Why ESG Risks Matter
There is a strong, positive correlation between ESG practices and financial returns
ESG risks are real and so identifying and thereafter managing and mitigating them can help reduce costs. Conversely, failing to identify, report, manage and / or mitigate can lead to increased costs. Equally, a well-considered strategic review of your organization’s ESG risk landscape can reap financial rewards through opportunity identification.
Multiple bodies of research show that companies with strong ESG-related policies and practices typically enjoy:
- Lower risks (number and financial exposure)
- Lower cost of capital
- Improved operational performance (increased efficiency; more efficiency resource utilization)
- Better share price performance over the longer term.
Strong ESG practices can deliver significant benefits for an organization. These include:
Organizations focused on ESG and sustainability are much more likely to attract, acquire and retain new customers and drive customer engagement and loyalty.
Organizations focused on resource efficiency (energy efficiency, water-efficiency, waste management) typically have lower cost structures.
Regulatory and Stakeholder Relationships
Typically, organizations that are more responsible about their environmental footprint are less likely to be the recipients of adverse regulatory outcomes.
Millennials are increasingly attracted to mission driven, purpose driven, and socially responsible organizations. Given that millennials will represent 75% of the workforce by 2030, this is now an imperative for any forward-thinking organization.
Strong ESG risk management practices will include a review and understanding of both Physical risks and Transition risks. Additionally, they need to include a review of ESG-related opportunities.
Failing to identify, report, manage and / or mitigate ESG risk can lead to a significant increase in costs.