ESG is now high on the agenda for risk managers

Risk-management professionals are now routinely expected to manage environmental, social and governance issues, according to a new survey released this week by Airmic. 

45% of risk professionals responding to the survey said they had some responsibility for ESG. ESG was also the area most respondents said they required more training in.

“More and more organisations believe that climate change will start to have a material impact on their business within one to two years, as borne out by previous Airmic research,” the association said.

“Businesses need to be prepared for transition risks. They need to anticipate rapid shifts in policies and regulations, besides developing low carbon technologies, and respond to changes in consumer behaviour and investor preferences,” says the report.

The study also highlighted the importance of not overlooking the “S” and the “G” in ESG whilst dealing with the ever-growing risks presented by climate issues. 

“Businesses that aren’t doing enough for racial, gender, and lesbian, gay, bisexual, and transgender (LGBT) equality – or that are perceived as being complicit in undermining equality – have experienced consumer and government backlash. These represent major reputational risks, and as investors and rating agencies become more attuned to ESG issues, may have direct and immediate impact on the financial value of businesses.” 

ESG failures linked to increased operational risk

Another study released this week by business analyst Dun and Bradstreet warns businesses that missing ESG targets can increase operational and financial risks. 

The study gathered insights from more than 260 decision-makers in compliance, sustainability, procurement, finance and risk across the United States, Canada and United Kingdom and looked at “the state of ESG data usage by enterprises”. It highlighted the following key findings: 

  • Improved ESG performance drives profit. Four out of five respondents stated that their company’s current ESG strategy has created a significant or transformational increase in revenue.
  • ESG insights uncover growth. 79% of respondents agreed that ESG-related insights allow them to identify new growth opportunities earlier.
  • Insufficient ESG data is the biggest challenge. 47% of respondents cited that they do not have enough data, with a further 46% unable to validate and therefore trust data. 

The study suggests that as a result, many firms are unable to optimise their use of ESG data “resulting in serious operational and financial consequences – from regulatory non-compliance, to fines and a weakened global supply chain.”

Deutsche Bank and Goldman Sachs raided over greenwashing claims

ESG is a hot topic for regulators at the moment too. Both Deutsche Bank and Goldman Sachs have been raided by authorities in recent weeks for allegations of greenwashing.

The US Securities and Exchange Commission, which raided Goldman’s offices, is yet to put in place specific rules around ESG-related issues. However, reports suggest the regulator will be looking into whether Goldman made accurate disclosures to clients about the nature of their investments.

Deutsche Bank, and asset manager DWS Group – which was part of Deutsche Bank until 2018 – were raided by police at their Frankfurt headquarters in May over greenwashing allegations.