Leveraging ESG to Optimize Your Risk Management Strategy

COMMERCIAL IN CONFIDENCE

TODAY’S SPEAKER

ROCHELLE MARCH

Head of ESG Product

AGENDA

THE LANDSCAPE

OF ESG

HOW DATA

PLAYS A ROLE

USING ESG DATA

IN PRACTICE

NEW DEVELOPMENTS

AND FUTURE

EVOLUTION

THE LANDSCAPE OF ESG

ESG RISKS & REWARDS

AVERAGE SALES GROWTH

OF PUBLIC COMPANIES WITH

GOOD ESG RATINGS

Source: Dun & Bradstreet 2020 ESG Study

Using ESG (Environmental, Social, Governance)

as a business metric isn’t just a trend; falling

behind the curve can result in significant

reputational, operational, and financial damage

to a company.

Turning ESG data and metrics into a strategic

advantage can positively impact business

performance and resilience.

16%

AVERAGE SALES GROWTH

OF PUBLIC COMPANIES WITH

POOR ESG RATINGS-9.6%

EVOLUTION OF ESG

WHAT IS

ESG DATA?

ENVIRONMENTAL SOCIAL GOVERNANCE

Natural Resources

• Energy Management

• Water Management

• Materials Sourcing & Management

• Waste & Hazards Management

• Land Use and Biodiversity

• Pollution Prevention & Management

GHG Emissions & Climate

• GHG Emissions

• Climate Risk

Environmental Risk

• Environmental Compliance

Environmental Opportunities

• Environmental Opportunities

• Environmental Certifications

Human Capital

• Labor Relations

• Health & Safety

• Training & Education

• Diversity & Inclusion

• Human Rights Abuses

Product & Service

• Cyber Risk

• Product Management

Customer Engagement

• Products & Services

• Data Privacy

Community Engagement

• Corporate Philanthropy

• Community Engagement

Supplier Engagement

• Supplier Engagement

Certifications• Social-Related

Certifications

Corporate Governance

• Business Ethics

• Board Accountability

• Shareholder Rights

• Business Transparency

Corporate Behaviors

• Corporate Compliance Behaviors

• Government Related Certifications

• Management of Legal & Regulatory Requirements

Business Resiliency

• Business Stability & Resilience

HOW DATA PLAYS A ROLE

Operational Efficiency

Risk Management

Protection of Value & Reputation

People

Profit

Planet

Corporations and investors are implementing ESG criteria data into their business strategies/portfolios using the “triple bottom line” approach – people, profit, and planet.

TRIPLE BOTTOM LINEAPPROACH

Reduced Costs & Enhanced Productivity

Improved Work Conditions

Process & Product Innovation

Reduction of energy, waste, water and materials costs –

in return improving profitability

Reduced turnover rates improve quality and

reliability and reduces the costs of hiring and

productivity

Adopting new practices can stimulate innovation and

new solutions for processes and products

ESG DATA FOROPERATIONAL EFFICIENCY

Sustainable Mining Strikes

Industrial Internet of

Things Gold

July 13th, 2021

Source: Industry Week

ESG data allows you to reduce operational risks and can be harnessed to enhance credit and collections decisions.

Taiwan’s drought is exposing just how much

water chipmakers like TSMC use (and reuse)

June 12th, 2021

Source: Fortune

Doing business with companies that have good ESG management can help:

Avoid cash flow disruptions from customers whose practices could signal a risk factor

Larger focus on resiliency can weather natural disasters, volatile demand, and regulatory changes

ESG DATA FORRISK MANAGEMENT

ESG creates opportunities for capital allocation and attraction

– 456% increase in US sustainable investments– Evidence shows companies with good ESG

perform well– Some banks offer preferred lending rates

Protection of brand and reputation – Adhere to ESG standards to uphold

stakeholder and customer expectations to protect the brand for long-term growth

Most companies’ value today comes from intangible value, making reputational management a financial consideration.

ESG DATA FORSHAREHOLDER VALUE & REPUTATION

16.26%

4.28%

-9.16%

-10%

-5%

0%

5%

10%

15%

20%

GOOD MEDIUM POOR

Public and private companies with poor ESG Rankings had a considerable decline in Return on Sales, whereas those with good ESG Rankings showed growth.

