Abstract
The goal of this paper is to examine how cultural differences moderate the effectiveness of an organization’s enterprise risk management (ERM) program in sustainable decision-making. Using an experimental design, this study found that Chinese participants, characterized by a stronger prevention focus, were more proactive in mitigating environmental, social and governance (ESG)-related risks under a loss-framed risk management philosophy, whereas American participants, characterized by a stronger promotion focus, were more proactive in mitigating ESG-related risks under a gain-framed risk management philosophy. This interactive effect of matching the risk management philosophy frame to the participants’ regulatory focus was mediated by their perceived processing fluency. The implications for the literature and practice are discussed.
Highlights
In 2018, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD) released a “guidance for applying enterprise risk management (ERM) to environmental, social and governance (ESG)-related risks” [1]
Drawing upon regulatory focus theory (RFT) [15], this paper found that Chinese participants were more proactive in mitigating ESG-related risks under a loss-framed risk management philosophy, whereas American participants were more proactive in mitigating ESG-related risks under a gain-framed risk management philosophy
The results indicated that processing fluency was significant (β = 0.53, p < 0.001), whereas the interaction of culture and philosophy was no longer significant (β = 0.13, p = 0.16)
Summary
In 2018, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD) released a “guidance for applying enterprise risk management (ERM) to environmental, social and governance (ESG)-related risks” [1]. This guidance provides significant implications for integrating COSO’s ERM framework into managing ESG-related risks. Given the significant increase in sustainability-related issues, it is important for companies to employ risk management as a tool to manage ESG-related risks and ensure business operational sustainability [2,3]. This integration has a critical impact on an organization’s sustainable development [4]. Despite the importance of risk management in sustainable business, there is insufficient research regarding the relationship between ERM and sustainability in the prior literature [10], regarding the impact of ERM on sustainable decision-making [11]
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