Those who take ESG principles into account in their company could benefit from better risk assessment in the future. Gudrun Meierschitz, Member of the Management Board of Acredia Versicherung AG, on this current topic.
ESG is the new standard for the “good company” of the future. Customers are demanding more sustainability. Social and environmental concerns are becoming more and more important and an increasingly engaged and critical public is openly questioning the future viability of organisations without environmental and social commitment.
Sustainably managed companies that meet the ESG criteria for the environment, society and corporate governance can already raise capital on more favourable terms. Companies that make slow progress on climate neutrality, for example, receive a lower ESG rating. Acredia and Euler Hermes are developing ESG decision parameters for credit insurance that will be used in future risk assessments.
Since the Paris Agreement 2015, sustainability risks – especially climate risks – have been more in the focus of evaluation. “Sustainability risks” are events and conditions of sustainability factors that could have a negative impact on the net assets, financial position and results of operations as well as on the reputation of a company. Sustainability factors include environmental, social and employee concerns (ESG risks), human rights and the fight against corruption and bribery.
Now we know that climate neutrality cannot be achieved overnight. Therefore, there are increased transition risks, those risks that arise from the transition to a climate-neutral economy and society. For example, assets emitted by CO2-intensive industries are exposed to the risk of impairment.
ESG assessment: These factors have an impact
When evaluating companies, demand, profitability, liquidity and the general business environment of an industry are important key figures. It is a simple question: What makes a company fit for the future? With the experiences from the pandemic, the stability of supply chains and the digitalisation competence of companies are also coming into focus. At the latest with the presentation of the EU climate strategy and the European ESG taxonomy directive, compliance with climate targets and ESG requirements also determine the assessment.
The fundamental questions are: What makes a sustainable company? Which company is particularly sustainably positioned?
In future, the ESG Taxonomy Regulation of the EU will set the standards for ESG measurement. Another important assessment basis is the credit rating with regard to financing decisions and third-party funds, for example by banks. The fact that credit decisions are based on ESG criteria is increasingly becoming the standard.
Governance is becoming even more important!
The aspects of corporate management, so-called governance, will take on an even more important role. Investors and rating agencies in particular see this as the most dynamic ESG factor. This factor will become all the more important the more fragmented the public’s position on individual issues becomes. The accompanying public polarisation points to a potential reputational dilemma. The decisive factor will be how corporate managers deal with this in external communication.
Action instead of reaction
Acredia is Austria’s largest credit insurance company. What we take for granted in other companies must be a matter of course for us. This means also taking responsibility for our own actions. We therefore want to start developing ESG standards ourselves. To this end, we are working on reducing our carbon footprint, firstly by changing our own individual behaviour and secondly by managing our investments accordingly.
In addition, we are working on ESG products and services that support sustainable business practices, among other things through our own ESG analysis criteria. These include internal factors such as ethical standards, the handling of diversity and attractiveness as an employer. And external influences such as customer structure, environmental analyses and the quality of external relationships also play an important role. In summary, in the future it will not only be about what a company does, but how and why it does or does not do something.
Only reporting is not enough
ESG is becoming the new narrative for the “good” company. This means an (even) higher demand on corporate communication. From the point of view of risk assessment, communicative risks in a highly mediatised public sphere are a topic that above all corporate management, i.e. governance, is decisively influenced.
While proactive communication with the public has been important in the past, in the future a transparent, honest and timely information policy will contribute significantly to a positive assessment of a company’s future viability.
Gudrun Meierschitz, 52, a native of Carinthia, economist and risk expert, has been working for Austria’s largest credit insurer for 30 years. She has been a member of the ACREDIA Board since 2017 and is responsible for Risk Management & Controlling, Finance, IT, Risk Underwriting, Information & Grading and Claims & Collections.
Acredia is Austria’s leading credit insurer, with a market share of over 50% and a total exposure of EUR 27.1 billion, protecting outstanding receivables in Austria and abroad. The company is owned by a management holding company in which Euler Hermes AG, Hamburg holds 49% and Oesterreichische Kontrollbank AG, Vienna 51%. The turnover of the Acredia Group totals EUR 79.7 million.
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