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Mitigate Business Risks by Adopting an ESG Framework

By November 15, 2022No Comments

Businesses face unprecedented risks, from environmental, social, and governance (ESG) risks, financial risk, reputational risk, to regulatory and compliance risks. If appropriate actions are not taken, these risks can impact strategic business plans, shake up operations, and adversely impact the sustainability and growth of a business.

“ESG risks can be  significant disruptive factors, and the success of a business and its sustainability is hugely dependent on how it assesses and manages its ESG issues,” says Laura Nwachukwu, ESG Consultant at EBS Advisory. “An ESG framework is key to inform evidence-based decision-making and implementing the necessary measures to mitigate risks, particularly considering the current social, environmental, and economic uncertainties we are facing.”

An ESG framework, including an ESG strategy, policy, and management system, is a holistic approach that is used to manage and mitigate risks, and identify and assess a company’s ESG impact and added value. Key benefits of an ESG framework include:

  • Identifying the indicators required to track, measure and report on performance;
  • Identifying and enhancing opportunities;
  • Determining the impacts of a business;,
  • Improving relationships with stakeholders and the business’s social license to operate;
  • Improving performance management systems;
  • Improving efficiencies within the business; and
  • Enhancing businesses resilience and sustainability.

In response to global regulatory interventions, and increasingly more environmentally and socially conscious investors and consumers, the ESG framework evolvement has grown exponentially over the years. Companies utilising ESG frameworks experience higher financial growth and reduced regulatory or legal fines and sanctions. While companies that do not adopt an ESG framework have more tendencies to be faced with a higher cost of capital and operating expenses, higher volatility due to controversies such as labour strikes, community or stakeholder crises, fraud accounting, and other governance irregularities.

“It is clear that the business case for ESG-compliant organisations is more beneficial, given reduced risk, improved adaptability to anticipated future environmental and social issues, and better demand from conscious consumers and investors,” says Laura.

There are, however, challenges companies may face when adopting an ESG framework, such as the type of framework that suits their needs, the level of expertise required, data availability, and identifying key metrics.

At EBS Advisory, we assist our clients in identifying the most appropriate and relevant frameworks to align to, dependent on the type and scale of the business, and the sector/s and geography/ies in which it operates. EBS is fully conversant with the following frameworks, but not limited to:

  • Carbon & Water Disclosure Programmes (CDP)
  • CBK Climate Risk Management Framework
  • Climate Disclosure Standards Board (CDSB)
  • Equator Principles
  • Global Reporting Initiative (GRI)
  • IFC Performance Standards
  • International Bill on Human Rights;
  • International Labour Organisation (ILO) Core Labor Conventions, 2012.
  • Paris Agreement;
  • Principles for Responsible Investment (PRI)
  • Sustainable Accounting Standards Board (SASB)
  • Sustainable Financial Disclosure Regulations (SFDR)
  • Task Force on Climate Related Financial Disclosures (TCFD)
  • The Climate Change Act, (2016)
  • The UN Sustainable Development Goals (SDGs).
  • United Nations Women’s Empowerment Principles;
  • World Bank Group (WBG) General Environmental, Health and Safety (EHS) Guidelines (2007).

We can assist you in determining and implementing the right framework for your strategic goals and investor mix. Click here to get in touch with us.