Investors are increasingly advocating for companies to take a risk-driven approach to ESG issues by more closely integrating environmental, social, and governance factors into enterprise-wide risk management. Risk management leaders are well-positioned to help identify emerging ESG risks and opportunities and ensure the board and C-suite consider these issues. Investors like BlackRock engage with companies to understand their ESG risk oversight and disclosure, and are calling for quantitative metrics and long-term plans to manage issues like climate risk and ensure resilience.

1. 03/08/2022, 22:35 Investors Advocate for Risk-Driven ESG Strategies - WSJ
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As focus on environmental, social, and governance (ESG) issues grows,
questions about the role of enterprise risk management (ERM) in helping drive
organizational strategy are becoming more common. Leveraging broad
understanding of organizations and their risk profiles, ERM leaders can take a
proactive role in elevating their contribution to boardroom and C-suite
consideration of ESG factors.
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https://deloitte.wsj.com/articles/investors-advocate-for-risk-driven-esg-strategies-01627066927
BUSINESS
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STRATEGIC RISK
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SUSTAINABILITY
Investors Advocate for Risk-Driven ESG
Strategies
Increasingly, investors are expecting risk leaders to integrate environment, social, and governance
factors into enterprisewide risk management.
Chris Ruggeri

2. 03/08/2022, 22:35 Investors Advocate for Risk-Driven ESG Strategies - WSJ
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“Renewed focus on corporate purpose has called into question the role
corporations play in society,” says Chris Ruggeri, head of ESG and Resilience for
Deloitte Risk & Financial Advisory, Deloitte & Touche LLP. “Stakeholder activism
is increasing. Risk leaders are well positioned to help identify shifts and shape
responses, which can help C-suite leaders make organizations more resilient to
risk.”
Many organizations are asking their chief risk officers to bring greater foresight
to risk management and add tangible value to the C-suite decision-making and
strategy-setting processes, says Ruggeri. “Risk leaders who call attention to an
organization’s ESG-related threats and help illuminate the path forward can
have that kind of impact,” she says.
Consideration for ESG risks in many organizations has been somewhat siloed,
sitting apart from critical business and operations, says Paul Walker, a professor
at St. John’s University who leads a series of forums on risk management as the
executive director of the school’s Center for Excellence in ERM. “As stakeholder
focus on ESG escalates, many organizations are identifying a need to more
closely align their consideration of ESG risks with their broader risk
management programs and processes,” he says.
Paul Walker

3. 03/08/2022, 22:35 Investors Advocate for Risk-Driven ESG Strategies - WSJ
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Investors in particular are making their concerns about ESG risk increasingly
apparent as they steer a growing volume of capital into ESG funds, says Walker.
Shareholders can drive a more risk-led focus to ESG through several avenues,
he explains. They can engage directly with boards and apply pressure through
proxy voting and annual shareholder meetings, and they signal expectations
through investment decisions.
BlackRock, a global asset management firm, is among investors advocating for
an enterprisewide focus on ESG risks and opportunities that is integrated into
companies’ long-term business strategy. Ray Cameron, managing director and
head of investment stewardship for the Americas at BlackRock, says the firm
engages with companies that it invests in on behalf of its clients to advocate for
corporate governance best practices and ensure that they are adequately
managing material environmental and social issues.
Cameron recently discussed how investors are engaging on ESG risks with
Ruggeri and Walker. A summary follows, edited for brevity and clarity:
Ruggeri: How and why are investors engaged with companies on ESG strategy?
Ray Cameron

