With growing investor attention to sustainability, there is often greater emphasis on the governance element (the “G”) of ESG (environmental, social, and governance) and the board’s fiduciary duty to oversee a company’s strategy, risk, and capital allocation. Enterprise risk management (ERM) is a central avenue for expanding the company’s consideration of those risks posed by environmental and societal trends as well as changing stakeholder expectations that can, and increasingly do, impact a company’s ability to achieve its strategic objectives. Expanding ERM to include ESG risks can help connect risk, strategy, and decision making and can make companies more resilient and competitive. A more robust integration of ESG risks into broader ERM practices can promote measurement and disclosure of meaningful ESG information and enable management and the board to assess overall resource needs and allocate capital more effectively.
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