ESG strategies can help governments become more sustainable and improve their standing in the eyes of stakeholders. For instance, a city administrator can create an ESG strategy to reduce their city’s carbon footprint, while a school district can create an ESG initiative to promote diversity and inclusion in their classrooms.
If you’re tasked with crafting ESG policy, it’s key to understand the potential ESG risks you may face along the way. When unprepared to neutralize them, these risks may not only hurt your organization’s reputation, but also negatively impact ESG ratings, financial performance, and long-term sustainability.
But don’t fret, as there are ways to mitigate these ESG risks. Read on to discover five ESG risks to avoid and learn how to neutralize them. We’ll also highlight how our meeting management platform — eScribe — facilitates improved governance.
What is ESG?
ESG stands for Environmental, Social, and Governance. ESG is a critical concept that provides organizations with the framework for corporate responsibility and sustainability. Put simply, ESG helps organizations better understand and assess their impact on the environment, society, and governance.
Not only does ESG measure an institution’s performance in terms of its environmental, social, and governance activities, but it also serves as an investment assessment tool. Investors use an organization’s ESG ratings to determine how socially responsible their investments are. As a result, organizations and governments must take the necessary steps to ensure their ESG ratings are up to par.
Types of ESG Risks
Consider these common ESG risks:
- Environmental risks. These risks are associated with how an organization or government handles its ecological impact and sustainability initiatives. Examples include causing water contamination, air pollution, or improper waste disposal.
- Social risks. These risks are associated with how an organization or government treats its employees, stakeholders, and the communities they serve. Examples include inequality and discrimination in the workplace, lack of diversity on leadership boards, inadequate access to services for marginalized groups, and conflict among public officials, such as city clerk vs. city administrator, impacting service delivery.
- Governance risks. These risks are associated with how an organization or government manages its internal operations and performs its fiduciary duties. Examples include financial mismanagement by the city treasurer’s office, inadequate risk management systems, and weak compliance protocols.
5 ESG Risks to Avoid at All Costs
While every risk element is as destructive as it is punitive, some carry more significant damages than others. Here are the top five risks to avoid at all costs and how to mitigate them:
1. Climate Change and Carbon Emissions
Climate change and carbon emissions have resulted in rising temperatures, sea level changes, and extreme weather conditions. As a sustainability-focused administration, you want to avoid this ESG risk at all costs by implementing the following best practices:
- Establishing a carbon dioxide emissions reduction plan.
- Investing in renewable energy sources, such as solar and wind.
- Developing energy-efficient policies for buildings and appliances.
- Promoting sustainable transportation options, such as bike lanes and public transportation.
2. Pollution and Contamination
Pollution and contamination are another force to reckon with. Most cities today grapple with pressing issues like water contamination and hazardous waste removal. To navigate this ESG risk, your administration should consider the following:
- Create a waste management and recycling program that minimizes the amount of waste sent to landfills.
- Implement green-building practices by using sustainable materials in construction.
- Establish community initiatives to encourage citizens to reduce, reuse, and recycle materials that cause pollution and contamination.
3. Diversity and Inclusion
It’s unsurprising that diversity and inclusion are becoming a top ESG priority. Companies and governments must create an inclusive environment to attract skilled talent, build stakeholder trust, and foster innovative solutions. To address this ESG risk, your administration should consider the following:
- Creating transparent policies related to diversity and inclusion.
- Developing accessible training for hiring managers on cultural competency and unconscious bias.
- Nurturing a culture of respect and inclusivity by hosting regular events celebrating diversity.
- Implementing an open-door policy to ensure employees feel safe and heard.
4. Executive Compensation
Executive compensation packages are one of the most controversial ESG risks. Many stakeholders believe that some executives are overpaid, which can lead to tension between shareholders and companies. To mitigate this risk, your administration should consider the following:
- Developing a framework for executive compensation packages to ensure they are fair and consistent with industry standards.
- Making sure stock options align with shareholder objectives and company performance.
- Compelling city executives like the mayor and city councilmembers to adhere to the same rules as other employees.
- Adopting a “say-on-pay” policy that requires shareholders to vote on the compensation packages of senior executives.
5. Data Privacy Violations
Data privacy violations are becoming increasingly common and can damage an organization’s reputation. To avoid this ESG risk, your city manager should consider the following:
- Creating a comprehensive data security policy that outlines acceptable use of data and sets out procedures for protecting sensitive information.
- Providing regular training to employees on how to handle confidential data.
- Ensuring third-party vendors abide by the same data security protocols and regulations as your organization.
- Investing in an end-to-end secure meeting management platform like eScribe, where ESG data and other crucial information is encrypted and securely stored.
How eScribe Facilitates Improved Governance
Technology can help your organization navigate the complexities of ESG risk. For instance, a meeting management platform promotes seamless and thorough ESG reporting, where stakeholders can access all of the necessary information quickly and from anywhere.
eScribe also minimizes ESG risk, offering secure encryption technology that keeps your data safe as well as robust analytics to help you track ESG progress over time.
eScribe provides comprehensive features like agenda building, reporting and workflows, live voting, and real-time minutes capture – all essential for effective governance.
With eScribe, you can foster an environment of trust and transparency between your organization and stakeholders. To see how eScribe streamlines city governance, check out the City of Greensboro case study.