# True operational resilience must include investing in ESG Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-02-24 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: Operational Resilience and ESG Risks in RegTech Industry Meta Description: Learn how understanding ESG risk exposure is essential for building a truly resilient organisation. Explore key elements for integrating ESG and operational URL: https://financedigest.com/true-operational-resilience-must-include-investing-in-esghtml _By **Karl Viertel** Managing Director_ [_Mitratech’s_](https://mitratech.com/) Operational resilience and ESG risks are arguably some of the hottest buzzwords in today’s RegTech industry. Operational resilience of course refers to the discipline of enabling an organization’s services to remain resilient as well as prevent, adapt and respond to, recover and learn from operational disruptions. ESG risk management and associated reporting have equally gained in importance over the past two years with the objective to prepare organizations for anticipated seismic shifts in their operating environments. Today, there are few jurisdictions that don’t require some sort of ESG consideration. But what do the two topics have in common? Mainly that your organization’s services cannot be truly resilient if you do not understand your ESG [risk exposure](https://www.financedigest.com/preventing-an-operationally-crippling-ransomware-attack-do-you-know-where-your-risk-exposure-lies.html "PREVENTING AN OPERATIONALLY CRIPPLING RANSOMWARE ATTACK – DO YOU KNOW WHERE YOUR RISK EXPOSURE LIES?"). Resilience without ESG consideration could only address the short term horizon. Understanding potential threats to your organization need to be the foundation of [operational resilience](https://www.financedigest.com/2021-predictions-operational-resilience-takes-center-stage.html "2021 Predictions: Operational Resilience Takes Center Stage"). ESG risk [management is the context needed to understand](https://www.financedigest.com/understanding-management-theories-and-maximising-productivity.html "Understanding management theories and maximising productivity") the threats to the organization beyond traditional threat modeling. Analyzing ESG [impacts will likely not reveal](https://www.financedigest.com/first-listener-wide-study-reveals-brand-impact-of-radio-livestream-and-podcasts.html "First listener-wide study reveals brand impact of Radio, Livestream, and Podcasts") risks but also opportunities that can be realized through new strategies. New [business](https://www.financedigest.com/a-guide-to-building-business-resilience-in-the-financial-services-sector.html "A guide to building business resilience in the financial services sector") areas may have different resilience profiles and as such will influence your operational resilience program. What are key elements to [consider when shaping a second line encompassing both ESG and operational](https://www.financedigest.com/europes-wizz-air-considering-a-saudi-operating-license.html "Europe’s Wizz Air considering a Saudi operating license") resilience? - **Integrate with existing methodology** Do not try to reinvent the wheel from a process perspective. If you have sound and comprehensive ERM processes in place, leverage these to address [ESG risks](https://www.financedigest.com/what-banks-need-to-prepare-for-eba-pillar3-disclosure-of-esg-risks.html "What Banks Need to Prepare for EBA Pillar3 Disclosure of ESG Risks") as well. This reduces friction in business lines, people [consuming the reports](https://www.financedigest.com/ikea-reports-record-sales-as-price-hikes-offset-weakening-consumer-confidence.html "IKEA reports record sales as price hikes offset weakening consumer confidence"), and your auditors. Your ESG GRC does not need to be a fundamentally new capability.Additionally, operational resilience relies on understanding the complex dependencies between your people, processes, and technologies [supporting the delivery of a specific service](https://www.financedigest.com/bny-mellon-strengthens-support-for-treasury-services-clients-in-germany-with-appointment-of-gungor-taner.html "BNY MELLON STRENGTHENS SUPPORT FOR TREASURY SERVICES CLIENTS IN GERMANY WITH APPOINTMENT OF GÜNGÖR TANER"). With these dependencies mapped, the [impact of ESG risks](https://www.financedigest.com/russia-could-hike-rates-in-2023-if-inflation-risks-have-big-impact-cenbank.html "Russia could hike rates in 2023 if inflation risks have big impact -cenbank") – and the required mitigants will be evident. - **Develop a comprehensive view of ESG.** Extend your ESG scope beyond the environmental factor. ESG is defined more broadly. Taking too narrow a view on the topic will lead to rework, audit findings, and lost effort. In the case of ESG financing, this may also [lead to misinformed investment](https://www.financedigest.com/invest-in-infrastructure-to-escape-the-starvation-cycle-warns-leading-nonprofit-sector-strategist.html "Invest In Infrastructure To Escape The ‘Starvation Cycle’, Warns Leading Nonprofit Sector Strategist") decisions. - [**Account for ESG risks and opportunities.