Governing ESG risk in a volatile trade world

Global trade is becoming faster, less predictable and increasingly shaped by sustainability rules rather than traditional economics alone. Tariffs can now shift overnight, supply chains are being reconfigured at speed, and access to key markets is tied to climate and social compliance in ways rarely seen a decade ago. 

Against that backdrop, at a recent Canterbury Branch event, Phil Parkes, Group Director - ESG at HSE Global, delivered a clear message for directors navigating today’s volatility: ESG is no longer a discretionary reporting exercise. It is strategic infrastructure. 

“The window for cosmetic alignment has closed,” Parkes said. “ESG is now infrastructure.” 

His argument was straightforward but confronting. The convergence of tariff volatility, geopolitical disruption and tightening sustainability requirements has fundamentally changed how organisations manage risk, capital and competitiveness. ESG is no longer about reputation. It is about organisational resilience. 

A faster trade world 

Trade barriers are not new. What is new is their speed and unpredictability. Parkes noted where disputes once moved slowly through global institutions over many years, today’s tariff shifts can occur in days – sometimes in a single social media announcement. 

For New Zealand organisations at the end of global supply chains, that volatility bites harder. As a small, trade-dependent economy, New Zealand businesses are price-takers, not price-makers. Input costs can shift rapidly, while access to export markets is increasingly linked to sustainability credentials. 

More than 80% of New Zealand exports now require credible ESG disclosures to meet climate and sustainability requirements in key markets, particularly in Europe. ESG is no longer an overlay on trade. It is becoming a condition of entry. 

“The question for boards is no longer whether ESG matters,” Parkes said. “It’s how you govern it properly.” 

Supply chain reality 

Covid exposed how fragile just-in-time supply chains had become. Tariff volatility is now creating similar disruption. Companies are diversifying suppliers, reshoring production and rethinking sourcing strategies in the name of resilience. 

But Parkes cautioned that diversification brings its own risks. 

Shifting suppliers may solve a tariff issue while introducing environmental non-compliance, labour exploitation or modern slavery risks in new jurisdictions. Those risks can in turn jeopardise relationships with major customers, insurers and financiers. 

“Resilience is not just having more suppliers,” he said. “It’s understanding the full ESG profile of every link in your chain.” 

For boards, that means moving beyond high-level supplier lists toward genuine line-of-sight into second- and third-tier risks. 

Finance still decides 

Much of the public debate around ESG has become politicised, particularly in the United States, where some institutions have softened their sustainability messaging. 

Parkes argued that while the language may fluctuate, the financial drivers have not. 

“You don’t have to call it ESG,” he said. “But insurers, banks and investors are still making hard decisions based on climate risk, asset resilience and supply chain exposure.” 

Rising sea levels, asset insurability, stranded infrastructure and regulatory compliance remain material considerations in investment decisions, regardless of political cycles. 

“The world is run by financiers, not politicians,” Parkes observed. 

For New Zealand boards, the implication is clear. Terminology may change. The commercial reality of sustainability-driven risk pricing is not going away. 

Breaking silos 

One of Parkes’ strongest governance messages was the danger of treating ESG as a separate reporting stream. 

Traditionally, boards have managed financial, operational, people and environmental risks in silos. In today’s environment, those risks increasingly compound each other. 

Tariffs affect procurement. Procurement affects ESG exposure. ESG exposure affects market access, financing and reputation. 

“Integrated risk thinking is no longer optional,” Parkes said. “You can’t manage one dimension in isolation.” 

Boards should expect ESG risks to be integrated into enterprise risk frameworks, alongside financial and operational risks, shaping capital allocation, strategy and investment decisions. 

Where boards should focus 

While no organisation can manage every ESG risk in depth, Parkes outlined several priorities where governance attention delivers the greatest return. 

Supply chain visibility 
Ensure genuine insight across supply chains, not just first-tier suppliers. 

Proactive scanning 
Track regulatory change in key markets before compliance becomes urgent. 

Integrated decisions 
Break down silos between sustainability, finance, procurement and operations. 

Risk appetite clarity 
Move beyond qualitative ESG frameworks to a single, integrated, quantitative risk index, where possible. 

Diversity of thought 
Boards that engage with ethics and values make better strategic decisions than those chasing compliance and ESG marketing opportunities. 

“Good governance is not just about frameworks,” Parkes said. “It’s about judgement and quantitative risk measurement.” 

Reframing ESG
Perhaps Parkes’ most useful reframing was stripping ESG back to its commercial core. 

Sustainability is often positioned as ideology. In reality, he said, it increasingly determines whether organisations can operate, insure assets, attract capital, retain customers and protect their workforce. 

Viewed through that lens, ESG is not a distraction from performance. It is central to long-term viability. 

“The organisations that treat this as infrastructure rather than optics will be the ones that adapt fastest,” Parkes said. 

In a world of volatile trade and accelerating regulation, the tariff era has not made ESG harder to justify. It has made ignoring it strategically dangerous.