Ret

urn

on

Sal

es

Gro

wth

Universe of 4,000 Publicly Listed Companies and Performance measured as of year-end 2019

ESG’S EFFECT ON COMPANY PROFITABILITY

21.77%

15.04%13.63%

0%

5%

10%

15%

20%

25%

Good Medium Poor

Ret

urn

on

Sal

es

Gro

wth

Universe of 200,000 Privately held Companies and Performance measured as of year-end 2019

Average percentage change over 3 years Average percentage change over 3 years

PUBLIC COMPANIES PRIVATE COMPANIES

Businesses ranking higher on sustainability demonstrate higher growth in sales – short-term and long-term Growth of businesses ranking “Good” is 12X that of businesses ranking “Poor” over 1 year period

ENVIRONMENTAL: NATURAL RESOURCE MANAGEMENTSALES GROWTH BY THEME RATING

Universe of 200,000 Privately held Companies and Performance measured as of year-end 2019

2.4%

1.5%

0.2%

0.000

0.500

1.000

1.500

2.000

2.500

3.000

1 2 3

Sale

s G

row

th (

%)

Good Medium Poor

Businesses with good ESG Rankings have consistently outperformed firms that have poor ESG Rankings over 1-, 3- and 5-year time horizons.

SOCIAL: SUPPLIER ENGAGEMENT

9.02%

3.00%

-1.74%-2%

0%

2%

4%

6%

8%

10%

Good Medium Poor

Average percentage change over 1 year

17.54%

14.51%

6.04%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Good Medium Poor

Average percentage change over 3 years

24.04%

16.60%

5.33%

0%

5%

10%

15%

20%

25%

30%

Good Medium Poor

Average percentage change over 5 years

Sale

s G

row

th

Universe of 200,000 Privately held Companies and Performance measured as of year-end 2019

SALES GROWTH BY THEME RATING

8.33%

1.49%0.92%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Good Medium Poor

Average percentage change over 1 year

15.28%

13.12%11.79%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Good Medium Poor

Average percentage change over 3 years

20.90%

15.48%

10.25%

0%

5%

10%

15%

20%

25%

Good Medium Poor

Average percentage change over 5 years

Sale

s G

row

th

Businesses demonstrating good corporate behavior have consistently outperformed organizations with poor ESG Rankings over 1-, 3- and 5-year time horizons.

Universe of 200,000 Privately held Companies and Performance measured as of year-end 2019

GOVERNANCE:CORPORATE BEHAVIORSALES GROWTH BY THEME RATING

USING ESG DATA IN PRACTICE

SUMMARIZING PORTFOLIOESG RATINGS

Benchmarking

Monitoring a portfolio

Evaluating ESG by industry

Breakdown by specific ESG topics

Compare companies’ ESG rankings against benchmarks

Highlight specific areas in need of improvement

EVALUATING ESG DATA BY SPECIFIC REASON

CREDIT DECISIONING

Avoid cash flow disruptions by doing business with companies with good ESG management

PORTFOLIO MANAGEMENT

Identify and evaluate the highest ESG risk profiles to mitigate portfolio risk

ACCOUNT MANAGEMENT

Monitor ESG factors to protect the business for long-term growth

RECEIVABLES MANAGEMENT

Leverage ESG data to prioritize collections activities

INTEGRATING ESG DATA & ANALYTICS INTO THE CREDIT-TO-CASH PROCESS

NEW DEVELOPMENTS& FUTURE EVOLUTION

In the future, the standardization of ESG data and importance of specific metrics will likely emerge.

NEW ESG DATA TYPESFOR CUSTOMER PROFILES

MAIN SOURCES FOR DATA FUTURE SOURCES INCLUDE:

• ESG data providers

• Data collected by companies

• Public data from governments

• Media & public data

• Data directly from the company/supplier

• Geo-spatial data from satellites

• Sensor data from IIoT and IoT

• Open access data from government

• “Citizen science" or civil society created data

• Machine learning and predictive scoring

• Real-time sentiment data from customers

Rochelle March

Head of Environmental, Social, & Governance Product

MarchR@DNB.com

Thank You