Introduction
Discussions of risk identification and mitigation are frequently a foundation of ESG/sustainability business value conversations. Yet, ESG/sustainability professionals are typically unfamiliar with risk management as its own discipline. Many times, ESG/sustainability professionals develop their own risk benchmarks, tolerance levels and values in a vacuum, straining credibility and creating obstacles for internal management/executive acceptance.
Studies from the World Business Council for Sustainable Development (“WBCSD”) on the topic found that:
- Although companies have sustainability professionals working to address ESG-related risks and issues, they struggle to get these into risk management discussions.
- Little collaboration exists between a company’s risk and sustainability practitioners.
- ESG risks managed and disclosed by internal sustainability staff are considered less significant than conventional risks, leading to a bias against ESG-related risks.
This Guidebook presents a methodology using traditional risk management tools, leveraging hard data and established internal company risk benchmarks to develop environmental/sustainability risk values. Those credible values can then be applied in a calculation to assess the ROI on costs of avoiding those quantified risks. This methodology differs from other approaches that rely on intuition and finger-in-the-wind determinations. As a result, the results are credible and defensible both internally and externally.
For simplicity, the discussions and examples provided in this Guidebook are illustrative only and shouldn’t be viewed as limiting. They focus on environmental risks, but the principles, methodology and calculations are equally applicable to other ESG and sustainability risk topics. Additionally, the principles and examples are not comprehensive, nor are they based on regulatory/legal requirements. They can be modified and adapted as needed for specific companies and applications.