Allianz Risk Barometer 2022 -
Rank 5: Changes in legislation and regulation

Investor and shareholder action is increasingly focused on environmental social and governance (ESG) issues, and companies are challenged by the growing raft of regulation and guidance in many territories, leading to tougher disclosure and reporting rules, according to the Allianz Risk Barometer. Respondents rank cyber security resilience as their major ESG priority (see graphic), driven by the growth and severity of cyber-attacks, and an increase in data security regulations.

“In the past, it was mainly technology companies that were assessed on cyber security resilience, but these days, businesses across a range of sectors are subject to such scrutiny,” explains Michael Bruch, Global Head of Liability Risk Consulting/ESG at AGCS.

“Increasingly, cyber security considerations are incorporated into the ESG risk-analysis frameworks of data providers, who look into companies’ dataprotection and information security practices to evaluate their preparedness for cyber crime.”

Climate change is another major ESG presence on the list with respondents ranking it as their second top ESG concern. This should be no surprise so soon after COP26, the UN Climate Change Conference, when building a decarbonized future rose high on the agenda. Net-zero commitments made by the private sector were unparalleled, reflecting the emphasis businesses now place on climate risk and transitioning to a low-carbon economy.

Within climate change, resource depletion is an emerging risk that will likely receive increasing attention in 2022. The World Economic Forum (WEF)   has identified biodiversity loss as an existential global threat, stating: “$44trn of economic value generation – more than half of the world’s total GDP – is moderately or highly dependent on nature and its services and is therefore exposed to nature loss.” [1] Biodiversity loss can result in natural catastrophes such as droughts and floods, the disappearance of pollinators, or the collapse of fishing or agricultural yields. The construction, agricultural, and food and beverage sectors are most likely to bear the brunt, but the impact on secondary and tertiary industries, and their supply chains, should not be underestimated.

“Regulation and global standards around biodiversity are rising,” says Bruch. This year, the Taskforce on Nature-Related Financial Disclosures (TNFD) is expected to launch a framework for organizations to report and act on nature-related risks, while French financial institutions will be required to disclose biodiversity-related risks alongside climate-related risks, as well as their strategies for reducing biodiversity impacts.

If global warming is to be kept below 1.5°C, nature-based solutions will play a significant role, according to the United Nations Environment Programme (UNEP)  and the International Union for the Conservation of Nature (IUCN) [2]. This will mean protecting ecosystems from loss and degradation, restoring those already degraded, and sustainably managing working lands such as fields and forests.

“As part of their net-zero commitments, companies will not only need to develop and implement strategies to decarbonize, they will also have to manage their impacts on the land and the natural resources they use,” Bruch concludes.