ESG Risk Integration - General ESG Risks

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Country risk
Client risk
Specific Sector risks
Corporate Structure risks

Country risk

Some regions and countries are suffering more than others when it comes to corruption. There can of course be other specific regional or national risks. A company with activities in these regions is more exposed and this is a risk. Transparency International makes a yearly global ranking of the corruption risk for countries: https://www.transparency.org/en/

Corruption risk can lead to:

  1. Fines and prison judgements of managers
  2. Loss of clients through reputational issues
  3. Loss of licence to operate 

Client risk

Some client types are more prone to represent corruption risks, this is typical where salaries are low, and the decision «power» is high. That is where the decisions can have a high economic meaning to a company. Public sector clients and clients in sectors known for a corruption culture come in here. There can of course be other client type specific risks.

Corruption risk can lead to:

  1. Fines and prison judgements of managers
  2. Loss of clients through reputational issues
  3. Loss of licence to operate 

Sector risks

Each sector of activity has its specific ESG risk in addition to the common ESG risks for all sectors and companies. This is important for the materiality of ESG risks, with other words what ESG factors that are the most important to consider when deciding the total ESG risk of a company. These are also the ESG risks that the company must ensure they control and mitigate as good as they can.

Sector risk can lead to:

  1. Sector risk can be all kinds of ESG risks, but they represent the ones being typical or specific for a given sector.

Corporate structure risk

A complicated corporate structure or a corporate structure with many weak control links is at risk of having low transparency on sustainability and ESG relevant information. Examples can be a cascading owner structure with a low owner share or many joint ventures. A company with low transparency on ESG factors in their operations is not capable of having a good view of their ESG risks. It is more demanding to execute a sustainability strategy in a low transparency environment. Companies must work to increase the transparency on ESG factors throughout their cascade of companies.

Corporate structure risk can lead to:

  1. Low transparency on sustainability throughout the company’s perimeter leading to higher ESG risks.