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The Ascendency of Environmental, Social and Governance Risks

2020 and 2021 have definitely been bumper years in risk management. Businesses, governments and financial institutions face serious risks on all fronts – whether hidden in their supply chain, their client relationships or in their operations. In the wake of the global pandemic, we are all living through the outcome of how we have, or have not, successfully managed those risks.

As the G7 leaders meet in sunny Cornwall, it is interesting to reflect on which risks will dominate the next few years. It is natural that the risk landscape alters over time, but I think it is fair to say that underneath all other concerns, the nature and understanding of risks has changed noticeably over the last few years. Global leadership on these issues matter more than ever – to drive change, inspire others and enhance regulatory guidance – and we are seeing a resurgent America re-join the world stage and start to exert its influence on the global stage.

At the heart of the new risk agenda for groups such as the G7 is to understand what new governance models need to put in place around tackling climate change, the environment and wider issues society such as exploitation and modern slavery. These risk factors are often clustered as ESG – or Environmental, Social and Governance – Risk and may pose questions to decision makers such as:

  • Can my organisation continue to support or finance coal-fuelled power stations, or companies involved with the deforestation in Brazil?
  • Are we comfortable with our clients’ exposure to a regime that turns a blind eye to modern slavery?
  • Is enough being done to counter bribery and corruption? 

In answering these questions, corporations face a combination of regulatory, reputational or moral incentives – but if we are to create a more prosperous and safer society more may need to be done.  

Consumer preferences are rapidly shifting too – partly as a result of the pandemic – and there is growing demand for brands who are actively conscious of potential reputational issues, and the public reaction can be extremely cruel to organisations who are caught unaware of poor or illegal practices in their vendor networks or supply chains.

The challenge here is to find a way to reliably measure corporate exposure to these important risks. Our Ripjar technology has proved expert at understanding when clients are connected to financial crime, and this week I was delighted to announce at our user forum that we will be extending the same machine algorithms to review news and media data for signals relating to ESG risk to help organisations get ahead of their potential exposure and make the right decisions about who to do business with.

The next 5 years will see a huge shift in sentiment against poor ESG practices. No longer will it just be a large group of activists at events like the G7, but it is likely that public opinion shifts behind the move for governments, banks and corporations to do more and work more efficiently to guard against ESG risks. Contact us today to find out how you can put effective controls in place.

Gabriel Hopkins
Chief Product Officer, Ripjar

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