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Sustainability Matters

Watch Out For These 4 Emerging Environmental, Social, and Governance Risks

A fuller appreciation of these risks can provide key insights for investors.

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Incorporating environmental, social, and governance analysis into an investment process can help uncover hidden risks or provide an early warning signal of risks that investors may be underappreciating. Sustainalytics' recently published report, "10 for 2018: ESG Risks on the Horizon," examines ESG-related risks that are becoming more material in 10 industries and how companies within those industries are addressing these issues. Here are a few of the findings.

Risk for Oil and Gas Firms: The Transition to Low-Carbon Energy
While global demand for fossil fuels will continue over the short run, changing patterns of energy consumption driven in part by carbon regulation are likely to have major impacts on the profitability of oil and gas firms. Investors are pressing for greater transparency, as evidenced by majority shareholder votes last year at  Exxon Mobil (XOM) and  Occidental Petroleum (OXY) asking for climate-risk disclosures. The Taskforce for Climate-related Financial Disclosures has issued recommendations for reporting, which gives companies the opportunity to demonstrate to investors that they understand the risks and have a credible strategy for addressing them.

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Jon Hale does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.