A company’s financial filings and directors duties under the Corporations Act are impacted by the need for recognising and managing risk. As fiduciaries, it is imperative that directors exercise congruency in consideration of the full spectrum of risks facing their organisation.
Material business risks are defined by the ASX as including sustainability, reputation and brand, ethical conduct, and human capital as well as environmental risks (Principle 7 of the Corporate Governance Council’s Principles and Recommendations).
What is it?
Risk and opportunity management is the process of realising potential opportunities whilst managing possible adverse effects. The Board develops a culture of actively and effectively managing risk to improve organisational performance. A sustainable and resilient organisation considers risk and opportunity management to be an essential element of every aspect and level of business.
With the onset of complex environmental uncertainties raised by climate change science and regulatory environments, decision makers need a broader perspective beyond the immediate boundaries of operational risk.
According to the ASX Corporate Governance Principles, good corporate governance structures encourage companies to create value and provide accountability and control systems commensurate with the risks involved. Risks under climate change may include resource risk (energy supply/security, water and electricity prices), geography (sea rise or soil erosion), development restrictions and carbon prices.
The flipside of this is also the strategic and organisational ‘readiness’ for opportunities that present themselves: energy efficiency measures that create new means of operating, product and service innovation from incentivised employees, or engaging with new networks and strategic partnerships to create social capital. The key is to enable decision-making that focuses on maintaining diversity, flexibility, adaptability and resilience across a range of policy options that might apply at any given time.
Why is this important to the Board?
Listed companies are at risk of breaching continuous disclosure rules by not informing markets of material sustainability risks. An ESG (Environmental, Social & Governance) informed risk management framework allows the board of directors to communicate guidelines and information that produce clearer and more confident risk taking in relation to value creation.
The minimisation of adverse outcomes and the planned professional handling of those that eventuate increase confidence in the company and therefore its attractiveness as an investment.
The integration of sustainability risks into the formal enterprise risk management process provides critical knowledge about your organisation’s operations, competitive advantage, financial human and cultural capital growth and stability, amongst many other advantages.
What’s in it for you?
The implementation and maintenance of a formal risk and opportunity management process can lead to the following benefits:
- informed and strategic decision making
- ESG fully integrated into organisational risk management
- a shared understanding of the organisation’s evolving appetite for risk
- clearly articulated roles and responsibilities at all levels of the organisation
- reduction in resources required for crisis management
- considered and informed response strategy including comprehensive stakeholder input
- a valuable addition to the repository of organisational knowledge
How do we do it?
We work within the current systems of your organisation to fully integrate ESG. We create – or augment – a risk management system that will enable the consideration of a broad range of risks and opportunities stemming from both internal and external environments.
An important aspect of this process is unlocking and fully utilising the knowledge and skills of the people who know your business. If you are an SME or NFP and require risk systems and tools, we can help you implement basic structures to capture the risk, monitor and report it (including matrix or stop-light style templates).
We use the AS/NZS ISO 3100:2009 framework, and other enterprise risk management frameworks that work with/for your organisation.