In this report, Ceres provides guidance to corporate boards on how they can effectively oversee risks posed by ESG issues, including questions for directors to ask management throughout the risk identification, prioritization and mitigation processes. We also offer concrete recommendations for boards looking to improve their companies’ resilience in the face of ESG risks.
As the risks from environmental, social and governance (ESG) issues such as climate change, water scarcity and human rights become more apparent, and with growing investor attention and action on ESG issues, it is increasingly important for corporate boards to understand how these issues affect business strategy and performance. Impacts from these issues can be financial and material, and can spread across multiple areas of a business. No longer off in the future or merely hypothetical, many of these impacts are being felt now across almost every sector of the economy.
What do we mean by ESG risks?
ESG issues such as climate change, water scarcity and human rights abuses can affect corporate strategy, business objectives and performance over both the short and long-term. Risks arising from ESG issues could include not only negative impacts on business objectives such as a reduction in revenue targets or reputational damage, but could also include missed opportunities such as emerging markets for new products or cost-savings initiatives.
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This report provides practical recommendations and tools for corporate directors to understand how ESG issues can pose risks to business and how boards can address these issues as a part of their core risk oversight role. In particular, it provides detailed insight on the board’s responsibility to provide oversight on:
Risk identification: Does the company have the right mechanisms to surface ESG risks? Are the right issues being surfaced?
Risk assessment: Which risks does the board assess and prioritize as critical to organizational strategy and long-term value creation?
Risk mitigation: What measures is the board working on with management to position the company to be resilient in the face of ESG risks?
This report can also be used by investors and management who engage with corporate boards on ESG issues. “Running the Risk” is based on an extensive literature review, including the COSO/WBCSD ESG Guidance, as well as interviews conducted with 27 corporate directors and issue experts across technology, mining, retail, financial institutions, real estate, and food and beverage sectors.