While it may seem complex to many, managing risks is an essential component for reporting and a critical resource for professionals, enabling companies to identify, monitor and mitigate potential risks in terms of finances, regulatory compliance and adherence to ethical and sustainable practices. In terms of ESG practices, the trend of global legislation is expected to become more stringent in the coming years and demands effective risk management as pivotal for business development.
Managing risks also fosters transparency and accountability, aligning with the expectations of stakeholders, including investors, customers and regulatory bodies. One example of this trend is the EU’s Corporate Sustainability Reporting Directive, poised to revolutionise how companies implement their risk management strategies. This directive represents a significant stride toward establishing a harmonised regulatory framework throughout the EU as part of the European Green Deal. It mandates that large entities disclose not only their environmental and social impacts but also how Sustainable Development Goals influence their financial well-being.
Why measure?
In general, measuring the effectiveness of actions is important for showing results and helps an organisation know what is not working and begin planning different actions.
In summary, managing risks focuses on the actions taken to address risks, while measuring risks involves quantifying and qualifying the characteristics and implications of those risks. Both aspects are essential components of effective risk management, working together to enhance an organisation’s ability to anticipate, respond to, and mitigate potential threats and opportunities.
In relation to human rights due diligence, measuring the effectiveness of actions taken to prevent issues as modern slavery and human trafficking in supply chains is a way of proving the success of your actions to workers, partners, and customers. It shows them where money is being spent and allows them to be trusted more.
In my engagement with business leaders, I noticed that developing such an effective and integrated risk management framework is complex. In fact, there are challenges in having a clear understanding of environmental and social risks throughout the value-chain, and then building the infrastructure to integrate these metrics into the broader framework. However, I believe that overcoming these challenges also presents an opportunity to develop strategic plans, enhance competition, and identify future bottlenecks at an early stage.
Knowing What and How to measure
Knowing what to measure is an important place to begin so that your organisation’s reports are showing the most important data. The best place to begin measuring is at the start. This gives a business the greatest opportunity to see results and they will be able to measure actions the whole way through.
To demonstrate good practice, organisations need to start with an understanding of their current position through a baseline assessment. Then, through a stakeholder-based approach they can start working on a strategy that defines their preferred future and what steps they need to take in the short and long term to achieve it.
Here are some key points about managing your risks:
Define the impact areas in terms of ESG practices and map your value chain
Understand your moment in a specific purpose: Where are you Now and Where do you want to be Next and Later
Define which ESG dimension you will monitor and focus
Define indicators and apply metrics of analysis
Also, an organisation can measure the effectiveness of its actions through digital systems, where they can display input and output. They can also attend and complete training and activities. Risk management does not operate in isolation, and an integrated perspective provides a holistic understanding of the company’s overall risk exposure.
Moreover, a comprehensive risk management framework enhances decision-making processes, enabling organisations to navigate uncertainties more effectively and capitalise on opportunities for sustainable growth.
Perhaps, your organisation needs help in setting up the right impact measurement framework to effectively report on a range of ESG and CSR dimensions. Talk to us today to find out more.
