DNV is helping companies to respond to the challenging new world of managing Corporate Responsibility (CR) risks, with its escalating demands for transparency and accountability.
Society’s expectations of companies have broadened over the past decade. It’s no longer enough for companies to explain what they do with the money they make. They are increasingly being held accountable for how they make it.
Companies are also regularly judged on how they report their CR performance. Is the reporting ‘greenwash’ or is it trustworthy? Failing to respond in a credible manner can put a company’s reputation at risk. It can even threaten a company’s social licence to operate.
New risks, new responses
According to Tom Andresen Gosselin, Acting Global Manager of DNV’s CR Competence Area, the new risk reality requires more coordination and communication than perhaps ever before in business.
“The globalisation of business and rapid changes in geo-political and environmental conditions present companies with growing levels of complexity and uncertainty in their operations,” he says. “Businesses today have to navigate a fast-changing competitive landscape to retain and strengthen their long-term profitability.”
Gosselin also points out that companies face intensifying scrutiny from a range of stakeholders: regulators, investors, creditors, insurers, employees, customers, non-governmental organisations and others are all increasingly demanding that companies demonstrate systematic management of CR risks in their business processes.
Need for innovative forms of risk management
“Many companies are today working hard to understand the issues that concern stakeholders and build that knowledge into the management of their business,” says Helena Barton, responsible for DNV’s CR assessment and report verification services. “Stakeholder engagement has become an important activity for many companies to gauge and respond to the ‘terms and conditions’ that underpin their social licence to operate. Some use quite sophisticated ‘risk radars’ to track changing social expectations and improve their risk management processes.”
However, the key is to understand which of the issues highlighted by stakeholders present a material risk to the business and prioritise them above all the myriad of issues that companies might be expected to respond to. “Mapping out your CR risks according to how they affect key business value drivers is a very useful exercise, not only as a starting point for building a strategic response but also as an ongoing register of where your company is most exposed and needs to focus attention to protect its value,” says Barton.
Bridging the ‘disclosure gap’
Communication regarding CR performance is a key aspect of risk management, and a growing number of companies are now reporting regularly on their CR targets and performance, helped by the concept of ‘materiality’. This is helping to bridge the disclosure gap between information in the public domain and unreported risk management activities.
“Many companies are doing a great deal to manage their CR risks but no one knows about it. This is a gap that needs bridging to fully restore trust to the market, in the wake of all the corporate scandals of recent times,” says Gosselin.
To maintain confidence in corporate reporting, many companies are increasingly seeking independent assurance. “Independent verification lifts the quality and credibility not only of the report itself but also of the reporting process,” explains Barton. “It also enhances stakeholder trust in the company. Mainstream investors and analysts are increasingly relying on independently verified social and environmental information in their valuation of companies.”
Moving from commitment to practice
Although there is no single universal definition of CR, it is often spoken of as a commitment to a set of values that recognise the role of business in building a better society. However, the challenge for companies is how to move from commitment to practice.
“In DNV, we understand CR as a business approach to achieving long-term value for shareholders and broader stakeholders through sustainable environmental, social and governance practices,” says Barton. “CR is really a way of doing business; it’s an active process of managing risks and seizing opportunities arising from environmental, social and governance practices, at both strategic and operational levels.”
Indeed, this is the approach taken by many companies who are considered sustainability leaders. They regard CR as a strategic asset that contributes to the company’s financial success through improved management of intangible assets, such as reputation, brand, people, relationships, organisational efficiency and innovation. In their experience, strategic, effective CR risk management helps to build a competitive advantage by attracting investors, protect and leverage intangible assets, strengthen the company’s market position and stimulate long-term profitability.
DNV – helping companies reap rewards
Working on the frontier of risk management solutions for more than 140 years, DNV has been preparing for CR to move from the margins to its current position in the mainstream of business and investment. Today, DNV provides a strong portfolio of cutting-edge solutions to help companies manage their CR risks – and seize new business opportunities.
“We are currently helping a range of customers around the world, from large multinationals to SMEs, to better understand their CR risk profile and respond to changing social expectations and environmental realities,” says Gosselin, and concludes, “We provide the specialised knowledge and assurance they need to build their own internal awareness and capacity to implement their CR commitment. We also help them communicate with the marketplace so that investors, consumers and other players can reward companies for their performance and transparency.”