Boardrooms yet to fully grasp ESG risk - Marsh

Many global firms are still failing to prioritise environmental, social, and governance (ESG) risks in the boardroom, which is creating worrying gaps in their evaluation and mitigation of these mounting hazards, according to Marsh.

The global broker’s report, Evaluating ESG and pandemic risk reporting trends: FTSE 100 and global exchanges risk analysis 2021, examines the annual reports of the companies comprising the FTSE100 Index as well as 60 leading companies listed on the New York Stock Exchange, Euronext, and Hong Kong Stock Exchange, covering the July 2020-July 2021 reporting period.

The analysis identifies trends in ESG reporting and measures firms’ preparedness to respond to future ESG and pandemic risks.

It found that businesses listed on Euronext are the most concerned about ESG exposures, with 90% of the sample citing ESG risk as a key priority in their annual reports.

However, of the New York Stock Exchange companies sampled, 35% named ESG as a top risk, followed by 30% for those on the Hong Kong Stock Exchange. Just one-fifth (21%) of FTSE100-listed companies viewed ESG as a principal risk in their annual reports.

While nearly all organisations sampled mentioned environmental risk in the principal risk sections of their annual reports, social responsibility mentions were low overall – pointing to a concentration across all exchanges on the environmental aspect of ESG evaluation.

Less than one-third (30%) of the FTSE100 sample showed evidence of standalone reporting on climate change risk in line with the TCFD (Task Force on Climate-related Financial Disclosures), which advocates making 11 recommended disclosures around four core elements of climate-related risks.

From April 2022, TCFD disclosure will be mandatory in the UK for the 1,300 largest UK-registered companies – including traded companies and private organisations – with over 500 employees and £500m in turnover.

David Stark, global leader, Enterprise Risk Management, Marsh, commented: “Growing public and investor consciousness around ESG issues means boards are increasingly required to devote more time and resources to the management of the social and governance facets of ESG risk.

“By taking a more proactive approach at board level, organisations can seize the opportunity to improve their risk management around ESG, gain wider access to capital, and better meet investors’ expectations.

”Alternatively, they run the risk of having third parties estimating their ESG and climate change exposures, which could have financial and reputational implications in the longer term.”