, is also an opportunity to really up level the position and impact on how people think about compliance. If you can take your culture across the company and have it focus beyond what’s the right thing to do, then a lot of the issues that we see in compliance and risk are going to be lessened and your company will have a better impact.
For now, this sums up the key points of our interview. As the Global Risk Community team, we once again thank Christine Uri, for providing insights on the ESG and Governance sphere, and how risk and compliance manager can create an impact in this field.
More information about this topic is available in our original interview, which is accessible here.
