ESG is more than a trend. It’s a strategic imperative.
From rising stakeholder expectations to evolving regulations and investor scrutiny, environmental, social, and governance (ESG) factors are reshaping how businesses think about risk and long-term value. But ESG isn’t just about sustainability reports or ethical investing. It’s about how your organisation makes decisions, engages with the world, and builds resilience.
The most effective ESG strategies aren’t standalone. They’re integrated into enterprise risk management (ERM), ensuring that environmental risks, social expectations, and governance standards are proactively managed alongside operational and strategic risks.
In this guide, we’ll explore what ESG really means, why it matters, and how to manage ESG effectively within your ERM framework.
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What does ESG mean in practice?
Environmental
The “E” covers how your business interacts with the planet. It includes emissions, pollution, biodiversity, and resource consumption – but also your exposure to environmental change. Are your facilities at risk from floods or fires? Do climate trends affect your supply chain? Environmental risk goes both ways.
Social
The “S” includes how you treat people – your workforce, customers, and communities. This spans labour practices, diversity and inclusion, modern slavery, and community impact. Social risk is fast-moving and often volatile. Reputational damage can arise quickly through viral content, activism, or policy shifts.
Governance
The “G” governs how your business is run: decision-making, accountability, ethics, transparency, and compliance. Failures in governance are often root causes of environmental and social harm. A lack of board diversity, for example, can blind an organisation to stakeholder expectations or emerging risks.
ESG risks don’t sit in isolation. They’re embedded in your operations, your strategy, and your decisions, and they need to be managed as such.
What’s driving ESG adoption?
ESG isn’t new. It’s evolved from frameworks like CSR (corporate social responsibility) and HSE (health, safety and environment). But today, ESG is gaining momentum for a reason:
- Investors see ESG maturity as a proxy for future performance
- Customers are choosing brands that align with their values
- Employees, especially younger generations, seek purpose-driven workplaces
- Regulators are mandating more detailed, assured ESG disclosures
Recent legislative efforts such as the EU’s ESG Rating Regulation (2024/3005)[1] and Corporate Sustainability Reporting Directive (CSRD)[2] highlight how transparency and data assurance are becoming non-negotiable. These frameworks require companies to disclose ESG performance using consistent, regulated standards, reshaping both investor expectations and compliance burdens.
Social movements such as #MeToo and Black Lives Matter (and their associated backlashes) have made reputational risk real-time and unpredictable. And climate change is no longer a distant issue: it’s disrupting operations, supply chains, and insurance risk models today.
ESG risk is business risk
If you’re asking “What are ESG risks?” the answer is simple: they’re the risks that affect, or are caused by, your ESG objectives. This includes:
- Not meeting your carbon reduction targets
- Suffering reputational damage from supply chain labour violations
- Facing regulatory penalties for poor governance disclosures
But ESG is also a cause of risk. For example, changing climate patterns (environmental), shifting social expectations (social), or weak board oversight (governance) can drive broader strategic or operational risk.
Modern GRC and risk management software should allow ESG-related risks and objectives to be integrated into your overall ERM approach. That means:
- Linking ESG risks to business objectives
- Embedding ESG causes into your risk taxonomy
- Mapping controls and metrics to track ESG progress
- Automating workflows to gather performance data
In short: ESG isn’t a separate risk category: it’s embedded in everything you do. If you’re not managing ESG, you’re not managing risk.
ESG implementation challenges
Even with the best intentions, ESG programs can stall without the right foundations. From clunky data systems to shifting regulations and misaligned priorities, organisations face a tangle of operational and strategic roadblocks. Here’s where many ESG efforts hit turbulence.
|
Challenge area |
Key issues |
|
Cost and resources |
High upfront investment; unclear ROI; limited in-house expertise |
|
Data collection and consistency |
Fragmented systems, manual processes, lack of assurance |
|
Third-party dependencies |
Inconsistent standards; poor visibility into ESG performance |
|
Regulatory uncertainty |
Evolving global standards, jurisdictional complexity, unclear enforcement |
|
Stakeholder alignment |
Differing priorities across execs, investors, and operations |
|
Change management |
Resistance to transformation; skills gaps; cultural adaptation |
These challenges aren’t reasons to delay, they’re reasons to act. The right strategy and tools won’t eliminate complexity, but they will turn it into something manageable, measurable, and ultimately, meaningful.
