Page 621 - COSO Guidance

3. Performance for ESG-related risks

Table 3c.5: Example of costs and benefits to business and society

Entity costs and benefits Societal costs and benefits

Cost • May include direct costs (e.g., establishing a program, • May include social costs (e.g., job loss, costs of health care,
wages, IT systems or infrastructure, contractors) and increased prevalence of disease)
indirect costs (e.g., overhead) • May include environmental costs (e.g., pollution, soil
• May include opportunity costs associated with the use depletion, water scarcity, greenhouse gas emissions)
of resources
Benefit • May include the financial and non-financial benefits • May include social benefits (e.g., increase in leisure time,
associated with the strategy and objectives affordable housing, feelings of safety and security, lower
• May include revenue, reputation benefits and contribution rates of disease)
to ESG-related targets or objectives • May include environmental benefits (e.g., value of
• May include benefits of recommended responses relative benefits from a watershed, improved air and water
to other options quality, biodiversity)
• May include cost savings and avoided costs

Circular economy cost-benefit analysis

With growing regulatory risk in relation to e-waste, an electronics company explored the opportunity to
implement a take-back scheme. Under the scheme, all products will be taken back from the customer for
resale, recycling or disposal at end of life.
The company assessed the financial benefit to be USD$0.7 million resulting from increased revenue from
the sale of recycled materials, reduced raw material costs and the cost to implement the reverse logistics.
Before deciding on whether to implement the scheme, the company also considered ESG-related costs
and benefits to society. The significant costs and benefits included:
• The environmental benefit (to society) of approximately USD$6 million from diversion of customer
products (waste) to landfills, which saves space
in the landfill and therefore increases its life 20 M $
38
• The social benefit (to society) of approximately
USD$12 million from job creation and Public
health
promotion of public health from the responsible
management of toxic chemicals such as lead
and mercury found in electronics Job
39
creation
From this analysis, although the financial return 10 M
was negligible, including the environmental and
social benefits increased the total benefit of Diversion of
waste from
the program to USD$18.7 million. The company landfills
can also expect brand and reputational benefits
associated with this program (although these were
not quantified). Financial Environmental Social Total
benefit
benefit
benefit
benefit
This analysis can support decision-making by capturing total environmental and social costs and benefits
leading to additional value through the organization’s license to operate, enhanced resilience and efficiency
and sustainable growth. The COSO ERM Framework states that for an especially important strategy or
business objective, there may not always be an optimal risk response from the perspective of costs and
40
benefits – particularly a financial benefit. In these circumstances it may be appropriate to incorporate this
type of analysis into the business case.
Implementing the risk response
Once entities determine the approach, they implement their Guidance
responses, which involve developing and executing an action plan
for each risk response. At this point, the ERM process begins to Implement the risk response to
influence day-to-day business decisions to preserve and potentially manage the entity’s risk
create value for an entity (see Table 3c.6).

74 Enterprise Risk Management | Applying enterprise risk management to environmental, social and governance-related risks • October 2018