Ukraine war intensifies ESG focus

The conflict in Ukraine is adding another dimension to the ESG risk profiles of many European corporations, according to broker Marsh.

Amy Barnes, head of climate and sustainability strategy, said during a webinar yesterday that ESG matters have not been sidelined by the war and that sustainability is more important than ever. “Looking at the actions being taken by multinationals, ESG frameworks and procedures are informing business decision-making in real time,” she said.

“In Europe especially, [the war] is sharpening the focus on moving away from fossil fuels, for example,” added Barnes.

She said that interest in the sustainability aspects of ESG is high among companies of all sizes.

“Large clients are well resourced and typically have large sustainability functions; they use sustainability criteria to inform their investment decisions. They’re pushing sustainability down the supply chain and want to make sure people in the supply chain are aligned with their values,” she said.

Businesses that don’t have sufficient resources and frameworks in place still want to improve their ESG performance, added Barnes. “We recently created an ESG risk rating assessment to help [businesses] understand their ESG performance, using ten international frameworks. It’s a self-assessment tool for companies that are going to see more stakeholders asking for information,” she explained.

The information collected from this process can help identify correlations between loss frequency and severity, and ESG performance. The link has already been established with D&O losses and Marsh thinks it can find other relationships as well, Barnes said.

“Companies that have good employment terms and diversity etc will see fewer and less severe [employment] liability losses. It will help companies manage their risks better,” she said.

Bruno Dotti, enterprise risk services and ESG practice leader for continental Europe at Marsh, pointed out that clients’ sustainability concerns around supply chains have been brought into sharp focus by the war in Ukraine.

There is pressure on food and drink producers’ supply chains due to the reduced availability of wheat, fertilisers and timber, for example. “This puts more focus on the importance of anticipating and managing possible disruptive events; crisis preparedness and alternative sourcing for raw materials; and, where applicable, the reshoring of supply chains,” said Dotti.

But in some cases, sustainability actions have actually made companies more exposed to supply chain disruption following the Russia-Ukraine crisis. Several Marsh clients moved away from palm oil to sunflower oil for environmental reasons. However, Ukraine is one of the most important producers of sunflowers, accounting for 40% of global production.

Also, ammonia is frequently used in cement production to reduce CO2 emissions, Dotti said, but Russia and Ukraine are big producers of these raw materials.

“It shows how important it is to understand the potential consequences of making sustainability decisions,” he added.