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Risk Management in the SDGs and ESG era Focusing on the Evolution and Prospects of Risk Management

  • Legal Theory & Practice Review
  • Abbr : LTPR
  • 2024, 12(2), pp.281-322
  • Publisher : The Korea Society for Legal Theory and Practice Inc.
  • Research Area : Social Science > Law
  • Received : May 2, 2024
  • Accepted : May 22, 2024
  • Published : May 31, 2024

Kim, Young-Kook 1

1미드웨스트대학교

Accredited

ABSTRACT

All overseas events that occur in the globalized business environment, such as the Myanmar military coup last year, human rights issues in the Xinjiang Uyghur Autonomous Region, and the recent Russian invasion of Ukraine, are ESG risk events that Korean companies must respond to without delay. When unpredictable natural disasters such as major earthquakes, nuclear power plant accidents, flood damage, etc. occur, small and medium-sized businesses suffer a lot of damage and are unable to produce important parts. Eventually, production of semiconductors, automobile companies, home appliances, etc. will come to a halt due to disruption of the supply chain. In this situation, Korea as well as the world will suffer a greater economic blow than expected. In order to respond to these risks, you must consider the various risks surrounding the company as a whole and build an efficient portfolio for all management risks. It is necessary to implement overall risk management not only at the corporate level, but also at the national scale, with the idea of ​​minimizing risks. So, how should corporate risk management evolve in the future in order to keep pace with the megatrends of the SDGs/ESG era, respond to new risks without overlooking them, and survive in an era of high uncertainty? There are three main perspectives. The first is business portfolio management to ‘take appropriate risks’ for active business development. One of the most frequently mentioned things in recent discussions on corporate governance is the need to increase corporate value through ‘appropriate risk taking.’ In other words, it is necessary to not only reduce or avoid risks by optimizing risks and profits, but also to boldly take risks and aim for appropriate profits. To this end, it is necessary to establish systems and mechanisms for ‘business portfolio management.’ The second point is to identify and manage ‘new risks’ that capture megatrends. ‘New risks’ are risks that could not have been predicted in the past, and are risks that companies have struggled to cope with, especially in recent years. In recent years, SDGs/ESG-related risks have accounted for most of the ‘emerging risks’. How to identify and manage these situations has become an urgent task facing companies. The third point is to ‘strengthen the resilience of critical operations’ so that business can continue and contribute to society even if a major crisis occurs. Since there are certain limitations in identifying ‘new risks’ without disclosing them in advance, the last resort is to ensure that the company is resilient enough to continue business in case something happens. In this study, we briefly reviewed the overall ‘ESG risk management’ being promoted by companies. This topic will see significant progress over the next few years and will have a significant impact on corporate practice. Environment/Social/Governance is understood in the context of understanding how ESG factors surrounding a company affect corporate value. For example, external events such as the demand for decarbonization to prevent global warming (E), the demand for human rights protection in the supply chain (S), and the demand for strengthening the governance structure for the appointment and remuneration of outside directors (G) have a negative impact on the future corporate value of individual companies. Does it have an impact, and what steps are companies taking to address it? That's the argument. Here, opportunity (+) means that business performance can be improved by resolving ESG issues through core business. Additionally, risk (-) means that ESG requirements cannot be complied with, thereby hindering the sustainability of the business.

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