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Higher priority for ESG risks

The economy is being confronted with sustainability risks on a range of fronts. In 2021, for example, flooding around the world caused economic damage totalling USD 105bn. Severe weather and tropical storms also proved highly damaging. The devastating floods in western Germany and eastern Belgium in the summer of 2021 finally put an end to any lingering doubts that Germany, too, is now being directly affected by climate-related risks.

ESG risks still under the radar

Sustainability risks, however, are not limited to these physical effects of climate change. Fossil fuels such as coal and oil are becoming more expensive and ever scarcer, resulting in increased market risks with a potentially detrimental effect on corporate investments and pension funds. Social and governance requirements mean that managerial misconduct can entail severe reputational harm and damage to a company’s image.

Aon uses a "three-in-one" strategy to help companies identify and assess ESG risks and incorporate them into decision-making.

Martin Stumpe

Yet, according to a recent study, published by Aon, in which more than 2,300 risk managers from 16 industries in 60 countries and regions were surveyed, sustainability risks were not cited as one of the main threats to companies. Sustainability or ESG (Environmental/Social/Governance) risks ranked just 23rd in the list of global risks – even though they have long had a huge impact on the economy. Aon uses a "three-in-one" strategy to help companies identify and assess existing ESG risks and related market/transformation risks, enabling companies to incorporate such risks into their future decision-making in the best way possible.

Outlook

Our analyses clearly show that risks can no longer be viewed in isolation since they are becoming increasingly intertwined. It is also true, in particular with regard to climate-change risks, that an assessment based solely on past developments would not be enough. Only access to climate models and scenarios, databases and analytical tools can give companies the transparency they need to identify the areas in which they are exposed to ESG risks in relation to their various stakeholders.