Business diversification and ESG strategies: understanding their interplay to build corporate resilience
Dr Pilar Velasco – Universidad de Valladolid – Business diversification and ESG strategies: understanding their interplay to build corporate resilience
Co-Investigator: Assoc Prof Gabriel de la Fuente, Universidad de Valladolid
Project Summary: Organisational resilience is an imperative for companies in uncertain times. This project adopts an integrating approach to corporate risk management by exploring the interplay between two insurance strategies: business diversification (BD) and ESG (environmental, social, governance). So far, these hedging mechanisms have been studied independently, overlooking potential overlaps and/or complementarities between them. First, we address the interplay between BD and ESG for corporate risk management. We tackle the different nature of risks (i.e. systematic versus idiosyncratic) that are affected by BD and ESG, and whether a firm’s overall risk might serve as a mediating channel to drive an indirect effect of these strategies on firm value. Second, we broaden our perspective towards organisational resilience in order to understand firms’ differing ability to cope with adversity. Since good stakeholder relationships are cornerstone to resilience, embedding ESG into BD might turn risk management into a unique driver of long-term value creation by catering to stakeholders’ demands more satisfactorily and strengthening their attachment to the firm. To the best of our knowledge, this research is pioneering in studying the BD-ESG interplay under a risk-based framework. It advances from risk management towards a wider resilience perspective to better understand firm immunity to disturbances (both predictable and unpredictable). This enhances existing knowledge about what role these strategies play in value creation. Interesting implications are offered to managers and policymakers to design efficient policies for building organisational resilience which will, in turn, alleviate the portion of risk that firms bring to the economy as a whole.