Investor pressure related to ESG disclosures is not a new concern for executives, but established regulatory frameworks are only just beginning to become effective in some jurisdictions. The U.K. has become the first country to require companies to report on climate change, with the EU adopting a universal classification system. Major Australian banks and insurers are publishing the first comprehensive climate change reporting framework. Organizations will likely be faced with a patchwork of requirements until clear global standards emerge.
ESG: Risk and Opportunity
While ESG regulatory requirements present a challenge to executives and their organizations this year, unlike many other “high velocity” risks, such as cybersecurity control failures, ESG is a slower moving risk. This presents proactive organizations and their enterprise risk management (ERM) teams with the ability to turn this area of risk into an organizational opportunity. The senior executives polled in the latest survey agreed with this sentiment, ranking ESG regulatory risk as the second most viable risk to be seen as an opportunity, behind diversity, equity and inclusion (DEI) responsiveness, a risk that contributes to an organization’s overall ESG posture.
“ESG can be a challenging and amorphous area for ERM teams to fully engage with,” said Shinkman. “With so much of the regulatory landscape yet to be written, ESG can present organizations and their ERM teams with opportunities related to being an early adopter in this space, potentially attracting new investors and ultimately reducing the cost of capital.”
Shinkman recommends that ERM teams coordinate across assurance functions and with the Investor Relations team to identify gaps in ESG-related risk management activities. Recent Gartner research highlighted one such example of a potential gap, showing that only 8% of referenced ESG metrics among S&P 500 companies related to governance concerns.
While continuing to engage and monitor stakeholder expectations for ESG disclosures, Shinkman said that organizations should seek opportunities to become early adopters of measures such as sustainability reporting and other established frameworks that are likely to be codified within a future global regulatory framework.
More detailed analysis is available to Gartner clients in the full report 2Q 2021 Emerging Risks Monitor Report.
Nonclients can complete free registration to read more in Emerging Risk Trends.
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