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“Environmental, Social, and Governance” refers to a framework covering non-traditional risk assessment contingencies. Given the widespread misconceptions around context and the rising importance of such disclosures amongst financial institutions, it is critical that business leaders and engineers understand how ESG can impact their engineering firms going forward.

Yvonne Castillo, senior vice president of risk management at Victor Insurance, explained to a Fall Conference audience how the ESG framework represents a profound paradigm shift. All big financial institutions are moving away from financial analysis and broadening the scope to include ESG risks, which allows them to understand risk exposures more deeply.

The idea is going beyond traditional snapshots of statements and other financial documents to enable them to better predict future opportunity and profitability.

To think strategically about ESG disclosures, firms should put themselves in the shoes of financial institutions, which have three priorities under their general ESG framework.

The first priority is achieving a clear and accurate snapshot of your “ESG story,” meaning understanding your business risks and market opportunities considering the framework. Secondly, financial institutions have a vested interest in using ESG stories to understand the liability risks of offering coverage. The third priority involves the potential reputational risks of being associated with a given firm.

According to Castillo, we can expect to see the “Black Rocks” of the world “not using ESG nomenclature.” While they are likely to start using another term, they “can’t unsee the risks.” ESG disclosures are here to stay.

Firms should know that financial institutions are not expecting perfection, but they are relying increasingly on websites as a screening tool. It will be important for websites to reference ESG on their websites in financial terms (as opposed to “warm and fuzzy” terms), as well as reporting ESG facts and figures to their key stakeholders.

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October 18, 2023



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