Conversations about ESG are picking up at financial institutions, well-known investments firms and other sizable companies — or at least that’s how it seems. Headlines suggest that ESG enlightenment is becoming a front and center issue for organizations, especially when they have staff devoted to all facets of sustainability.
Even if you are not directly involved in those conversations in your professional role, these conversations can affect you. Thinking that ESG — environmental, social and governance — is not something that requires your attention may end up being more than a missed opportunity. And there may be more at stake than just your reputation. The future of your organization many depend on how you adopt and manage ESG policies.
The principles of ESG will touch everyone eventually. And we are seeing expectations around ESG rattle smaller companies when they are caught off guard. Regardless of what the final regulations say, or who they will officially apply to, ESG can — and probably will — come knocking at your door in ways you may not anticipate. It’s wise to acknowledge it, understand it and plan for it.
Embracing the future starts with taking ESG seriously and devoting the time to understanding the expectations of your stakeholders, who include your employees, shareholders and clients at a minimum. In addition, a full understanding of the regulatory climate is beneficial, because, while formal regulations are not yet finalized, regulators expect financial institutions to understand their risks from a strategic perspective.
ESG risks can be divided into two categories:
- Physical risks: These are the tangible risks that climate has on an organization that result in the destruction of property (e.g., flooding, fire and extreme weather events).
- Transition risks: These are the risks that accompany a society transitioning to decarbonization. These will upend some industries and create new ones.
It’s a mistake to assume these risks would apply to only large businesses. ESG will touch everyone as the global outcry on climate change takes a firmer hold in the minds of the public.
How should you embrace ESG? Start by gaining an understanding of how it applies within the context of your own business. Know what your stakeholders are thinking, assess the risks to your organization and, finally, integrate your strategies for addressing ESG into the overall business strategy. The risks of ignoring ESG could be enormous. Don’t be left behind.
How Wipfli can help
You don’t have to tackle ESG challenges on your own. Determining an ESG program that aligns with your business is uncharted and complicated territory for many organizations. If you’re interested in prioritizing and shaping your ESG strategies, Wipfli can help. Contact us to learn more.
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