Risk compliance is a structured process of mitigating compliance risks. In the realm of Environmental, Social, and Governance (ESG) risks, it is considered an important tool to combat the potential negative impacts of legal, financial, or material loss. This article outlines how to do risk compliance and illustrates the value of compliance risk management.
Risk compliance is the process of managing and mitigating compliance risks – an active approach to ensuring adherence to regulations. It is a potentially powerful toolkit that enables companies to respond to threats such as compliance risks. Compliance risk is an organization’s potential exposure to legal, financial, or material loss from failing to act in accordance with industry regulations or best practices.
In terms of ESG compliance, the compliance risk is the failure to comply with ESG frameworks. The potential negative impact on a company is a result of not being compliant with ESG regulations.
ESG compliance refers to a set of standards a company implements internally to align with regulations. When carrying out the process of risk compliance, you are doing compliance risk management. Compliance risk management is the process of identifying, assessing, and mitigating potential losses that might arise from an organization's noncompliance with regulations and standards. This is a continuous monitoring process that ensures that the company is keeping up-to-date with ESG regulatory frameworks.
Read also: ESG reporting requirements
Compliance risk management is a step-by-step process of identifying risks and implementing measures to limit the impacts of them on the business. Assessing, mitigating, and managing risks is key to protecting any business. In the following sections, we will guide you through the process from start to finish.
First, it is essential to identify the risks that can be potentially harmful to your operations. There are several different ESG risks that might prove relevant. They are divided into three main categories, which are environmental, social, and governance risks.
The next step is to assess the likelihood of a risk occurring and evaluate the potential impact of each risk. In assessing the risks, a company gets the opportunity to prioritize risks and allocate resources quickly to those risks that are most likely to occur. This allows businesses to focus their efforts on the most serious threats.
There are two broader methods for assessing risks. Qualitative methods provide a detailed understanding of them, while quantitative approaches pave the way for a data-driven analysis that might be more objective.
After identifying and assessing risks, it is critical to implement measures that work to prevent or minimize their impact. These measures can either be proactive or reactive. A proactive strategy is implementing new policies that limit the threat, while a reactive strategy can be to develop crisis response plans. The concrete actions in each strategy vary from case to case, from investing in new technologies to collaborating with new stakeholders.
Finally, measures should be taken to assess the effectiveness of controls. Continuous monitoring is an ongoing process that ensures that the risk compliance programs remain effective over time. This involves reviewing and updating risk assessments and tracking key risk indicators. A crucial step towards agility in the risk management process, continuous monitoring ensures that the company is resilient in an ever-changing threat environment. These threats cover ESG but also other business areas, such as daily operations and finance.
We expose ESG-related risk from your supply chain. The CEMAsys Sustainability Assessment Methodology is built on international standards and protocols. Our Risk Scorecard Model illustrates performance across 21 ESG indicators in 4 main themes (Environment, Labor-Human Rights, Ethics, Sustainable Procurement). This provides a full-scale overview of any threats to your supply chain and gives you the opportunity to respond to these risks.
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