Environmental and societal risks have overtaken economic and geopolitical risks in terms of both likelihood and impact. Board members and the C-suite today need to have a clear and informed view of risks affecting the business environment. The business world is fraught with risks that emerge more quickly and pack a bigger punch than ever before! Moreover, there are new sources of risk—for example, fast-moving innovations in technology (think Blackberry versus the iPhone), scientific breakthroughs, and the ever-evolving realm of social media and the late entrance in the race, ESG (Environmental, Social and Governance). Human rights, modern slavery and labour rights challenges impact workers and communities in value chains across the world. Poor employment practices, the use of child and forced labour, or threats to land or resource rights can remain hidden to businesses and investors until an event causes lasting financial and reputational impact.
The changing regulatory landscape is leading to increased public awareness among citizens resulting to reputational risks as well as greater checks and balances to businesses by the general public and regulators. The signing of the Paris Agreement by world leaders in 2015 was the start of a new wave, with the latest to jump on board being the EU which is expected to release regulations calling on European companies to conduct ESG due diligence as well as mainstream transparent disclosures in their sustainability reporting. Strong Environmental, Social and Governance performance is not only the right thing to do, but also fundamental to the success of any organisations that are increasingly expectant of establishing climate proof businesses.
Companies need to be ambitious in ESG as well as the development of specific methodologies to provide more nuanced profiling of the company’s approach to ESG risks and coupled with assessment of the broader context in which they operate. We believe this technical activity is key and should be carried out by specialists who are well versed in risk assessment. It is also imperative that organisations do not confound this activity with materiality assessment as they are totally different in scope, objective and implementation.
Risk assessment should move from being a one-off event, to a company culture that can be carried out periodically as part of developing a futureproof organisation of the 21st century. The continuous review of the risks gives an organisation a clear picture of its operating environment as well as the ever-changing role and mandate of media and regulatory landscape including how key stakeholders are reviewing company’s activities consequently reporting, analysing, and revealing the full range of ESG-related risks.
The advent of industry ratings that is rooted in international standards, and our yet to be developed Nairobi Stock Exchange (NSE) proprietary ratings to assess each of the ESG risks associated with their deployed ESG guidelines released last year. As an organisation that prides itself in a having a 360 ESG consulting, we can conduct on-the-ground reference checks to gain further insight from the relevant business community on the third party’s ESG approach, including developing bespoke ESG strategies that takes into consideration risk, impact and compliance aspect of the operating environment.
We believe risks should not only be known but also assessed, reviewed and addressed to ensure that value is not only created but also preserved and shared.
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