Why ESG Risk Management practices can help tackle Market Volatility

Worried about a market crash in 2026?

While energy commodities and raw materials in the first half of the year were going up and down like yo-yos due to wars, geopolitical tensions and supply chain disruptions, some investors started to

worry about an imminent market crash, fueled by inflation fears, AI-bubble jitters and high US treasury bond yields.

That‘s at least what you see on your news feed, getting the impression that everything is kind of getting out of control. If you run a company, even a small enterprise, the feeling that nothing is sure or safe anymore can be overwhelming.

If you share this feeling, maybe reading this article might help you getting another perspective. Let‘s pretend to zoom out of this mess and glance back at the last few decades. When we take a look at the big crises of the last fifty years or so, all of them were, if you think about it, linked or even caused by ESG-related issues. The oil crisis in the seventies boosted environmental awareness and pushed for R&D spending in renewables and alternative energy. The DotCom bubble busted in the early 2000s because of poor corporate governance and fraud. Same story with the great financial crisis of 2008: the lack of transparency and corporate responsibility led to a cascade of huge negative social impacts on society for years.

So, what if we take common ESG frameworks - intended as a set of macro topics and future expectations - to read the volatile reality we are living in? While at it, we could take some risk management measures to protect ourselves and our activities from these short term uncertainties, holding the rudder steady towards some long term scenarios instead.

An example? Let‘s consider the Strait of Hormuz crisis. Again it‘s oil and energy-intensive products in the spotlight. So we have to look at energy efficiency solutions and non-fossil energy sources, classic ESG-related topics, to find relief. Instead of looking at them from a carbon management perspective, we tackle the root cause: the dependency on fossil fuels and their complex value chains. Those who have moved already towards low carbon technologies, either as investors or users, are now benefiting from energy price volatility and renewed interest in alternative production processes. Sticky high oil prices are also defrosting some technologies which were left on ice because considered too expensive a few years ago. This is not financial advice, just observation.

We can add to the discussion also the search for alternative suppliers, which usually is a standard risk management practice, with a twist of social responsibility. We do not want to jump out the frying pan to the fire, right? So to avoid scrambling when your Middle Eastern aluminum supplier is declaring force majeure on your contract, you might be better having a producer somewhere else already vetted against basic KYC and human rights risks as back up. You can be in such position only if you‘d preemptively and routinely screened all your potential suppliers, not just the ones that you do business with, against broad ESG criteria. The ideal approach would be to standardise your access to a portfolio of alternative suppliers, ranked and priced also in relation to their ESG profiles when you are not in a hurry. This would avoid desperately searching for some last minute alternative who might try to strong arm you into a bad deal when you urgently need to get things going. Let me be clear: I am not advocating for choosing suppliers who are perfect, with high sustainability scoring and operating in socially stable regions only. They do not really exist. What I am saying is to know their ESG weaknesses and potential consequences well in advance.