In the recent past we have seen discussions around Environmental, Social and Governance investment, it is not a new phenomenon, but has risen exponentially in the last five-six years. Including ESG factors in investment strategy is directly related to the financial performance and business sustainability of an organization. The investors and leaders in addition to financial performance have now started considering the risk associated with ESG factors. Interaction among investors, stakeholders and corporate leaders will lead to better understanding of the risk associated.

Climate related issues, capturing investor attention and redesigning business model based on ESG factors are some of the important trends that the organizations need to watch out for in 2019 and years beyond. Let us discuss these 3 trends in details.

• Climate and Environmental Shifts playing a major role

Businesses are already facing a wide range of risk and opportunities and climate issues add a new dimension to it. Majority of the companies acknowledge that climatic changes are posing financial risk for their businesses which includes physical risk and new regulations as the main concern. Due this reason the risk associated with climatic change are being redefined. Organizations have started implementing strategies to minimize their carbon emission which require a significant amount of investment. Organizations need to understand as to how climatic changes are going to affect the financial performance, as climatic and physical aspects has a broader scope. They need to gather information about the climatic conditions of the countries or region in which they are operating. So it becomes mandatory for businesses to invest more in managing current business risk from weather, water and other environmental shifts.

• Seeking Investors and Stakeholders attention

Investors and stakeholders are getting increasingly interested in the strategies and actions being taken by the organizations in terms of the climatic changes. Social and human resource issues are also attracting the investors and stakeholders attention and being watched on with an hawk eye. Climatic and other ESG issues are being considered as an important aspect and that the organizations need to include their ESG disclosures in their annual and other financial reports to capture the attention of their investors and stakeholders. Investors globally consider organizational ability to manage risk as an indicator of vulnerability to environmental shifts. Organizations need to disclose the outcome of their strategies in metrics and reports to gain the trust of the investors and stakeholders.

• Need of Redesigning the Business Model

To have a sustainable business growth, organizations need to reshape or redesign their existing business model. Organizations need to adapt to new approaches in order to loom over resource scarcity, climatic changes and disruptions. Businesses need to have clear roadmap for financial growth and sustainability and also need to fill up the governance gaps. It is in the hands of the organization to lower the impact of climatic and environmental shifts and turn the tables around. Organizations who are already addressing these issues have the advantage of new innovations in technology, business model, economic growth and ways of engaging consumers and investors. The new strategies are imperative for the organizations and have the potential in bringing a massive leap forward.

Implications of ESG factors

ESG has an indirect impact over the financial performance of the organization and needs to be a part of their investment and decision making process. These factors may not be considered during financial analysis and reporting, but they play a vital role in determining how effective health policies organization have for their employees, how do they manage their supply chain and how do they respond to environmental shifts. If there is a risk associated in including ESG factors, then there is an opportunity as well. Organizations need to identify and manage ESG risks and implement new strategies to capture new opportunities. The Boards and C-Suite should have a clear oversight and understanding around the ESG issues to make sure that they have a robust framework in place to meet the governance and compliance regulations.

ConfidentG Enterprise Risk Management solution, an agile and intuitive framework enable investors and key stakeholders to have a 360 degree overview of the ESG risks. Having accurate and transparent information on ESG related risk help organizations to take better and informed decisions. ESG is not about being compliant, it’s all about being long term sustainable.

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