Final answer:
The ERM component described is 'event identification,' which focuses on recognizing internal and external events that can affect an entity's goals, distinguishing between risks and opportunities, and directing opportunities towards strategy and objectives setting.
Step-by-step explanation:
The component of the Enterprise Risk Management (ERM) framework that is best described by the identification of internal and external events affecting achievement of an entity's objectives, which includes distinguishing between risks and opportunities and channeling opportunities back to management's strategy or objective-setting processes, is b. event identification.
In the context of ERM, event identification is a crucial step where risks and opportunities are recognized and considered for their potential impact on the organization's goals. While risk assessment involves evaluating the identified risks to determine their magnitude and the likelihood of occurrence, event identification is essentially about recognizing those potential events in the first place. Lastly, the events classified as opportunities are relayed to the management for strategic planning and the setting of objectives, thereby ensuring that the organization can capitalize on positive occurrences while mitigating negative ones.