**](https://www.financedigest.com/accountants-risk-missing-post-brexit-opportunities.html "Accountants risk missing post-Brexit opportunities") Make sure to [account for both opportunities and risks](https://www.financedigest.com/onespan-launches-ai-based-risk-analytics-stop-account-takeover-new-account-fraud.html "OneSpan Launches AI-Based Risk Analytics to Stop Account Takeover and New Account Fraud") within a certain megatrend. Let us assume your organization produces battery technology. Resource scarcity might be a risk. However, [increased demand and technology](https://www.financedigest.com/lumen-registers-increased-views-and-more-positive-response-to-ads-using-seenthis-technology.html "Lumen registers increased views and more positive response to Ads using SeenThis Technology") innovations might be an opportunity. Strategize on how your organization can best utilize information [gathered from identified ESG risk](https://www.financedigest.com/flu-experts-gather-with-h5n1-risk-on-the-agenda.html "Flu experts gather with H5N1 risk on the agenda") analyses. The nature of the mitigation [strategies may differ from traditional BCM planning](https://www.financedigest.com/tax-planning-strategies.html "Tax Planning Strategies"). Adverse effects may not be preventable. Strategies must be defined more broadly. For most organizations, addressing ESG impacts and [increasing operational resilience will require investment](https://www.financedigest.com/investment-in-mental-health-amongst-cybersecurity-professionals-set-to-increase-according-to-infosecurity-europe-poll.html "Investment in mental health amongst cybersecurity professionals set to increase according to Infosecurity Europe poll"). The decision of where to invest [must be based on the quantified risk](https://www.financedigest.com/ecb-must-be-prudent-with-rates-hikes-as-recession-risk-rises-panetta.html "ECB must be prudent with rates hikes as recession risk rises: Panetta") exposure of the affected asset. **Determining your success factors** Both analyzing ESG [risks and building resilience](https://www.financedigest.com/heineken-sees-europe-resilience-offseting-asia-slowdown-risk.html "Heineken sees Europe resilience offseting Asia slowdown risk") strategies are attempting to predict the future and will be inherently flawed. Start now, review, improve. My prediction is that regulators will increasingly require ESG [risk analyses to be incorporated into operational](https://www.financedigest.com/mitigating-operational-risk-through-centralising-reconciliation.html "MITIGATING OPERATIONAL RISK THROUGH CENTRALISING RECONCILIATION") resilience planning and strategies. I believe this is the clear path that [regulation will follow](https://www.financedigest.com/gecko-governance-launches-compliance-solution-for-ico-market-following-approval-by-isle-of-man-regulator.html "GECKO Governance Launches Compliance Solution For ICO Market Following Approval by Isle of Man Regulator"). I further predict that ESG risks will become what [cyber risks are today: a decade ago, cyber risks were a separate category of risk management](https://www.financedigest.com/aon-announces-agreement-to-acquire-risk-management-firm-creating-a-comprehensive-cyber-risk-management-advisory-group.html "Aon announces agreement to acquire risk management firm, creating a comprehensive cyber risk management advisory group"), far off in the CISO’s office. Today, cyber risks are a [key consideration in operational risk management](https://www.financedigest.com/6-keys-to-managing-a-remote-first-workforce.html "6 Keys to Managing a Remote-First Workforce"). I am convinced ESG considerations will be part of all [enterprise](https://www.financedigest.com/managing-mobility-in-the-enterprise-must-have-consideration.html "Managing mobility in the enterprise must have consideration") risk considerations within five years. So what does that [mean for businesses](https://www.financedigest.com/new-credit-rules-and-regulations-for-banks-what-does-it-mean-for-businesses.html "New credit rules and regulations for banks – what does it mean for businesses?") today? Start now and don’t wait. Going down a smart path with an integrated second-line function will ensure your [investment pays off in light of future](https://www.financedigest.com/investing-in-the-city-thats-investing-in-itself-welcome-to-the-liverpool-of-the-future.html "INVESTING IN THE CITY THAT’S INVESTING IN ITSELF – WELCOME TO THE LIVERPOOL OF THE FUTURE!  ") requirements to ESG risk management and operational resilience. **About the author** Karl Viertel is responsible for [Mitratech’s](https://mitratech.com/) global GRC business as Managing Director of the business unit.  After [working in the technology and risk](https://www.financedigest.com/combating-the-security-risk-of-remote-working.html "Combating the security risk of remote working ") divisions of Accenture and Deloitte, Karl co-founded one of the first RegTech companies – Alyne, in 2015. In late 2021, Alyne was [acquired by the legal and risk software](https://www.financedigest.com/iris-software-group-acquires-ps-financials.html "IRIS Software Group acquires PS Financials ") leader Mitratech. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---