Integrating ESG Risks into Control and Reporting: Evidence from Practice in Sweden

As transparency and accountability demands around Environmental, Social, and Governance (ESG) risk control and reporting increase, pressure is mounting on organizations to act as good corporate citizens. One avenue to meet these challenges is to integrate ESG risks into Enterprise Risk Management (ERM) in order to improve control and reporting. The aim of this chapter is to examine ESG risk integration by focusing on: (1) How ESG risk is integrated with control, i.e. incorporated into strategic and operational decision-making; and (2) How ESG is integrated into reporting, i.e. incorporated into financial and sustainability reports. Our analytical framework conceptualizes integration as a technical-social process, which has three integrating dimensions and five integrating components. We use a qualitative approach and conduct short case studies in four ESG leading Swedish organizations. The study finds that social processes are important in ESG integration and lead to increased integration on the cognitive dimension. Findings also show how technical processes support social processes, however the use of Artificial Intelligence (AI) in ESG risk management in the organizations is low, as is internal audits role in promoting ESG risk control effectiveness and reporting quality. As this is a nascent area that connects risk management, management control, and financial accounting concepts, future research should engage with leading organizations to better understand the relationships between these concepts to advance theoretical development and create practical insights useful for practitioners.