An ESG framework used by organizations to assess and mitigate risk in environmental sustainability governance (ESG) practices. The three pillars of ESG are: environmental risks, social risks, and governance risks. Let’s take a more in-depth look at each one:
Environmental Risks
Environmental risks are risks that come from the impact of an organization’s activities on the environment. These risks can be direct or indirect. Direct risks are those that are caused by the organization’s activities, such as pollution from a factory. Indirect risks are those that are not caused by the organization’s activities, but could still have an impact on the organization, such as climate change.
Organizations need to be aware of environmental risks so that they can take steps to mitigate them. Some ways to do this include reducing emissions, improving energy efficiency, and using renewable resources.
Social Risks
Social risks are those that arise from the interaction between an organization and society. They can be divided into two categories: reputation risk and regulatory risk. Reputation risk is the risk of damage to an organization’s reputation due to its actions or inaction. Regulatory risk is the risk of violating laws or regulations.
Some examples of social risks include discrimination, harassment, and data privacy breaches. To mitigate these risks, organizations need to have policies and procedures in place that address these issues. They also need to make sure that their employees are trained on these policies and procedures.
Governance Risks
Governance risks are those that arise from the way an organization is governed. These risks can be divided into three categories: financial risks, legal risks, and reputational risks. Financial risks are those that could have an impact on an organization’s financial stability. Legal risks are those that could result in legal action against the organization. Reputational risks are those that could damage the organization’s reputation.
To mitigate governance risks, organizations need to have strong internal controls in place. They also need to make sure that their Board of Directors is independent and has diverse expertise. Additionally, they need to have a robust ethics and compliance program in place.
ESG frameworks are used by organizations to assess and mitigate risk. Organizations need to be aware of these risks so that they can take steps to mitigate them. Some ways to do this include reducing emissions, improving energy efficiency, and using renewable resources; having policies and procedures in place addressing discrimination, harassment, and data privacy breaches; and having strong internal controls in place with an independent Board of Directors overseeing a robust ethics and compliance program.
