Allianz issues warning over ESG risks

As the focus on sustainability credentials intensifies, companies are increasingly being held to account by consumers, investors, regulators and other stakeholders; and increasingly face reputational damage or legal liabilities if they fail to make the grade when it comes to ESG issues.

Allianz Global Corporate & Specialty categorises these issues as climate change, water management, biodiversity degradation, exploitation in the supply chain and increasing scrutiny on corporate governance. The insurer says these five key trends will continue to impact businesses’ ESG footprint.

This issue of climate change is already affecting businesses through an increase in physical losses from more severe weather events and potential market and regulatory impacts such as carbon-emissions offsetting. AGCS also warns of litigation risks as climate change cases targeting ‘carbon majors’ have already been brought in 30 countries around the world, with most cases filed in the US. Allianz estimates that responding to the challenges posed by climate change could cost companies worldwide as much £2trn over the next 10 years.

It is estimated that around 40 million people are trapped in modern slavery globally. Human exploitation can take on many forms in the business environment – forced labour, child labour or insufficient standards. Finding it in the supply chain can be difficult, but corporations that fail to take appropriate steps to eliminate human exploitation from their supply chains could face shareholder derivative suits, more D&O claims and reputational risks.

“Businesses need to consider that they are responsible for assessing and policing their supply chains,” commented head of ESG Business Services at AGCS, Chris Bonnet. Companies should hold vendors and suppliers contractually accountable to fair wages and working hours and humane treatment before doing business.

Businesses and their directors are also under increasing pressure to maintain sound corporate governance, as more investors, in evaluating a company, hold it up to ESG standards.

“Firms do not want to fail on governance – it’s literally their bottom line.The prospects of a company are greatly enhanced if it treats its employees right, operates ethically, is fully compliant, avoids reputational risks and earns most of its revenues from sustainable activities,” Bonnet added.

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