ESG an essential component of Enterprise Risk Management

ESG an essential component of Enterprise Risk Management

Earth Day is an annual event on April 22 to demonstrate support for environmental protection and, while we take some time to look into the recent flooding in the UAE and Dubai, this serves as a reminder of the pressing need for organisations to rethink their risk management strategies.

Such events illustrate all too clearly why ESG is increasingly recognised by organisations across the private, not-for-profit, and public sectors as the way forward in handling global risks which we face altogether. The recent events in Dubai highlight the fact that organisations are increasingly hard-pressed to be prepared in the eventual impact of abnormal disruptions and to remain agile in today’s changing environment. In this respect, organisations need to understand both their current and possible future risk exposures, including the influence of climate change.   

It is increasingly important to anticipate key events from emerging trends, adapt to change, and rapidly bounce back from adversity. The business case for building resilience to the changing climate can be made primarily in terms of avoiding unexpected costs, managing risks, and making the most of opportunities, although the focus is naturally on the former factor.

Effective risk management is not just about protecting bottom lines. Risk management is also about safeguarding communities and our planet. By taking proactive steps to address climate change and ESG risks, organisations can better weather storms and contribute to a more sustainable future.  A robust and sound risk management framework, which especially includes weather-related risks, is crucial for both businesses and the community: 
  • Resilience: Organisations that factor climate change and ESG risks into their strategies are better prepared to withstand and recover from extreme weather events and the impact these have on their operations. By identifying vulnerabilities and taking adaptive measures, organisations can keep operations running even in the face of environmental challenges. 
  • Competitive Advantage: Organisations that prioritise sustainability and responsible practices stand out in the market. Consumers, investors, and regulators increasingly favour businesses that show commitment to environmental and social responsibility, which boosts brand reputation and market position.
  • Innovation: Tackling climate change and ESG risks spurs innovation and drives technological progress. Investing in clean energy, resource efficiency, and green tech not only reduces environmental impact but also creates new market opportunities and value for shareholders. 
  • Regulatory Compliance: Regulations are evolving to address climate and sustainability concerns. By managing these risks proactively, organisations can stay compliant and avoid costly penalties. 
  • Social Impact: Embracing ESG principles and promoting inclusive growth can make a positive difference in communities. Whether through job creation, community engagement, or philanthropy, organizations have the power to drive meaningful social change. 

Unprecedented weather events like the recent storm in the UAE can severely disrupt transportation, logistics, and other businesses. Dubai's airport closure and flooded roads caused hours-long gridlock, trapping residents in traffic, offices, and homes. With the UAE experiencing its heaviest rains in 75 years, according to authorities, the impact on daily life and economic activity cannot be understated. Even in Europe we are experiencing extreme weather events which can have the same consequences on organisations if these do not factor in climate risk and ESG in their enterprise risk management framework.

How can BDO help?
Organisations need to improve their control environment by designing improved risk mitigation including business continuity and contingency plans. Good risk management practices should allow for early recognition of threats so as to empower the organisation to classify and highlight the risks and therefore seek to deal with the threats in an effective and timely manner. BDO is equipped with risk professionals who can assist organisations in understanding these challenges and support these organisations to take the necessary action notably in relation to the climate crisis.

Get in touch