4. 03/08/2022, 22:35 Investors Advocate for Risk-Driven ESG Strategies - WSJ
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Cameron: Two-thirds of the assets we manage are related to retirement, so we
are managing our clients’ assets through a 20- to 30-year lens. For long-term
investors, it is important to use their voice to promote business and governance
practices that foster resilience. Our approach involves monitoring companies’
progress on ESG issues using publicly available information, engaging with
boards and management teams to better understand the business and ESG
risks and opportunities they’re facing, and voting proxy ballots at annual
meetings. Last year, the firm engaged with more than 2,000 companies
representing more than 60% of equity assets under management.
We meet with company leaders to understand their views on the risks and
opportunities related to our stated engagement priorities—such as board
quality and effectiveness, executive compensation, and diversity, equity, and
inclusion—and to provide our feedback on the company’s practices and
disclosures. Investors should look for companies who disclose information on
things like how they plan to transition to a net-zero carbon emissions economy,
the composition of their board, and other ESG-related issues.
How do you assess ESG risk when many indicators are qualitative?
Cameron: It’s important for companies to have a long-term plan with metrics
and targets to show benchmarks that illustrate progress. We are looking for a
baseline and consistent information so we can measure progress and perform
comparative analysis using qualitative and quantitative information that is
publicly available. Disclosure frameworks such as those developed by the Task
Force on Climate-Related Disclosures (TCFD) and the Sustainability Accounting
Standards Board are tools for developing disclosure of decision-useful,
materially relevant information, which we can use to gauge organizations’ status
and progress.
We are interested in the metrics, but we also ask a lot of open-ended questions
regarding how company leaders are thinking about the risks to the organization,
how they are mitigating them, and what opportunities they identify. If
companies are reluctant to provide information, we assume that means they
don’t have a plan or they don’t think it’s important.
How do you engage with companies on climate risk?

5. 03/08/2022, 22:35 Investors Advocate for Risk-Driven ESG Strategies - WSJ
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Cameron: We expect companies to be able to articulate and demonstrate how
they are managing risk during a transition to a low-carbon economy. We are
looking for evidence that they have plans supported by data and internal
resources to execute it.
In many companies, climate risk data and governance often are siloed, so risk
leaders can play a role in promoting a more comprehensive approach. Siloed
information is a concern with other ESG risks as well. Management and
mitigation of ESG risks should be engrained into the company’s broader risk
management programs and processes and elevated to the board level so
directors have and can act on decision-useful information. Then companies can
develop a transparent process so their actions become visible. Risk leaders are
positioned to drive this approach.
For many investors, it’s important to not only understand the company’s
qualitative strategy but also to have quantitative benchmarks by which progress
can be measured. For example, we focus on many of the metrics and targets
that are promoted in the TCFD framework. We’re looking for insights regarding
how a board is embracing risk to the organization and how the organization is
mitigating it. We are not looking for proprietary information, and we are not
being prescriptive in telling companies what they should do. Instead, companies
should consider strategically articulating their plans with metrics and targets
that are measurable and achievable.
In what ways can organizations and their risk management leaders address
technology risk?
Walker: For some organizations the path to climate-related solutions may not
yet be clear, perhaps because technology is not yet adequately developed or at
scale. However, investors often are looking for indications that companies are
giving it consideration, aligning it to investment plans, and reflecting it in capital
allocations.
“If companies are reluctant to provide information,
we assume that means they don’t have a plan or
they don’t think it’s important.”
— Ray Cameron, BlackRock

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Amid growing evidence of a correlation between ESG stewardship and
investment value, risk leaders are positioned to add value and further
contribute to this correlation. Risk leaders are responsible for reporting to the
board regarding the top risks facing the organization. This is their opportunity
to highlight the growing importance of ESG risks and benchmark their
company’s performance relative to its peers and competitors.
—by Tammy Whitehouse, senior writer, Deloitte Insights in the Wall Street
Journal
Editor’s note: This article is part of an ongoing series of interviews with C-suite executives and other senior
leaders. Mr. Cameron's and Mr. Walker's participation in this article is solely for educational purposes based on their
knowledge of the subject, and the views expressed by them are solely their own. This article should not be deemed
or construed to be for the purpose of soliciting business for BlackRock, Inc., or St. John's University, nor does Deloitte
advocate or endorse the services or products provided by those organizations.
PUBLISHED ON: July 23, 2021 3:00 pm ET
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