What is the greatest short term threat to financial profitability? For many organizations, the obvious answer is now "protective tariffs." That's a reasonable reply, but regulatory risk may represent a potentially greater long term threat to corporate performance.
Earlier this week, for instance, Chevron lost an environmental lawsuit and was ordered to spend three quarters of a billion dollars to restore a damaged region of Louisiana wetlands. In certain respects, the case was reminiscent of General Electric's historic half a billion dollar legal order to remove toxic PCB waste from the bed of the Hudson River.
And a few days ago, the German financial institution Deutsche Bank was assessed a "greenwashing" penalty of 25 millions euros for making misleadingly rosy statements about its ESG practices. Though tiny in comparison to the Chevron penalty, the assessment served as a regulatory signal that firms will be held liable for unsupported public statements regarding sustainability and resilience.
Both firms faced regulatory risks related to sustainability concerns. Only Chevron, though, confronted a concern involving actual environmental damage. Thus, it "paid the price" in the form of a far greater penalty.
Tariffs can inflict tremendous harm on an economic system, but they can appear or disappear in the blink of an eye. Regulatory risks regarding sustainability and resilience, on the other hand, can impose damages that may linger indefinitely.