Environmental, social, and governance (ESG) risks are increasingly important considerations for businesses, including auto dealerships. These risks can impact a company's reputation and financial performance, therefore it’s important for auto dealerships to proactively identify and address ESG risks as part of their overall business strategy and to position themselves as leaders in the industry.

In our previous article ESG: Risks and opportunities for auto dealerships we explored what ESG is and why it matters in the industry. In this article, we go into more detail on how auto dealerships can prepare for and manage ESG and climate risks. 

Climate risks: Business considerations

There are several considerations for auto dealerships associated with climate change:

1. Reduce energy use and emissions: Auto dealerships can adopt energy-efficient practices and technologies, such as installing energy-efficient lighting and appliances, optimizing heating, ventilation, and air conditioning systems, and investing in renewable energy. These efforts can help to reduce the dealership's carbon footprint and minimize the risks associated with climate change.
   
   
2. Consider the life cycle of vehicles: Auto dealerships can also consider the environmental impact of the vehicles they sell throughout their entire life cycle, including the materials used in their production, their fuel efficiency, and their disposal.
   
   
3. Engage with suppliers: Auto dealerships can engage with suppliers to understand their environmental practices and policies and encourage them to adopt more sustainable practices.
   
   
4. Prepare for extreme weather events: Auto dealerships should also have a plan in place to protect their inventory, facilities, and employees in the event of extreme weather events, such as floods, hurricanes, and wildfires.
   
   
5. Communicate with customers: Auto dealerships can also communicate with customers about their efforts to reduce their carbon footprint and minimize the risks associated with climate change. This can help to build customer trust and loyalty.

How to manage climate risks

Below are some strategies for auto dealers to manage climate risks:  

1. Emergency response plan: An emergency response plan outlines the actions that the dealership should take in the event of an extreme weather event, including evacuating the facility, securing the inventory, and communicating with employees and other stakeholders.
   
   
2. Business continuity plan: A business continuity plan outlines the steps that the dealership should take to maintain operations in the event of an extreme weather event, including identifying alternative locations for employees to work, securing temporary storage for inventory, and communicating with customers.
   
   
3. Insurance: Auto dealerships should also consider purchasing insurance coverage to protect against losses resulting from extreme weather events. This might include property insurance to cover damage to the dealership and inventory, and business interruption insurance to cover lost income.
   
   
4. Training and drills: Auto dealerships should also provide training to employees on how to respond to extreme weather events and conduct drills to practice these responses.

How to manage broader ESG risks

Here are some steps that auto dealerships can take to strategize and manage ESG risks:

1. Conduct a risk assessment: Identify financially material ESG risks that could impact the dealership, such as environmental regulations and associated transition risks, supply chain sustainability, physical risks of severe weather events, and social responsibility.
   
   
2. Set goals and targets: Develop specific, measurable, achievable, relevant, and time-bound (SMART) goals and targets for addressing identified risks.
   
   
3. Communicate and engage: Engage with stakeholders, including employees, customers, and investors, to understand their concerns and expectations related to ESG issues. Communicate the dealership's efforts to address these issues transparently.
   
   
4. Integrate ESG considerations into business decisions: Consider the potential ESG impacts of business decisions, such as purchasing, operations, and investment choices. Determine how the organization will approach material risks: risk transfer (insurance) and risk mitigation/avoidance strategies.
   
   
5. Monitor and report: Monitor progress towards ESG goals and targets, and report on progress regularly. This can help to demonstrate the dealership's commitment to sustainability and transparency.

Designed to help organizations measure their ESG risk, we recently launched an ESG Risk Rating self-assessment, available to Victor policyholders at no additional charge.

By completing the ESG Risk Rating assessment, Victor policyholders will gain valuable insights into their firm's ESG performance, empowering them to get ahead of emerging risks and position their business for growth. To request access, please email esgriskrating.us@victorinsurance.com. 
 

For more information or if you have any questions, please email esgriskrating.us@victorinsurance.com.