Ukraine-crisis accelerates ESG agenda

On the whole, commitments by European corporates to improve their ESG standards have not waivered, despite the knock-on impacts from the Ukraine-Russia crisis coming so soon after the pandemic lockdowns. 

This is according to experts from Marsh, speaking during a media briefing on the risks accelerating the European ESG agenda.

“It reinforces the fact that ESG frameworks and procedures are informing decision-making in real time,” said Amy Barnes, head of climate and sustainability strategy.

Large and complex multinationals are well resourced and increasingly pushing ESG priorities down the supply chain, she said, noting how quickly companies had pulled out of Russia upon the introduction of sanctions.

Nevertheless, supply chain disruptions and commodity price volatility is having a profound impact, according to Bruno Dotti, enterprise risk services and ESG practice leader for Continental Europe at Marsh.

Some smaller food and beverage producers have slowed or even ceased production, due to the rising cost of raw materials and diminishing levels of profitability. For some clients, solvency is a risk.

“The current crisis is putting pressure on supply chains and there is increasing concern about the availability of wheat, fertiliser, maize and timber,” he said.

Sustainable supply chains

In order to navigate the disruption that will continue for some time, Dotti said Marsh was advising clients to accept a bit less margin in the short term in order to build more stability into their operations.

Alternative sourcing, re-shoring, maintaining larger stockpiles of raw materials all come with a cost, but help generate resilience against further disruptions.

Two years on from the start of the global pandemic, Russia’s invasion of Ukraine has again reminded corporates of the importance of risk management in navigating global shocks.

“You need to have the risk function really embedded in the business, it is not easy now to manage the scarcity of raw materials,” Dotti told StrategicRISK. “This is not an issue for 2023, it’s an issue that clients have now.”

“Anticipation and preparedness is of the essence and risk managers will have to be strategic business partners,” he continued. “Integration of risk into the business is key.”

“It used to be that we would discuss these things with the board of directors once a year with a nice heat map.”

“Nowadays its more that the risk function continuously supports the business, because the known risks are incredibly volatile and we have emerging risks year over year.”

Carrot and stick

For their part, insurers can support and encourage clients on their sustainability and transition journeys on a number of fronts. The challenge, explained Barnes, was finding the correlation between ESG performance and underwriting performance.

But research on this front is improving all the time and companies that have a strong focus on managing their people risks and motivating their workforce, for instance, are likely to see fewer and less severe liability claims.

Underwriters will be able to offer better costs, terms and conditions, lower deductibles and broader cover if these correlations can be proved and there is evidence of tangible improvements over time.

For those not performing around certain sustainable development goals (SDGs), such as human rights and ocean health, insurers can put pressure on companies through their supply chain in determining where they will and will not offer cover.