ESG 'biggest risk' to 60% of businesses, research suggests
62% of business leaders see ESG risks as one of the two most impactful risks facing their organisation, yet only half of risk executives have fully incorporated ESG and sustainability risk into their risk management, according to new research from research firm Verdantix.
Verdantix surveyed 200 senior leaders across financial and industrial sectors, and found that more than half (52%) of firms see climate-related threats such as risks to physical assets, or risks emerging from the energy transition, as “very material risks” to their business during the last 12 months.
In addition, 37% say their physical operations will face significant risk from climate change between now and 2030. Yet the lack of speed in incorporating these topics into their risk management frameworks are holding firms back and leaving them vulnerable to financial repercussions, Verdantix says.
Indeed, just 19% of respondents are leading contributors to net-zero and climate risk strategies, the firm adds.
In the wake of mounting climate urgency and growing rates of climate change disruption, businesses failing to act on these risks are left exposed to financial repercussions – including heavy fines, reputational damage and reduced access to capital. These factors are fundamentally changing the decision-making landscape for insurance business leaders, and the ability of organisations to effectively manage and communicate these risks will significantly impact their viability and effectiveness.
Climate change and ESG demand ‘rapid adaptation’
“While two-thirds of our survey respondents recognise the physical and financial risks of ESG and climate change to their organisations over the next seven years, they have yet to quantify these challenges and build them into broader risk frameworks,” explains Bill Pennington, Vice President of Research at Verdantix.
“Our view is that risk professionals will now have to adapt rapidly, broadening their responsibilities, engaging with new stakeholders, and leveraging technological solutions and external expertise.
“In-house risk teams and their advisers are ideally placed to play a prominent role in helping their organisations navigate a changing operating environment. However, to meet these challenges, risk professionals will have to adapt their approaches, develop new skills and get buy-in from their boards.”
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