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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Board's Accountability on ESG

Kaveri Steel Ltd's Risk Management Committee notices that climate-related events could disrupt its coastal plant and raise carbon compliance costs. The Board wants to bring this into its enterprise risk framework. What is the most appropriate approach?

Climate risk should be handled like any other material enterprise risk: identify and assess it, assign an owner, set mitigation and monitoring, and report to the Board. Treating it as non-financial or reacting only after a loss defeats the purpose of integrated risk oversight.

  1. ATreat climate risk as outside enterprise risk because it is non-financial
  2. BRecord it only in the CSR report, with no owner or mitigation plan
  3. CWait until a loss occurs and then account for it as an extraordinary item
  4. DIdentify and assess it as a material risk, assign an owner, set mitigation and monitoring, and report to the BoardCorrect

Explanation

ESG risks such as climate must go through the same cycle as other enterprise risks: identification, assessment, ownership, mitigation, monitoring and Board reporting. Excluding it as non-financial or waiting for a loss ignores that such risks can affect operations and cost.

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