The Federation of European Risk Management Associations (FERMA) has told the European Commission that enterprise risk management (ERM) is the best method for companies to approach the new EU requirements for large companies to report on their non-financial or corporate social responsibility risks.
This comment is at the heart of FERMA’s response to the Commission consultation on Non-Financial Reporting Guidelines, following article 2 of Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups. A large proportion of the 4700 European risk and insurance managers represented by FERMA work for companies that are within the scope of the Directive. As skilled specialists, they are responsible for managing the enterprise risk management process.
Under the Directive, which goes into effect in 2017, large public-interest entities, such as listed companies, should disclose in their management report relevant and useful information on their policies, main risks and outcomes relating at least to: environmental matters, social and employee aspects, human rights, anticorruption and bribery issues, and diversity in their board of directors.
FERMA President Jo Willaert said: “It is difficult for specialists in each department to connect different aspects of risk across functions, leaving grey areas where reporting may be incomplete. We, therefore, urge the Commission to recognise in the guidelines the fundamental role of risk managers and the value of ERM methodology in the reporting of non-financial or corporate social responsibility elements, which require a deep understanding of the business model of the organisation.”
He added: “Risk reporting is a key element of the risk manager’s role. Because of the cross-functional nature of the risk manager’s mission, he or she is the best placed person in the organisation to provide assurance that the various types of risks, including those related to corporate social responsibility, have been identified and managed.”
ERM is defined as a process “designed to identify potential events that may affect the entity, manage risk to be within its risk appetite and provide reasonable assurance regarding the achievement of entity objectives.” It is internationally set out in frameworks, such as the US COSO, and recognised in international standards.
FERMA has also told the Commission that the value of reporting the risks connected with non-financial elements of business conduct goes far beyond concern for reputation management. “Being in control of these risks opens the way for productivity and efficiency gains over the long term. The creation of a complete, company-wide risk management policy, including non-financial aspects, that leads to thorough risk knowledge should be seen as a global decision-making tool for the board,” stated FERMA in its submission.
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