On episode twenty-six of Coffee Chat with CastleHill, Managing Partner Tim Carbery continues the discussion around Environmental, Social, and Governance compliance.
Joining him is GRC and ESG consultant Tom Birmingham, governance, risk, and compliance professional with twenty-five years experience in the energy industry. He seeks to support companies’ transitions towards more sustainable, ESG-oriented workplaces, with an especial focus on reporting, measurement, and programming.
THE THREE THEMES OF GRC VALUE PROPOSITION
To frame the conversation, Tom Birmingham introduces three themes relevant to GRC value proposition to an organization. The first is the most straightforward: protecting corporate value by maintaining a robust understanding of basic compliance requirements.
The second proposition concerns a company’s business change management processes. As ESG requirements remain in development, it is crucial that organizations improve their processes, systems, and procedures to best support efficient change management. The more efficient an organization’s change management process is, the more adaptable – and therefore, competitive – an organization will be.
“You have to get better about managing change around all of these requirements in the ESG field, particularly around reporting and measurement,” Urges Birmingham. “If you do it in an organized and sustainable way, in my own opinion, you get better at it, you get more efficient at it, and then you are much more able to adapt and remain competitive.”
The third value proposition is in helping company-wide business strategy adoption.
“There are a lot of initiatives that the C-Suite likes to push down into the organization. Governance, Risk, and Compliance professionals really understand how that is supposed to ripple through the organization from a policy perspective, from procedures, control environments, training, data management,” Explains Birmingham. He recommends team leaders make use of these professionals’ skills by folding them into corporate strategy. “All the elements of a robust risk and compliance program are the same things that one would like to see in a successful strategic initiative. Bringing compliance and risk professionals to the strategy table is a good move by the C-Suite to understand how to make their strategy stick in their organization.”
INTERNAL AND EXTERNAL PRESSURES
With an increased interest in ESG comes new regulations and expectations for the energy industry, both internally and externally. Internally, Birmingham notes the usefulness of a strong governance organization to improve a company’s risk data flow.
“I had a couple of opportunities to work in different corporate structures and it really opened up my eyes to the difference between a centralized governance and compliance approach versus a decentralized approach,” he says. “When we talk about trying to standardize and automate the flow of compliance-related information, it’s really helpful to have a strong central operation that can organize and standardize all the policies and procedures that you want to push down into the organization. The trick is to balance that with decentralized decision making.”
The energy industry has been under increased scrutiny from external sources, as well. “There’s a lot of growing expectation from regulators, shareholders, and consumers around responsible behavior of companies. Part of that is coming from a look at how well companies do operate: how efficient they are, whether they can get things done in a short period of time, whether they are cost-effective,” explains Birmingham. But beyond the traditional pressures of shareholder investment, Birmingham notes a new trend rising in the energy industry.
“What’s really interesting on the ESG front is the shareholder interest in companies’ non-financial performance. I think the shareholder and investment community are really getting pressure themselves from their investors, saying, ‘Hey, how risky is my investment in this economy, in this industry? I need more information to make an informed decision,’” says Birmingham. “Increasing interest increases pressure on companies to get better at their reporting.”
“It’s really interesting how the pressures are mounting rapidly in the energy industry and how those pressures will mirror themselves in other industries,” comments Carbery. “From an ESG-perspective, is this focus really driven by the environmental aspect, or are there social and governance aspects of it, too?”
“It’s definitely all three,” confirms Birmingham. “The challenge is trying to manage all three at the same time.”
Check out Episode 26: ESG Risk Management Insights from the Energy Industry to hear more about the changing landscape of ESG, or email us at: info@castlehillrisk.com