Despite executives ranking environmental risk as the least important category, behind technology, business and PRS (political, regulatory and societal risks), businesses are neither head in the sand nor ignoring the elephant in the room with respect to this area of risk. ESG is rapidly moving up the board agenda.

Unsurprisingly, pandemic is rated as the top environmental risk by 35% of respondents, ahead of climate change (25%) and environmental damage (21%). In contrast, food insecurity (10%) and energy transition (8%) risks were ranked much lower.

A closer look at our research findings suggests businesses’ concern is displaced into something more immediate. Regulation and legislation – including that relating to environmental risks – are cited by 36% of respondents as the top risk within the PRS (political, regulatory and societal) risk grouping. With a raft of regulations coming down the track, executives will be thinking about compliance, the processes they need to put in place to ensure adequate reporting, and the reputational impact of failing to do so.

Aligning social and corporate goals

Quarterly reporting and shareholder demands require companies to focus on the here and now - on issues directly impacting performance. While companies are not bearing the brunt of the environmental cost of their operations – for example removing plastic pollution from oceans and beaches – there is limited impact on their bottom line. At the moment, environmental risk is more a public or social issue than a concern for private enterprise; the corporate and social agendas are not in sync.

If we are to achieve the transition to a net zero economy in a way that minimizes the negative impact on infrastructure, livelihoods and entire economies, however, we will need a unified approach aligning corporate and social agendas.

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ESG comes up on every call we do. As part of the environmental piece, we ask about carbon use and emissions along with overall ESG goals, policies and procedures. While critical for being a good corporate citizen, these factors could also have a financial impact on the business. Ten years ago there was more of a focus on large industrial clients, on their environmental policies and pollution control procedures, but now the importance of environmental protection is front of mind for most companies.

Jeffrey Carney Jeffrey CarneyExecutive Risk Underwriter, Beazley

Changing environment, changing perceptions

Recent events, including rising natural catastrophe frequency and severity, chaotic supply chains, soaring energy prices, the reality exposed by the IPCC’s update on the physical science of climate change, and COP26 will have shifted people’s perceptions, opinions and behaviour since our survey was conducted in February 2021. When we update the findings in 2022, we expect environmental risk will have risen up the list of c-suite priorities.

It’s important to remember, however, that whilst ESG dominates the headlines we need to prioritise the positive tools and technologies that will allow change to happen. If we focus only on compliance requirements or doomsday scenarios, we risk turning off a large part of the global audience that needs to be engaged.

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As part of the wider ESG landscape, there is no question that environmental issues are moving up the agenda. The UK expects larger companies to publish net zero roadmaps and the IFRS has announced it will be introducing global sustainability disclosure standards via the creation of a new Board (the ISSB) and new global standards on climate-related and general sustainability disclosure requirements.

Chris Illman Chris IllmanHead of Responsible Business, Beazley