Environmental, social and governance (ESG) strategies and planning are fast becoming a necessity for businesses, rather than a nice-to-have. 

It’s not just big corporates – even the smallest enterprises should consider ESG risks and how to help mitigate them.

It’s an important part of managing climate risks, meeting customer expectations, complying with the law and staying sustainable in the long term.

So, what are the key ESG risks your small business faces and what steps can you take to help manage them?

What are ESG risks for businesses?

Environmental

On the environmental front, climate change is forcing businesses of all shapes and sizes to plan for various contingencies, from changing customer tastes and community expectations to extreme weather events and supply chain disruption.

Social

Social risks encompass a range of issues, from workplace conditions and diversity, equity and inclusion practices to the impact your business has on its customers and the community at large. Businesses that perform poorly on the social front may find themselves working harder to reposition themselves with customers and the broader community.

Governance

Meanwhile, governance risks refer to how your business operates and is managed, whether its business practices are ethical and transparent, and it complies with current regulations, locally and nationally.

If you fail on this front, you may well find yourself facing fines, litigation and potential reputational damage.

Understanding your exposure

Start by looking at every aspect of your business – your customers, suppliers, where you operate from, your people and your technology.

Speak with your key stakeholders, including employees, customers, suppliers and members of the community. Each of these will help you understand their ESG concerns and any expectations they may have of you and your business.

You may also be able to benchmark your business against others in your industry to get an idea of how it’s faring and where improvements might be needed.

Managing and mitigating the risks

Once you understand the status quo, you can implement policies and practices to mitigate your ESG risks.

Steadfast Risk Adviser Gavin Love points out that doing so can be simple and inexpensive.

“Getting stricter about recycling, for example, can be an easy win,” Love says. “So can using more renewable energy sources in your business.”

Striving to eliminate bias from your hiring process, fostering a supportive workplace culture and delivering ethically sound products and services may boost your ‘score’ on the social front.

Meanwhile, establishing robust operational policies and procedures, training your team to comply, and encouraging employees to report unethical behaviour should improve your governance and help make operations stronger and more sustainable.

“Committing to and implementing ESG improvements is an investment in the future success of your business, and the start of a new financial year is a great time to begin,” Love says.

Cover to protect your business  

Insurance is there to help your business recover from a wide range of adverse events.

If you’d like more information on how your business can mitigate its risks in FY2025 and beyond, contact your broker today.

Important notice

This article is of a general nature only and does not take into account your specific objectives, financial situation or needs. It is also not financial advice, nor complete, so please discuss the full details with your Steadfast insurance broker as to whether these types of insurance are appropriate for you. Deductibles, exclusions and limits apply. You should consider any relevant Target Market Determination and Product Disclosure Statement in deciding whether to buy or renew these types of insurance. Various insurers issue these types of insurance and cover can differ between insurers.

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