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Managing ESG versus GRC



In today's digital world, businesses must constantly monitor their risks and opportunities in relation to stakeholder concerns. As a result, most organizations have made enterprise risk and compliance (RC) management a top priority. To remain competitive in this challenging environment, businesses are implementing an integrated risk management strategy across all aspects of their operations. Enterprise risk and compliance (RC) management, as well as information management for risk and compliance management, are becoming increasingly important. In this article, we will look at how ESG or environmental, social, and governance factors can help a company reduce risks versus standard GRC or general controls for management implementation versus traditional GRC controls implementation.


What is ESG?

An examination of the intersection between environmental, social, and governance (ESG) factors and the financial performance of a company is referred to as a “comparative sustainability report.” The report aims to reveal how a company’s practices and policies impact the environment, society, and the organization itself, along with the potential financial implications of such impacts. The ESG-oriented reporting of companies has become increasingly important in recent years, as sustainability concerns have become recognized as an important component of financial analysis. The concept of sustainable investing has gained significant ground, with new investors entering the field every day. An ESG report aims to examine how a company’s practices affect the environment, society, and the organization itself, along with the potential financial implications of such impacts. The report differs from a standard financial report in that it includes factors that are outside the direct control of the company, such as governmental policies and societal demands.


GRC and ESG Together

GRC and ESG are integrated practices in managing risks associated with investments and operations. GRC focuses on internal controls, while ESG focuses on external factors including stakeholders and communities. This integration of the two practices will result in a better assessment of risks, increase efficiency by reducing the number of audits, and enhance the reputation of the company by mitigating risk. The collaboration between GRC and ESG in investment decisions will produce a more comprehensive assessment of risks associated with an investment. Moreover, it will also aid in the selection of an appropriate risk-reward strategy for investments by conveying information about the environment, social, and governance factors in which the investment takes place.


Benefits of ESG for GRC

  • Integrated regulatory and fiduciary risk management: GRC and ESG practices are integrated to manage regulatory and fiduciary risks. These practices help in the design, implementation, and maintenance of control systems.

  • Reduction in audit costs: GRC and ESG practices are integrated to reduce audit costs in a variety of ways. For example, certain controls may be deemed unnecessary in situations where the environment, social, and governance practices already mitigate the risk of those controls.

  • Enhanced decision-making: GRC and ESG practices are integrated to enhance decision-making during the investment process.

  • Enhanced reputation: GRC and ESG practices are integrated to enhance the reputation of the company and its management team.

Drawbacks of ESG for GRC

  • More risk is associated with ESG: ESG may find that the company’s activities pose a risk to society and the environment. The company may also be required to incur extra costs to comply with new laws and regulations.

  • Potential for conflict with GRC: It is possible that the GRC may find out that the ESG practices are not in line with the company’s policies.

  • Potential for coordination issues: It may be difficult for the GRC and ESG practices to coordinate across the organization.


Comparison of ESG and GRC

GRC ESG Internal controls are used to manage risk. External factors are used to manage risk. Traditional audit practices are used to assess risk. New audit practices are used to assess risk. Internal audit practices are used to assess risk.


Conclusion

As the world becomes increasingly globalized, there are new and different stakeholders that businesses need to consider. These new stakeholders include non-governmental organizations and advocacy groups, the general public, employees, and customers, along with local and national governments.

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