CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Risk Management
Ruchi Foods Ltd., a listed company, finds that a key supplier uses child labour and polluting practices, creating reputational and supply disruption risk. Which step best manages this ESG risk within the company's risk framework?
The company should record the risk in its risk register, apply supplier due diligence and a code of conduct, and monitor with corrective action. Value-chain ESG risks affect reputation and supply continuity, so they must be identified, assessed, mitigated and tracked like other enterprise risks, not ignored.
- AIgnore it since the supplier is a separate legal entity
- BInclude it in the risk register, set supplier due diligence and code-of-conduct requirements, and monitor with corrective actionCorrect
- CStop all reporting on supply chain matters
- DShift the risk entirely to shareholders by dividend cut
Explanation
ESG risks in the value chain should be identified, assessed, mitigated and monitored like other enterprise risks. Supplier due diligence, contractual codes of conduct and corrective action plans are standard responses. Ignoring the supplier or hiding information leaves the exposure unmanaged.
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