As the focus on Environmental, Social, and Governance (ESG) standards continues to grow, industries as varied as consumer goods, tech, energy, and finance face a different set of ESG risks. How well these risks are managed will determine long-term profitability and a good reputation among investors, regulators, and consumers. Businesses across sectors are now relying on AI-powered ESG software to identify and address such risks. A look at the top ESG challenges these industries must overcome.
Consumer goods: Manufacturing and waste disposal
That is the double problem consumer goods have to face: manufacturing and waste impacts. With customers’ increasing demands for sustainable products, companies should contribute to reducing the carbon footprint, managing resources efficiently, and giving priority to waste reduction.
Further, waste, especially from packaging, remains a very serious problem in regard to the environment. This situation calls for a change: brands need to develop sustainable packaging and make landfills unnecessary. Also, according to social responsibility and ethical sourcing, companies are supposed to help guarantee that fair labor practices are upheld within the operation chains for their supplies.
Technology: Data privacy and resource management
Among these, two dominating ESG risks are data privacy and resource management. In fact, the increasing value of data has made consumer data privacy very critical. Companies operating in the industry are under increasing scrutiny by regulators and the general public for how they handle personal data.
From an ecological risk perspective, technology companies are confronted with the need to balance energy consumption, in particular within their data centers, and reduce their carbon footprint. The technology sector is also under pressure to ensure that all its materials are sourced responsibly, for example, rare earth metals, which are used in hardware manufacturing.
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Energy: Diversify into renewable resources
The energy sector is due to its environmental impact among those industries with the highest ESG profiles. Moving away from fossil fuels to renewable sources of energy is not only a binding regulatory requirement but also something that investors expect. Companies within this industry are charged with the responsibility to address concerns about greenhouse gas emissions and possible ecological damage caused by conventional methods of energy extraction.
Added to this, social risks regarding community impact include the essential ESG factors of displacement and land-use conflicts which every energy company needs to address. The transition to the low-carbon economy will require cooperation among energy providers, governments, and communities.
Finance: Responsible investment and climate risk
From ethical investments to climate risk, financial institutions are very much at the forefront of the ESG movement. In fact, banks and asset managers alike are increasingly pressing toward integrating the factors of ESG into their decision-making processes as investors continue to demand sustainable finance solutions.
Finance companies also face social challenges, such as diversity and inclusion in the workplace and the provision of fair lending practices. Financial institutions will also have to value correctly and disclose the climate risks of their portfolios with the changing regulations taking place around the world.
Is your company facing ESG risk? Find out how some ESG assessment tools can help you respond effectively to emerging ESG challenges with customized reporting and solutions.
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This article is referenced from Top ESG Risk Factors by Industry: Consumer Goods, Tech, Energy, and Finance by Morningstar, Inc
Editor’s Note: The opinions expressed here by the authors are their own, not those of impakter.com — Cover Photo Credit: Karsten Würth
