Stress Testing the Impact of Esg-Factors on Companies in the Metals Industry

Stress testing as an effective method of risk management and crisis management can serve as an effective tool for predicting financial stability, particularly under the impact of ESG risks for companies in various industries working on the subjects’ territory of the Russian Federation. The article considers an approach to stress testing algorithm development for metals industry. At the first stage the current state of the metals industry and trends of further development observed by analysts are considered, the largest domestic representatives of metallurgy are analyzed and their key targets and costs of environmental projects are highlighted. Further, industry risk drivers for organizations doing business in the metals industry are presented. After identifying risk drivers, an approach to assessment of the impact of identified ESG risks is presented, then an algorithm for assessing the impact of ESG risks on the cash flow of the Russian metals industry company is formulated and a scheme of ESG stress testing for a metallurgical company is presented. The conclusion of the study identifies various mathematical models that can be used to improve the forecast quality of the impact of ESG factors, gives the key challenges to be resolved for the development of ESG risk management and the improvement of ESG culture in the business community as a whole, and summarizes the benefits of ESG stress testing, which can be used for a whole list of different managerial and methodological actions.

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