ABSTRACT
This chapter provides the main definitions of environmental, social, and governance (ESG) risk and climate risk. It presents the principal sources of ESG risk and examines their impact on the activities of insurance companies and investment funds. This chapter also introduces the main ESG data providers as well as key indicators, such as ESG ratings and scores. Furthermore, it describes the stages of the ESG risk assessment process, which are developed in detail in Chapters 3 and 4. The main challenges related to ESG risk assessment are discussed, including the lack of established assessment methodologies, issues concerning the quality of ESG data, regulatory instability and frequent revisions, the absence of global standards, and the problem of greenwashing. These challenges are particularly significant for investment funds and insurance companies. Finally, this chapter presents the implications of ESG ratings for the financial market.
