Enterprise Risk Management Minimizes Need for Sustainability Mandates

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February 19, 2021

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Existing frameworks such as enterprise risk management (ERM) minimize the need for government mandates for better governance of sustainability risks, according to the Federation of European Risk Management Associations (FERMA).

Replying to recent European Commission consultation on sustainable corporate governance, FERMA said that processes like ERM already encourage companies to look at the risks and impact of issues like environmental pollution, human rights violations, and climate change.

Creating EU-wide mandatory requirements for due diligence would add administrative costs and could damage competitiveness for European companies, a FERMA statement said.

The response from FERMA's Sustainability Committee said, "Any initiative in the area of sustainable corporate governance will have a direct impact on the risk exposures (or risk profile) of an organization—the primary concern of the risk manager—which is why it is vital our voice is heard in this topic."

The FERMA statement said that while the organization welcomes the European Union's objective of instilling long-term corporate sustainability in corporate governance, it prefers the "minimum process and definitions approach" with requirements that are risk-based and proportionate to the nature, scale, and complexity of the organization.

"Such processes also steer thinking away from a short-term perspective and help map out likely impacts on a wide variety of stakeholders," FERMA said in its response.

FERMA said it believes that directors should consider stakeholder interests and maximize social and environmental performance in tandem with financial returns.

Regarding potentially damaging effects on corporate sustainability through the supply chain, FERMA said that the best approach is encouraging companies to maintain a holistic risk management approach. "If the EU wishes to act, it should support guidelines and standards, not create new mandatory requirements," the FERMA statement said.

February 19, 2021