ESG risk: how should a company manage it?

ESG risk refers to the legal and financial risks that can arise for a company due to problems related to the environment (Environment), society (Social), and governance (Governance), and advance inspection and the establishment of a management system are key.

This is not a matter of image management; it is an area where, if it leads to environmental regulation violations, labor problems, or inadequate internal controls, it can result in administrative dispositions, criminal liability, and even investment restrictions.

In particular, because ESG risk is connected not to individual incidents but to the overall operating structure of the company, systematic management is necessary.

It is necessary to approach ESG risk management through the following stages.

① Identifying ESG Risk
You should identify risk factors related to the environment, safety, labor, and disclosure that may arise in the course of business.

② Reviewing Internal Operating Standards
You should check whether the environmental management, human resources management, and internal control systems comply with the relevant laws and standards.

③ Reviewing Disclosures and External Information
You should check whether the ESG disclosures or promotional content match the actual operations, and exaggerated or false information can become a separate legal risk.

④ Establishing a Response System
It is important to organize the response procedures and the structure of responsibility in advance in case a problem arises.

Because ESG risk is an area where advance management is far more important than a response after it occurs, it is necessary to inspect the risks based on the entire corporate operating structure and to establish a management system.