Regulatory focus on ESG topics is on the rise in financial institutions, with implementation and reporting requirements underway. To help candidates assess their current perceived maturity of their ESG programs, our team facilitated an interactive workshop at the RiskNet Summit this past October.
In this workshop, an interactive demonstration was conducted with candidates, to assess and gather the perceived maturity on various ESG topics. The candidates that participated were made up of industries across the aircraft and construction sector, the security sector and the manufacturing sector. The aim of this exercise is to help organisations benchmark how well they are positioned against a specific topic, with the goal to achieve congruence.
Benchmarking Exercise Summary
The Alyne ESG Risk Framework consists of 16 ESG Megatrends. These have been further broken down into 95 additional sub-trends which are starting points for the evaluation process. In our benching exercise, we jointly reviewed the status across 16 ESG Megatrends that includes: Travel and Mobility, Technology Advancement, Shifting Economic Powers, Resource Scarcity, Privacy and Cyber, Poverty Reduction, People and Values, Human Rights, Health, Future of Work, Environmental Pressure, Energy, Digital Power Concentration, Digital Inequality, Democracy and Politics, and Climate Change.
Benchmarking Exercise Results and Insights
During the exercise, it became evident that those assessments will require the involvement of various stakeholders in the organisation and hence a smart way of collaboration will be essential. Also, we observed significant differences in the individual ratings. The outcomes expressed a range in perception, and others of similar perception, from our candidates between the various topics that were assessed. For example:
‘People and Values’ and ‘Future of Work’ - results were plotted closely between a 3 and 4 rating.
‘Environmental Pressure’ and ‘Digital Power Concentration’ - rated across the board between a 2 and 5 maturity rating.
This observation led to a discussion around how to find data and insights to base these assessments on rather than using gut feelings.
Additionally, our candidates expressed that their organisation has already implemented certain aspects. However, they still have a moderately high-risk exposure as they are aware that optimal solutions are not yet available within their organisation. It was concluded that it will be important to bring those already existing pieces and newly implemented procedures together and make sure to integrate them seamlessly.
Image: Results from Workshop
Leveraging Valuable Insights from Benchmarking Exercise for Scoping and Scenario Analysis.
The benchmarking exercise discussed with the broader group was a good transition into scoping and scenario analysis. Our ESG benchmarking exercise highlights the reality and real business risk for many organisations, beyond just our 3 candidates.
Scoping is often shaped by legal requirements which are often mandatory for organisations to be in compliance with. In some cases, it can also be driven by other factors such as:
- Intrinsic motivation of the company
- Customer pressure
- Business model of the company itself
- Supply chain management
- Stakeholder requirements, e.g. board of directors, sustainability team, purchasing department
With that being said, scoping is often a cross-functional task within the organisation as it involves finding the right contact persons within the company. As such, this makes internal reporting necessary as it illustrates and defines the result of materiality analysis, conducted by people equipped with expertise within the company.
Here at Alyne, we leverage categorisations of various types (e.g. assets, business processes, vendors) through Funnels and trigger auto-configured questionnaires to assess the effect on certain developments on the business.
Thereafter, scenario analyses can be conducted to identify the dimensions for each issue and their implications to narrow down on the internal focus and probabilities of occurrence. It is only with these valuable insights that a business leader in the business can efficiently and effectively gain a comprehensive perspective and interval view of the entire ecosystem.
Leveraging Alyne, business leaders can gain an internal perspective that connects all other entities within their ecosystem by using our scalable Assessments which can be sent out to external entities.
Integrating ESG Risk Management Into Your Existing Enterprise Risk Management
As for the way forward and how to best consider ESG aspects in risk management, various aspects were raised, the most important one being to closely integrate those rather new elements in existing procedures. This means embedding them in established risk management routines, from harmonised assessment scales to measure management and also considering them in monte carlo simulations.
As such, the range of people typically involved in risk management will become bigger and require additional training and guidance from central teams. As it has been claimed for traditional risk management for a while, ESG will enforce the consideration of these efforts in the corporate strategy and might ultimately even drive adaptations of the business model due to changing ESG requirements.
Interview with Claudia Howe and the RiskNET Summit 2021
The need for socially and environmentally conscious business decisions has never been greater. Alyne offers a systematic and structured approach to managing ESG risks within the corporate landscape and integrating them into your greater enterprise risk management strategy. As business leaders implement risk management strategies to address ESG risks, it is imperative that business leaders are leveraging their existing Enterprise Risk Management (ERM) processes rather than reinventing the wheel. Leveraging Alyne, organisations can now run Assessments at scale to support their mitigation routines in a risk-driven strategy.
An overall conclusion of this workshop was that time is already ticking, and although there may not yet be a single perfect solution, it is imperative to act quickly. As many organisations look to external consultants and ESG experts to help them navigate ESG requirements, with Alyne’s GRC software, you can begin to manage this all in-house. Alyne provides out-of-the-box templates that significantly reduce time to value. Furthermore, the expert content is designed to address regulation ambiguity and the core risk management functionality will help to quantify ESG Value at Risk. Alyne is a powerful tool that helps CEOs, CFOs and CROs understand ESG applicability in their organisation, manage ESG risk and meet reporting requirements, enabling organisations to achieve their objectives in a very short time.