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Rising risk areas for ESG disclosures
As companies align business models with ESG goals, risks arise at each stage of the reporting process. Setting unrealistic performance targets or overstating ESG commitments and investments are common pitfalls. Additionally, if ESG initiatives are siloed throughout the organization with insufficient communication across departments, it invites unreliable data and inaccurate reporting of financial and nonfinancial data. Particular risk areas arise depending on the individual needs of businesses (e.g., understanding forced labor issues by region throughout a global supply chain). Governance over ESG programs is key to reduce risk.
Are you ready?
- Have you set realistic goals and aligned your compliance program to those goals?
- Have you incorporated ESG into your risk assessments, including considering risk areas such as the ability to support public statements on ESG commitments?
- Do you have a strong understanding of the procedures and controls in place to collect, cleanse, analyze, validate and substantiate data for ESG reporting purposes?
Key takeaway
ESG goals should align with the organizational structure; verifying board oversight and leadership is pivotal to a resilient ESG framework. Incorporating this ESG framework into the existing enterprise risk assessment is critical for identifying the organization’s risk landscape, including regulatory and litigation exposure.
Organizational leadership should be aware that they may face increased regulatory scrutiny, so setting the right data targets, standardizing data collection and substantiating data are challenges that they will face as peers and competitors make advancements toward setting industry thresholds.