By Haya Sultan Mohamed Sultan AlKaabi, Legal auditor and legal administrative, Finesse
Recently studies suggest that employees and consumers prefer companies that have strong environmental, social, and governance (ESG) practices. However, there is no achievement for ESG without the use of governance, risk, and compliance (GRC).
According to data by PwC, around 92% of companies in regions like the USA, UK, Brazil, and India that have strong ESG commitments will outcast the competitors without ESG commitments.
But what is GRC and how can it help address the ESG? In this blog post, we will talk further about the GRC and how it interacts with ESG to build resilience and sustainability in the organisation.
Defining GRC and ESG
GRC in an organisation refers to the integrated approach of Governance, Risk management, and Compliance. It is a framework that helps organisations to manage their operations in a way that is in line with the regulatory requirements, ethical standards, and business objectives.
A GRC will break down into three main pillars namely:
Governance: The processes and policies that an organisation uses to direct and control its activities. This includes defining the roles and responsibilities of the management, ensuring accountability, and maintaining transparency.
Risk management: The process that involves the identification, assessment, and management of risks that an organisation faces.
Compliance: It refers to the adherence to the legal and regulatory requirements applicable to the organisation’s industry, business activities, and geography.
While GRC might be a new term for many, it is just an update of an existing business model. Organisations have always focused on creating governance, and risk management but this was never done in a streamlined manner before.
To keep them in line, GRC was introduced. On the other hand, ESG was introduced with the goal of keeping the organisation equipped with all the environmental and social policies.
By following the ESG best practices, organisations are positioned better toward a sustainable market and favourable outcomes resulting in better customer outputs.
If we elaborate on ESG further, here’s what it breaks down to:
Environment: This factor focuses on the effects of products and services on the environment and what steps can be taken to reduce the adverse impacts on the environment.
Social: Social factors talk about the responsibilities and roles of an organisation towards the stakeholders & consumers including diversity, equity & inclusion, racial & gender justice, and community involvement.
Governance: This pillar centres on the systems, policies, and processes organizations implement to govern their operations, shape their corporate culture, recognise and manage risks, and comply with regulatory requirements.
But how does GRC impact ESG? Does it drive the ESG goals or are they independent of each other?
Let’s understand it better.
The Role of GRC in ESG:
ESG and GRC share one common element — G.
The G here stands for governance. Thus, governance follows the stringent rules and regulations that must be followed along with managing uncertainty and risks.
However, GRC is not meant to transact any ESG goals but to manage ESG objectives. In other words, GRC solutions help monitor the processes, and activities that support the potential ESG objectives.
Although GRC solutions typically do not execute actions that enable organisations to achieve their ESG goals, they can help process the workflows that help achieve the ESG objectives.
In other words, the right GRC strategy puts the risk management program in practice to identify the environmental, social, and compliance risks that affect the goals of the organisation.
Hence, effective EGS risk mitigation requires the implementation of appropriate controls. For example, the environmental risks that may affect the business infrastructure can be controlled using the industrial solutions in place.
Not to forget that compliance is a key pillar in demonstrating the ESG and GRC within an organisation. Non-compliant regulations could result in various financial, economic, and social disruptions.
How to integrate GRC into ESG?
It is critical to understand that integration of GRC with the ESG should take place in a structured manner:
- Understand the business needs: The most critical part of the process is understanding your business. Know where your business stands and what is working. Make a note of what you want to change for your business. This way, you can build a roadmap from the current state to the future state.
- Hire the right team: A team can build or destroy. Identify the right team that can help with the core issues and also address the GRC and ESG within the same context.
- Choose the right technology: Using the right technology that can deliver on the future state of ESG and GRC is highly important. Hence, GRC and ESG software should effectively deliver agility and flexibility to the plan.
- Break into stages: Lastly, do not forget to break down the roadmap into small steps. By breaking it down into stages, you can prioritise the stages which are more important and achieve greater success.
It can be said that ESG and GRC are both critical for business success. Integrating the GRC into ESG goals will reduce costs and boost productivity. Not to forget that achieving the GRC certification will bring in more governance and make organisations more competitive.