ESG RISK TYPES

Natural Resource Usage risk

These are risks that relate to the company’s use of natural resources. Some natural resources are scarce and can become costly, some are debated and may lead to client losses with changing client behaviour, some may become banned or taxed through political decisions.

Natural Resource Usage risk can lead to:

1. Higher costs

2. Lower sales

3. Loss of base for activity

Climate and nature risks

Climate and nature risks are split in two; physical and transitional. The first, physical risk,  is how climate and nature changes can have impact on the direct installations and operations of the company and the second, transitional risk, is how climate and nature changes can directly change the behaviours of clients and other stakeholders and indirectly have an impact on the company.

Climate and nature risks can lead to:

1. Higher costs

2. Lower sales

3. Loss of base for activity

Environmental innovation/Initiatives

Green initiatives risks is about the company’s real action based on willingness and capability to take initiatives to transform the company’s wider value chain to become more environmentally friendly. Companies not being capable of launching these kinds of initiatives may lag compared the competition and loose competitive positioning, or in worst case not be in a position to conduct their business in the future. This may cost in the short run.

Environmental innovation/Initiatives risks can lead to:

1. Higher long term costs

2. Lower sales

3. Loss of base for activity

Supply Chain Footprint risks

The Supply Chain Footprint risks is about the Environmental risks in the company’s upstream value chain. Companies need to be very tight with their suppliers, and not only on paper, but to their processes around the world, their use of intermediate products and raw materials. This permits the companies to have an understanding of GHG emissions, waste, biodiversity impact, etc. of the supply chain. Bad environmental practices in the supply chain of a company can be hard to survive.

Supply Chain Footprint risks can lead to:

1. Higher costs related to urgent supplier replacement

2. Lower sales due to clients leaving

Process Footprint risks

The company’s Process Footprint risks are in the area where a company has the most important leverage to improve as this is their internal process. It is core to have an understanding of GHG emissions, waste, biodiversity impact, etc. of the own processes. Not addressing topics with weak KPI levels represent a clear risk for the company. Therefore historic tracking of KPIs, clear programs and action are important. 

Process Footprint risks can lead to:

1. Higher costs related to emission costs (GHG, waste, etc.)

2. Lower sales due to clients leaving if KPIs are not good

Product/Service Footprint risks

Product/Service Footprint risks are related to the step where the clients are consuming the services or the products. Reducing risks here is about making products with lower emissions, higher recyclability degree, made for sharing, services with lower electricity consumption, etc.

Product/Service Footprint risks can lead to:

1. Lower sales due to clients leaving if KPIs are not good

2. Higher costs if recyclability degree is low and the company is forced to take back products at its end of life.