Risks create both losses and opportunities in the business environment. Risk management is a corporate priority regarding environmental, social, and governance performance and has a vital role in ensuring sustainability. Businesses must establish a vision framework that considers the long-term opportunities and risks for sustainability and chronic risk management. So what is risk management, and why is risk management critical to sustainability?
What is risk management?
Risk management is a vital tool that all business leaders should have in our technology-driven world, using data on potential risks that may have a positive or negative impact on a business to mitigate and manage those risks. This concept is relevant in many areas, such as finance, law, occupational health and safety, and the environment. It allows us to understand risks before they occur, reduce them, and build resilience against threats and, as a result, sustainability. Risk management is a key component of organizational governance and means trying to control future results as much as possible by being proactive rather than reactive. Consequently, effective risk management offers an opportunity to reduce the likelihood of risk and its potential impact. The way to effectively manage this is to evaluate and solve risks, that is, through risk analysis. Risk analysis involves identifying and assessing existing risks, providing an appropriate solution, and developing preventive mechanisms for the identified risks.
Why is risk management necessary for sustainability?
Risk management and sustainability efforts are linked because Risk management offers a systematic approach to guiding an organization's environmental, social, and governance (ESG) performance and its impact on the Sustainable Development Goals (SDGs). It enables managers to integrate the management of their companies' sustainability priorities into their business models and value chains. Risk management helps an organization establish ESG metrics, design appropriate solutions, and measure and control improvement, which enhances ESG performance over time. Risk management often provides a view of the risks a company will face in the next one to five years, and the same tools can be used longer-term to support sustainability. This means that businesses can benefit not only shareholders but also stakeholders. Sustainability encourages companies to make decisions that promote flexibility and create long-term value regarding financial, environmental, social, and human impacts. On the other hand, sustainability risk is an uncertain social or environmental event or situation that could significantly impact the company. However, there are also organizational opportunities because of changing social or environmental factors. From this perspective, we can state that risk management is a vital component of sustainability. According to the World Economic Forum's 2022 Global Risk Report, the most critical and long-term risks are associated with climate-related risks. This demonstrates that businesses are linking risk management to sustainability.
SOCAR Türkiye’s risk management policy
We recognize that there are many strategic, financial, operational, legal, and similar risks to which we may be exposed and many opportunities we encounter throughout our operations. We must, therefore, quickly identify and systematically manage these uncertainties and opportunities, which can affect the achievement of our objectives and our sustainable development. For this purpose, with a comprehensive corporate risk management model, the risk management process throughout our company is managed by experts responsible for these processes, under the supervision of the Early Detection of Risk Committee, within the framework of the decisions taken by the Group Risk Committee. Our Risk Management Unit works under our Board of Directors to provide senior management and unit support to all our group companies by international standards, especially ISO 31000 Risk Management. Therefore, we ensure that our work is practical, objective, and independent.
We have created the Environmental, Social, and Governance Risk Register, based on the COSO (Committee of Sponsoring Organizations) guide, which is an internal control guide and the best practices worldwide. Based on the risk management of 2021, we have developed a specific risk management process to respond timely and effectively to the risks stemming from climate change, which global trends and sectoral needs may trigger. In 2022, we will focus on identifying the risks of climate change and determining their possible effects and necessary actions.
