Governance - Risk and Opportunities

This is the most overlooked area but is growing in importance. By adopting proper governance and oversight that focuses on both risks and opportunities, you can increase value for all stakeholders

1/1/20235 min read

Governance – risk and opportunities

This is the most overlooked area but is growing in importance. Adopting proper Governance and oversight that focuses on risks and opportunities can increase value for all stakeholders. Yes — the task is daunting -and you rightly ask, where can I start? Let's start at the beginning. Running a Company correctly and efficiently. Having a good CFO with the correct processes and accounting system is Key.

Too often companies grow without proper oversight and infrastructure, and their accounting infrastructure is patched together and, almost without exception, never fully rectified with many inefficient processes. This is an area that is going to change the most. With Advances in Ai, machine learning, Big Data and Blockchain, the way will manage and oversee the business is changing and will change dramatically. Similarly, the ways boards are run and access to information is changing. It is increasingly clear that corporate board members need to explore the risks and opportunities that climate change poses to their firms and make efforts to reduce their carbon footprints.

All board members need to understand these issues to participate in the debate, both executives and non-executives.

Upgrading ESG aims to provide Directors and managers with tools to manage ESG, its risks, and opportunities to arm NEDs with evidence and oversight.

Failing to prepare for climate change – or being unable to demonstrate positive action clearly – could have a significant impact on the sustainability, performance and risk profile of businesses. Challenges go across businesses, and the relative importance will vary across industries. Global agencies and governments will be pushing a low-carbon transition (e.g. UK Government net-zero target), and so – quite apart from the moral imperative and customer pressure – businesses will have to cope with the significant impact of the low-carbon transition as well as the physical impacts that are already baked in. All challenges are worth considering in the context of competitor positioning even if they may not seem immediately relevant. You can go to the Big Accountancy firms, or large consultancy firms and get an expensive quote, and you can hire a Head of ESG or ask your CFO to start the process. You can read articles like this.

No one has all the answers or a view of your business or industry, so there is a learning process, but there are various steps that apply to all businesses. One thing that is clear is there is a sense of purpose by Government, Businesses, and the Individual to be on the same page. Many Businesses have voluntarily adopted ESG principles which are based on UN SDG or forced by investors, coerced by staff or customers, and now by legislation. This process has started and will be the biggest change to how Financial Statements are going to be prepared and reported. Here I wear my accountant hat. We can go back to the 1930s when Accounting Standards started, and until today not much has changed.

Now — Companies are going to be required by law to calculate the cost of the business to the environment and provide for liabilities. So, no longer can big mining and petrol companies get away with exploiting the world’s natural resources — Big brother is watching. The ship has sailed. If you, as a business owner, fail to get on the ESG ship, then you run the risk of drowning.

These issues are further explored in a book called “Accountants can save the Planet” by Professor Mervyn King, who, together with Sir Ronald Cohen, are leading the fight for greater transparency and accounting by companies for Impact / ESG. Sir Ronald Cohen is based in Israel, has brought out a few books, one of which is called “IMPACT: Reshaping Capitalism to Drive Real Change”.

ESG Board Considerations Strategic Impact Boards and Senior Management need to hyper-focused and sensitive to ESG matters Business models and strategies need to adapt to changing trends and expectations Opportunity to imbue meaningful change to company culture and performance Comparison to Competitors is a useful place to gain knowledge Managing Risks Impact of ESG risks may be highly material depending on industry Adeptness at managing ESG risks factoring into assessment of management's capabilities New mitigation strategies need to be developed and implemented Communicating with Stakeholders Disclosure allows for communication with many stakeholders at once Opportunity to demonstrate commitment to material ESG concerns Upgrading ESG provides a support system with training and education. Many organisations do not know where to begin regarding ESG reporting frameworks.

We help them get up to speed and quickly implement the key steps to kick-start their ESG journey. This journey may include the following activities:

Stakeholder Mapping: Ensures a robust ESG dialogue with those most impacted by a company's actions. A comprehensive and complete mapping exercise will help ensure all key stakeholders have been identified and their key concerns and interests addressed. The output will help inform all aspects of the ESG process, from ESG strategy to target and goal setting to framework selection and communication.

Scope & Materiality: Stakeholders and investors expect companies to identify and focus on the ESG matters that are material to them. Not all ESG topics will be the focus for each company given the varying nature of businesses across industries and geographies, as well as their impact on the environment and society. Thoroughly assessing scope and materiality drives prioritization of material ESG matters and leads to better alignment with strategy and the impactful allocation of capital.

Data: ESG data may be sourced and derived from a variety of structured and unstructured data sources, many of which have not had the same level of process and control implementation that systems supporting financial disclosure have had. Companies need to establish a data management program as a foundational governance mechanism to ensure high-quality data and control for all ESG reporting.

Strategy: Understand that ESG risks and opportunities impact strategy, and ESG disclosures provide insight into how a company links ESG to its business. Crucial to this are senior management discussions around the implications of making commitments across material ESG topics and embedding ESG considerations into day-to-day business routines. The integration of ESG into a strategy setting is what truly makes a program sustainable for the long term.

Governance: Establishing a robust governance model surrounding ESG initiatives, from the board of directors on down, ensures the appropriate level of focus and strategy integration. Many stakeholders benefit from coordination to drive projects forward and a mechanism for collaboration. Formal governance establishes accountability that sets the tone for the company's commitment to the ESG program and related considerations. Setting this foundational item is a key to success in the large-scale transformation that ESG initiatives (and reporting) entail.

Program Management: Like any large-scale transformation, implementing an ESG reporting process requires robust program management to monitor execution and drive accountability across the organization. ESG reporting is a complex process that cuts across regions and functions within an organization, requires buy-in from various stakeholders and a well-thought-out implementation strategy. A robust program management framework will provide the formal oversight and management needed to ensure success.


Understanding What's Right for Your Organization To understand how the different ESG frameworks apply to your organization and determine which is best suited for your goals, stakeholders, and resources, please be in contact by email – . From a materiality assessment and stakeholder analysis to your ESG strategy and execution of that strategy, going it alone can be difficult.

Our network of professionals can guide the process, helping you understand the different options you have when getting your ESG program off the ground.