The Committee of Sponsoring Organizations of the Treadway Commission (COSO), in collaboration with the World Business Council for Sustainable Development (WBCSD), earlier this month released draft guidance for applying COSO’s Enterprise Risk Management (ERM) Framework to environmental, social, and governance (ESG) risks.

The existing COSO framework, Enterprise Risk Management — Integrating with Strategy and Performance, is one of the most widely recognized and applied risk management frameworks in the world. Its goal is to help organizations create, preserve, sustain, and realize value while improving their approach to managing risk.

The draft guidance and a previously released executive summary can be found on the COSO website at www.COSO.org. All IMA members are invited to submit comments on these documents by June 30, 2018.

The draft guidance aims to help organizations around the world respond to the increasing prevalence and severity of ESG-related risks, ranging from extreme weather events to product safety recalls. Highlights include:

  • Methods to overcome ESG-related risk challenges, including identifying and assessing the severity of risks with uncertain financial consequences
  • Innovative responses for addressing ESG-related risks and seizing opportunities

Said newly appointed COSO Chairman Paul Sobel in a statement: “As ESG-related risks are becoming more widespread, organizations need to ensure they have processes in place for identifying, assessing, and managing these complex entity-level risks and opportunities. We believe ERM is the most powerful way to achieve this. As with any group of risks, integrating ESG-related risks into ERM enables organizations to realize long-term value.”

COSO is jointly sponsored by five prominent accounting organizations, including IMA® (Institute of Management Accountants) as well as the American Institute of CPAs, the Institute of Internal Auditors, Financial Executives International, and the American Accounting Association. COSO released the draft guidance at GreenBiz 18 in Phoenix on February 7, 2018.