Changing consumer habits and regulatory obligations are some of the factors prompting more and more companies to push sustainability up on their agendas. The risk function has a pivotal role to play in turning aspiration into action. While further investment is required to give risk managers the tools to meet ambitious ESG targets, what are the key considerations when building a sustainability plan and, once agreed, how can the risk function help their organisations successfully execute it?
Risk leaders from global retailers agreed at our recent member meeting that supply chain factors are a big contributor to the emissions footprint of retail businesses, and any sustainability strategy must take into account the environmental impact of the supplier base.
Indeed, the achievement of internal and external goals around sustainable development and corporate responsibility rests upon businesses leveraging environmental, social and governance (ESG) matters in the right way.
As a risk manager, you need to shape the agenda of your business’ ESG strategy and use your position as facilitator to make sure the right risks and opportunities are considered in decision-making.
Maybe you face the task of speaking up and tempering the enthusiasm of stakeholders who may be seeking to advance with a sustainability strategy quicker than the business can actually deliver. Or, maybe you’re up against stakeholders who are not interested in ESG matters at all.
Defining what ESG risk does and does not entail represents a useful starting point for companies in the retail sector seeking to develop a sustainable ESG strategy.
If there is a lack of consensus on what ESG means for an organisation, it is likely that people within the company will form their own ideas of how to approach the challenge of sustainability, fostering a lack of coordination in pursuit of this objective.
As part of our ESG risk series, our members are benefiting from a growing knowledge base around sustainability, building on member meetings and content projects on issues such as developing a climate risk assessment and improving supply chain risk management in the retail sector.
A more comprehensive set of practical guidelines to developing a sustainable ESG strategy are accessible to members on our Intelligence platform, but outlined below are the key aspects of the debate highlighted by members.
Workshops to identify ESG risks
Workshops can be a useful bottom-up and top-down tool for companies to identify both the opportunities and threats related to ESG matters, particularly where there may be a lack of understanding of what these risks actually are among certain teams and senior leaders.
Breaking down the broader scope of ESG into smaller, more focused topics, and arranging a formal discussion on each of these aspects, allows a company to develop a much more complete list of risks associated with ESG, which can then be refined into a definitive set of material risks.
During workshops, communicate ESG matters to different audiences in multiples ways, whether that be appealing to ethics, emotion, or logic. Some people want to do the right thing, while others need to see the numbers to really care. Understand your stakeholders and audience – what motivates them? Use this to shape your workshop approach.
Establishing and meeting sustainability goals
The challenge for businesses is turning targets and aspiration into real action, which means shifting company culture to get behind the goal of sustainability.
For one company, which has set a series of ambitious ESG targets to hit by 2030, this means implementing sustainability champions within every function of the business to assert the importance of this mission and guide the company’s journey. Establishing cross-function committees – led by the risk function – can also help. By using centralised templates and reporting structures, these champions and committees can help integrate ESG risks and opportunities into already-existing organisational decision-making structures.
In addition to this, another risk manager reflected on their company’s efforts to model scenarios established by the International Panel on Climate Change (IPCC) and factor this into their strategic planning.
Communicating an ESG strategy
As well as forming internal connections between teams and developing channels for collaboration, companies also have to consider how they present their efforts to achieve sustainability externally.
Putting financial figures to ESG risks and presenting any ESG strategy can be tricky, but it is important for companies to assure the data they are releasing publicly.
Members agreed on the dangers of greenwashing, which may fool some but, in the end, will have damaging effects on a brand’s reputation.
Although ESG risks may mystify certain stakeholders, there is growing awareness among companies – in the retail sector and beyond – that ESG presents material threats and opportunities. Integrating ESG into your risk management framework ensures ESG and sustainability efforts infiltrate across the business and its long-term strategy.
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