Driving ESG Risk Transparency Across your Organisation

Environmental (E), Social (S), Governance (G) is a rapidly growing concept that is not just about environmental factors, but involves building resiliency into infrastructures. ESG management and reporting is increasingly becoming a required business practice, shown to have a direct impact on an organisation's financial advantages. It is no wonder that a structured approach to managing ESG risks is a major focus for new regulation, laws and other risk frameworks. It will be up to leadership to drive these goals, implement good practices and deliver risk transparency across their organisation.

The importance of incorporating ESG factors into your business processes 

In recent years, corporate sustainability has become a widely used global benchmark for non-financial performance. Sustainability, a term used to encompass a broad spectrum of topics, is today a concept that is not just about environmental factors, but involves building resiliency into infrastructures. With the recent announcement that the US Securities and Exchange Commission (SEC) will be prioritising corporate disclosures on Environmental, Social and Governance (ESG) issues, many companies have gathered their resources and heightened their attention on these aspects.

The three pillars of corporate sustainability

Environmental (E), Social (S), and Corporate Governance (G) refer to the three central pillars in measuring the sustainability and societal impact of a company. In 2021, ESG transparency has become a key focus, with more information on how companies are managing the environmental and social impact that their business has on the broader community and how to work towards a more sustainable future. We can see it already, but certainly in coming years, how organisations deal with ESG risks will have a direct impact on their financial advantages. Good governance is an integral part of every ESG strategy and it will be up to leadership to drive these goals, implement sound practices and deliver transparency. In most cases, a robust governance framework is always supported by a sound internal system of controls and policies that drive effective business decisions.

Are your sustainability goals sustainable in the long run?

The World Business Council on Sustainable Development (WBCSD) has set ambitious sustainability goals for its members to achieve. These goals include net-zero emissions by 2050, reversing biodiversity loss and fighting inequality. While it is a good cause of action, are their declared targets sustainable realistic, ambitious or greenwash? These initiatives have definitely raised widespread and understandable financial and non-financial concerns. 

The Environmental Protection Agency (EPA) has reported that, U.S. greenhouse gas emissions sources can be broken down into five sectors:

  • Transportation (29%)
  • Electricity (28%)
  • Industry (22%)
  • Commercial and residential (12%)
  • Agriculture (9%)

With that being said, it might not be the best way to approach ESG propositions by having a common carbon-neutral target for both major emitters and minor emitters. While ESG performance ratings and reports show investors a company’s efforts to mitigate risks and generate sustainable long-term financial returns, it is critical to ensure that your ESG strategies are sustainable in the long run. If your business operations requires massive transformation within an unrealistically short timeframe, it may in return, expose your organisation to an exponential amount of new risks. The key to winning the ESG race is to develop a robust ESG proposition relevant to your organisation sooner rather than later, and to strategically implement on that plan in order to generate resiliency, stability and long-term success. Those companies with successful sustainability and ESG strategies have already been shown to outperform their counterparts without, when analysing performance and annual returns. 

How can you strategically approach ESG Risk Management?

Risks from ESG related factors are already contributing significantly to the overall risk exposure of organisations. As companies continue to develop these strategies, the impact on organisations is likely to increase dramatically over the years. it is no wonder that a structured approach to managing ESG risks is a major focus for new regulation, laws and other risk frameworks. 

ESG risk management will be highly relevant for Alyne Customers across industries. We have therefore added a capability to our platform to enable powerful ESG risk assessments. The capability is focused on four core drivers:

  • Time to Value
    Gaining insights to the ESG exposure on a specific asset or organisation quickly is more valuable than an extended analytical process. The faster information is available, the better stakeholders can make risk-informed decisions.  

  • Comprehensive
    Environmental, social and governance risks must extend beyond purely focussing on climate change risks. These are a major focus, but ESG governance is broader than purely addressing climate risk. Alyne's approach is focussed on providing a comprehensive view on ESG risk.

  • Adaptable
    The ESG risk framework must be adaptable to the context of the asset, object or organisation. Areas of the ESG framework that are not applicable should not be applied to the asset. This creates frustration with the responder and as a result reduces risk data quality.

  • Scalable
    ESG governance becomes meaningful when the coverage extends to all areas of risk. For banks or funds, this is especially relevant on the credit side where investments must be included as a source or ESG risk in the context of ESG financing. This also means the method must be scalable while avoiding a linear increase of effort.


Alyne's ESG Risk Framework

The Alyne ESG Risk Framework consists of 16 ESG Megatrends. These have been further broken down into 95 additional Sub trends. This structure contains more than 300 individual data points. More importantly, this powerful capability provides a cutting-edge ESG GRC capability to not only kick-off of your ESG program, but take you through to quantified ESG Value-at-Risk. 

Interested in a guided tour into how Alyne's extended capabilities can help your organisation to take your corporate sustainability initiative to the next level?  Why not book a meeting with an Alyne expert here.

Eunice Cheah

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