Insight from Japan: Why companies are interested in applying enterprise risk management for environmental, social and governance-related risks

Published: 22 Feb 2019
Type: News

We’re excited to announce that a portion of “Enterprise Risk Management - Applying enterprise risk management environmental, social and governance (ESG)-related risks” has been translated into Japanese.

This is an important development in helping businesses worldwide respond to the increasing severity and prevalence of ESG-related risks and opportunities.

We’ve gathered some comments from The Institute of Internal Auditors-Japan about why it’s important for Japanese companies to have access to the new COSO guidance on ESG-related risks and opportunities.

“Firstly, in recent years, Japanese companies have been increasingly interested in ESG, SDGs, and Integrated Reporting, and numerous translations of various guidance and frameworks have been published in the local language.

However, these guidances have been prepared in accordance with the position of each creator, therefore, they allow organizations to muddle their ideas about what criteria they should focus on with respect to ESG. This could be one of the causes of the bias that allow people mistakenly identify ESG as minor task for particular people in the organization.

I believe this guidance that is designed based on COSO-ERM and its processing will help to provide a good reason for organizations’ efforts in ESG and relevant practices. And it will also enable companies to analyze, discuss and interact with ESG and relevant practices through COSO-ERM lenses, thereby promoting unified initiatives for those efforts.

Secondly, we see a tendency that major institutional investors in Japan have been emphasizing ESG (i.e.; GPIF [Government Pension Investment Fund] started to invest into ESG index). Therefore, I expect this guidance is utilized in discussions on ESG between companies and major institutional investors referring the COSO-ERM framework, as well as in various media such as corporate disclosure including ESG reports and integrated reports. I also expect corporate management to recognize the advantage in using the COSO-ERM framework and to promote it in their organizations.

Thirdly, as described above, some groups such as GPIF are highly interested in ESG investment. However, this interest is not spread throughout society yet. The reason for this appears to be differences in issues and expectations among investment managers and other parties in the investment chain. We believe this guidance could be a solution by providing a common perception to resolve the gaps between the issues and expectations, and will help to encourage further penetration of ESG investment in the society.

Fourthly, since the guidance covers a specific category of ESG-related risks, it is expected to facilitate understanding of structure of the COSO-ERM framework and provide an opportunity for Japanese companies to utilize the COSO-ERM together with compendium.” - Taro Yoshino, CIA, Team Leader  Lifeval Audit Team, Tokyo Gas Co., Ltd

“Stakeholders involved in Internal Audit and enterprise risk management (ERM) in companies or other organizations in Japan have a strong interest in recent subjects such as consideration for environmental, social and governance (ESG), promotion of SDGs and integrated reporting.

They want to obtain insights on how to utilize ERM for improving the sustainable value of their organization in the long-term.

To do this, effective and efficient implementation of ERM is required so that organizations can create and maintain value.

Additionally, the new ESG guidance is focused on culture as an important pillar. From this sense, the fact that there are number of long live corporations in Japan means that we have to learn from the management style and nature of culture of companies who have come before.

Japanese organizations, which are aiming to be excellent companies, are expected to utilize ERM, performing as good corporate citizens and balancing with stakeholder’s culture.”  - Prof. Takashi Hashimoto, Graduate School of Professional Accountancy, Aoyama Gakuin University

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