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Last Place Finish Of Systemic Risk Management Reporting In ESG Survey Raises Red Flags
From:
Edward Segal, Crisis Management Expert Edward Segal, Crisis Management Expert
Washington, DC
Monday, November 22, 2021

 

Commentary From Crisis Management Expert Edward Segal, Author of Crisis Ahead: 101 Ways to Prepare for and Bounce Back from Disasters, Scandals and other Emergencies



A good way to help prevent crisis situations is to monitor, manage and mitigate the risks that can create a crisis. Unfortunately, managing systemic risks ranked last on a list of 22 metrics in a new survey of where companies concentrate efforts to report their compliance with ESG.

The 2021 ESG & Compliance Survey was conducted by OnePoll for NAVEX Global in September and October 2021. It included responses from 400 managers and senior level executives responsible for regulatory/financial compliance and HR/corporate compliance in the U.S., U.K., France and Germany. They all work at companies with 500 or more employees.

There are disadvantages and drawbacks for companies that do not monitor and report their management of systemic risks.

The Risks Of Not Knowing

Lack Of Awareness

"All elements of ESG reporting are really based on proper risk management," according to Barbara Porco, director for the Center of Professional Accounting Practices at Fordham Business School. She noted that, "You cannot manage your risk if you don't know what your risk is. It's the risks that you don't know about that will be the problem, and you cannot do that without a data-driven and tech-enabled risk management approach."

Damage To Brands

"Classic risk management typically focuses on aspects such as business continuity, currency fluctuations, supply constraints and compliance," according to Elaine Grunewald, director of the European Sustainable Growth Acquisition Corp

"Having a broader, 360 [degree] view is vital to earn stakeholder trust—without it, companies risk damage to their brand, their license to operate, or worse yet, in some cases severe fines," she said.

Failing To Build A Sustainable Enterprise

Robert Katz is executive vice president, general counsel and chief ethics and compliance officer for Jabil, which provides design, manufacturing, supply chain and product management services.  He advised that, "Understanding, communicating and updating on systemic risk is a key element to building a sustainable enterprise with a rock-solid foundation. 

"If you don't understand the systemic risks impacting both your business and businesses in general, then you are failing to build a sustainable enterprise," he cautioned.

Financial Undervaluation

Rick Perez is the founder and CEO of Avangard Innovative, a waste and recycling optimization company with operations in 11 countries.  He explained that, "...ESG reporting provides a snapshot of the business impact on investors, customers and wider stakeholders. [The] reporting has become one of the top priorities for major public companies as capital markets are measuring the ethical impact of the companies they choose to invest in.

"Companies that do not monitor and report their ESG metrics incur significant risk of financial undervaluation, loss of business and other consequences as investors, consumers and other stakeholders decide to do business elsewhere," he warned.

Impact On Stock Performance

Maxim Manturov, the head of investment research at online trading company Freedom Finance Europe, observed that, "Systemic risk management reporting plays a key role in underlining a business' ESG credentials. [As] eco-friendly initiatives and industry challenges grow and shift at a rapid rate, it's essential for companies to maintain a finger on the pulse and to adapt accordingly.

"Failure to effectively monitor risk management can lead to companies experiencing an ESG [related controversy] that could severely impact their stock performance," Manturov counseled.

Need For Standardization

Richard Jefferson is chief commercial officer for developer platform company Beacon Platform. He noted that, "Customers, investors, governments and other stakeholders are now expecting companies to report what they are doing about ESG. What is not standardized, yet, is exactly what needs to be measured and reported. Some aspects, such as carbon footprint should be able to be calculated and independently verified, while other aspects, including employee wellbeing are more descriptive.

"Although calculating can be tricky, especially if that entails looking horizontally across a business, non-reporting is not an option. ESG compliance is certainly a buzzword at the moment, and there will surely be a greater need for standardization," he predicted.

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Edward Segal is a crisis management expert, consultant and author of the award-winning Crisis Ahead: 101 Ways to Prepare For and Bounce Back from Disasters, Scandals and Other Emergencies (Nicholas Brealey). He is a Leadership Strategy Senior Contributor for Forbes.com where he covers crisis-related news, topics and issues. Read his recent articles at https://www.forbes.com/search/q=Edward%20segal#31ed72442

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