What are ESG risks?

Every company’s approach to ESG is different, which means their risks are different, but the key to any risk is knowing that it’s there and having a strategy in place if the worst should happen. 

Let’s dive deeper:

They are anything connected to the three pillars of ESG that could impact the finances or performance of your business. 

From that definition alone, you’ll see that ESG risks cover a vast amount of variables. Keeping track of everything can be difficult, although dedicated ESG training could make it easier. 

ESG has its lovers and haters, but the movement has rapidly gained momentum over the past ten years and will likely continue. 

Because of that, consumers and investors will likely tie their business decisions to ESG criteria more and more. At some point, it could become so common that they don’t even realise they’re doing it. 

Not moving this trend risks both reputational and financial damage. No board or executive team will want to have to explain this to shareholders. 

To add some context, experts estimate that the total value of ESG-related assets will top $50 trillion by 2025. Such a large amount of money gives you an idea of how significant ESG risks could be.

Let’s break it down across the three pillars:

• A company’s treatment of waste
• A company’s carbon emissionsA company’s impact on its local environment (do harmful substances affect the population? Are natural habitats impacted by development?)

• A company’s diversity and inclusion policy?
• A company’s partner organisations/suppliers and whether they have questionable human rights/worker welfare records
• A company’s handling of workplace disagreements, harassment cases or dismissals

• A company’s governance structure and boardroom culture
• A company’s code of conduct/ethics
• A company’s remuneration policy

Strategy. It’s that simple. 

Boards and executives carry much of the responsibility for company strategy, and through this role, they need to ensure it incorporates ESG risk. 

Remember, this rarely means developing a standalone ESG strategy incorporating risk. It’s a tactic that may have worked in the past, but with the level of attention ESG has now, it’s a bad idea. 

Instead, boards and executives should incorporate ESG risk and the broader ESG strategy into the overall business strategy. In other words, everything is linked. Every need is thought through. Every goal respects every other.