Case study: Tesco’s low-carbon fleet
Tesco, one of the world’s largest retailers, has committed to becoming carbon neutral in its operations by 2035. A major part of this strategy involves reducing transport emissions by electrifying its delivery fleet and integrating renewable energy into its logistics infrastructure.
To reach this goal, Tesco has:
- Committed to fully electrifying its home delivery fleet by 2030
- Introduced electric heavy goods vehicles (HGVs) into its logistics operations
- Installed solar-powered refrigeration units on delivery vans
These efforts are already contributing to a 61% reduction in operational emissions since 2015[3]. However, the journey hasn’t been without its challenges:
- Limited charging infrastructure for HGVs complicates route planning
- EV range limitations have required significant changes to logistics
- High upfront investment in vehicles and infrastructure
- Supply chain readiness has varied, affecting timelines
This case highlights the importance of integrating ESG risk considerations across departments – from operations to procurement and IT. A GRC system should help visualise this web of interdependencies, assess ESG risks at each stage, and monitor progress toward emissions goals.
Building a future-ready ESG strategy
Creating a meaningful ESG program isn’t just about ticking boxes, it’s about building a strategy that supports performance, compliance, and long-term resilience. Here’s what future-ready ESG looks like in practice.
1. Align ESG with your business strategy
Start by identifying your ESG objectives:
- Do you want to cut emissions?
- Improve diversity and inclusion?
- Enhance governance transparency?
Then assess how those goals align with broader business priorities and stakeholder expectations. GRC platforms should allow ESG goals to be aligned to corporate objectives and performance measures.
2. Prioritise with materiality assessments
To focus resources effectively, you need to identify which ESG topics matter most to your stakeholders and operations. Leading GRC platforms support structured materiality assessments based on impact, risk, and stakeholder relevance.
3. Manage ESG risk like any other risk
Your software should:
- Embed ESG into your enterprise risk register
- Track metrics and performance indicators over time
- Map ESG causes to risks and controls
- Generate dashboards to visualise exposure and progress
4. Assess and monitor third-party ESG risk
Third-party risk management in ESG is a growing blind spot[4]. Your suppliers’ ethics are now your business. Risk management tools should:
- Streamline vendor due diligence
- Collect structured ESG data via assessments
- Align supplier ESG performance with your own standards
To build ESG maturity, you need structure, prioritisation, and visibility. A future-ready strategy connects purpose to performance, and risk management is the engine that keeps it running.
Conclusion and next steps for your organisation
ESG success requires more than good intentions. It demands structure, visibility, and accountability. As McKinsey’s research suggests, companies should view ESG efforts as an ongoing journey, continuously refining their approaches to adapt to new challenges and stakeholder expectations[5].
To prove progress and avoid greenwashing, organisations need consistent ESG metrics. Risk and compliance software should:
- Capture Scope 1, 2 and 3 emissions, including financed emissions
- Allow you to set targets and monitor trends over time
- Link metrics to material ESG topics
- Report against recognised frameworks like GRI, ESRS and the GHG Protocol
- Provide dashboards tailored to exec, board and sustainability stakeholders
If you're looking to put these ideas into practice, join our Streamline your ESG risk and reporting with Protecht demonstration webinar showing how Protecht’s new ESG module simplifies ESG risk and compliance management.
Find out how to integrate ESG into your ERM framework, develop action plans, track emissions, and simplify regulatory disclosures, all within a single platform. This 20-minute session is ideal for sustainability, risk, and compliance leaders seeking a practical, unified approach to ESG program management.
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References
[1] EU ESG Rating Regulation (Regulation (EU) 2024/3005): https://eur-lex.europa.eu/eli/reg/2024/3005/oj/eng
[2] Corporate Sustainability Reporting Directive (CSRD) – Directive (EU) 2022/2464: https://eur-lex.europa.eu/eli/dir/2022/2464/oj/eng
[3] Tesco https://www.tescoplc.com/media/beyfxkv1/tesco_factsheets_climatechange_v13.pdf
[4] KPMG https://kpmg.com/xx/en/our-insights/esg/global-esg-due-diligence-study-2024.html
[5] McKinsey https://www.mckinsey.com/about-us/new-at-mckinsey-blog/there-is-no-finish-line-only-continuous-improvement-responsible-practices-at-mckinsey