Many Boardrooms Still Fail to Grasp ESG Risk, Marsh Review of Annual Reports Finds

Many global firms are still failing to prioritize environmental, social, and governance (ESG) risks in the boardroom, which is creating worrying gaps in their evaluation and mitigation of these mounting hazards, according to research by insurance brokers and risk advisors at Marsh.

Marsh examined the annual reports of the companies comprising the FTSE100 Index as well as 60 leading companies listed on the New York Stock Exchange, Euronext, and Hong Kong Stock Exchange, covering the July 2020-July 2021 reporting period. The analysis identifies trends in ESG reporting and measures firms’ preparedness to respond to future ESG and pandemic risks.

Marsh’s report, Evaluating ESG and pandemic risk reporting trends: FTSE 100 and global exchanges risk analysis 2021, summarizes more than 1,100 combined risks.

According to Marsh’s research, businesses listed on Euronext are the most concerned about ESG exposures, with 90% of the sample citing ESG risk as a key priority in their annual reports.

However, of the New York Stock Exchange companies sampled, 35% named ESG as a top risk, followed by 30% for those on the Hong Kong Stock Exchange. Just one-fifth (21%) of FTSE100-listed companies viewed ESG as a principal risk in their annual reports.

While nearly all organizations sampled mentioned environmental risk in the principal risk sections of their annual reports, social responsibility mentions were low overall — pointing to a concentration across all exchanges on the environmental aspect of ESG evaluation.

Marsh also found that less than one-third (30%) of the FTSE100 sample showed evidence of standalone reporting on climate change risk in line with the TCFD (Task Force on Climate-related Financial Disclosures), which advocates making 11 recommended disclosures around four core elements of climate-related risks.

Starting in April 2022, TCFD disclosure will be mandatory in the UK for the 1,300 largest UK-registered companies – including traded companies and private organizations – with more than 500 employees and £500 million in turnover.

Growing public and investor consciousness around ESG issues means boards are increasingly required to devote more time and resources to the management of the social and governance facets of ESG risk,” commented David Stark, global leader, for Marsh Enterprise Risk Management.

Stark said that by taking a more proactive approach at board level, organizations can “improve their risk management around ESG, gain wider access to capital, and better meet investors’ expectations.”

Alternatively, he added, they run the risk of having third parties estimating their ESG and climate change exposures, which “could have financial and reputational implications in the longer term.”

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