Sustainability-related risks

Uncertain environmental, social or governance events or conditions that, if they occur, could cause a potential material negative effect on the undertaking's business model or strategy and on its capability to achieve its goals and targets and to create value, and therefore may influence its decisions and those of its business relationships with regard to sustainability matters. Like any other  risks, sustainability-related risks are  the  combination  of  an  impact’s  magnitude  and  the  probability  of occurrence.

Sustainability-related risks, often referred to as ESG risks (Environmental, Social, Governance), are potential dangers and negative influences arising from environmental, social, and governance factors. These risks can have significant impacts on a company's financial performance, reputation, and long-term stability. They are defined as events or conditions whose occurrence can lead to a material negative effect on the value of an asset or the business operations. Especially under the pressure from investors and stakeholders, these risks are gaining importance as their consideration is increasingly integrated into decision-making processes.

The main categories of sustainability-related risks include environmental, social, and governance aspects. Environmental risks pertain to climate change, resource usage, and the transition to a circular economy, among other things. Social risks reflect the impacts of companies on equality, labor relations, and local communities. Governance risks encompass aspects like management structures, compensation policies, and legal compliance.A prominent example of sustainability-related risks is the Deepwater Horizon disaster, which not only led to billions in financial losses but also caused serious environmental damage and a massive impairment of the company's reputation.Given the increasing regulations, such as those from the CSRD, and the historically inadequate data availability, the identification and management of these risks is essential for companies. Insufficient consideration of sustainability-related risks can not only lead to financial losses but also severely impact market position and access to capital. Proactive risk management in this area also opens up opportunities for value creation and better orientation in the investment landscape.