Environmental, social and governance (ESG) factors are three elements used by corporations to determine the viability of investment opportunities. These investment opportunities come in the form of shareholders for public corporations and various capital investment firms.

The core thinking behind the ESG concept is that companies that practice environmentally conscious business, provide opportunities that benefit customers and employees and responsibly govern their affairs are companies worth investing in.

While there is no standard for ESG, that has not stopped some of the world’s top companies from adhering to various ESG tenets like diversity, equity and inclusion (DEI). Although it can be argued that the fundamentals of ESG are good for everyone, because there is no standard, it’s easy to fall victim to risks in these categories.

What Entails an ESG Risk?

If you were to ask ESG consulting firms, ESG risks involve any actions that demonstrate a company has acted outside generalized ESG expectations. Things like not putting in place hiring practices that account for equity or not taking steps to minimize pollution could be seen as ESG risks.

Essentially, anything that could harm a company’s reputation, and therefore its viability as an investment, can be seen as an ESG risk. Because the stakes are high for these companies, many will partner with ESG consulting firms to seek advice on how to minimize or eliminate these risks.

The Future of ESG

Although ESG has played a prominent role in the decision-making of top companies over the last decade or so, these initiatives have not been without pushback. Some investment companies have stated that they plan to end their use of ESG factors in the coming years.

BlackRock and Vanguard, two of the world’s leading proponents of ESG, announced in late 2023 that they will be suspending their reliance on ESG scores for investment opportunities. Whether this will put fears of ESG risk managers to rest or not remains to be seen, but it would be a smart move for companies involved with ESG initiatives to keep a close eye on global changes in this arena.

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Emily Clarke is providing info about a single platform for your oil and gas software solutions. You can find her thoughts at gas and oil supply chain blog.