The risks associated with ESG strategies

The move to ‘green’ businesses is increasingly being driven by a desire to improve ESG (Environmental, Social and Governance) performance – a business practice standard increasingly important for corporate reputation.

The British Business Bank says ESG measures a business’s impact on society and the environment whilst also demonstrating its transparency and accountability. Businesses falling short of expectations could face both reputational damage and potential legal action.

ESG standards span many different areas, from business ethics and competitive behaviours to waste and energy management strategies. One ESG area presenting a real risk to businesses is data privacy. Securing customer data against cyberattacks and data breaches is a central tenet of strong ESG performance.

Many insurers are championing ESG and launching new insurance products that support the adoption of green-friendly products and services. This is assisting with the greening of fleets, solar panel adoption, an uplift in timber-framed properties, the use of modular construction methods and the utilisation of battery energy storage systems.

Therein lies a dilemma because green technologies can often significantly alter the core business risk profile, introducing new risk management considerations that clients may struggle to appreciate.

The widespread use of lithium-ion batteries within gadgets, electronic equipment, and vehicles, including buggies, mobility scooters, e-bikes, and e-scooters, is problematic. These batteries are prevalent in warehousing and distribution, being used within hand-held barcode scanners. Within manufacturing businesses, they can be found in plant, machinery, and hand tools. Anything that contains a lithium-ion battery, particularly of a prismatic or pouch cell type, presents a new vulnerability.

Between 2017 and 2022, the use of lithium-ion Battery Energy Storage Systems (BESS) doubled in the UK. The plus side is that these systems stabilise the National Grid by storing excess energy from renewable sources in periods of low demand, before releasing it in response to high demand. The growth of solar and wind-power driven energy systems is somewhat dependent on having such storage and distribution technology available.

The major risk with regard to lithium-ion batteries, however, is fire, with these batteries igniting extremely quickly if overheated, overcharged, over-discharged, damaged or defective from the outset. Thermal runaway makes the fires extremely hot, dangerous, and unpredictable.

There was a 53% increase in lithium-ion related fires in 2023, and in London alone, 150 e-bike and 28 e-scooter fire incidents. Between 2020 and May 2024, there were 8 fatalities and 190 recorded injuries from lithium-ion fires – fires which should not be tackled by anyone other than the Fire and Rescue services.

Any business operating equipment reliant on these batteries needs a risk management plan that details procedures relating to battery care and management. Employees need to be alert and report visible defects or concerns, with inspection commencing on battery arrival and continuing thereafter. Charging should only be done under supervision, using approved chargers. Damaged batteries should be quarantined immediately.

Attention needs to be paid to the Dangerous Substances and Explosive Atmosphere Regulations (DSEAR) 2002. Heed needs to be paid to battery storage as it is a legal requirement to put control or preventative measures in place to safeguard employees. Battery handling should only be carried out in well-ventilated areas, and storage should be in dry, cool zones, suitably located, from a safety perspective, and free of flammable or combustible substances.

Other measures and policies are required. Charging should never take place where it blocks a fire exit or impacts a communal area. The Fire and Rescue service needs to know precisely where batteries are stored or used and be fully briefed on access and exit routes. A robust fire risk assessment covering the handling, storage, use, and charging of these batteries is essential.

With strong ESG performance now the goal for many businesses, it is inevitable that technologies such as lithium-ion batteries will be incorporated into day-to-day work tasks. The skill of an insurance broker lies in analysing the new risks associated with greener technologies and ensuring clients’ businesses remain risk-aware and protected. To tap into this skill, contact us today on 01274 515747.